The Learning Centre:
UPDATED — Educators’ investors want to know: what’s the word on Greece?
For education members that love to travel, Greece has been a dream destination for its ancient landmarks, beautiful beaches, and stunning views.
However, strip away the picturesque southeastern European scenes and you’re left with an economic nightmare that has been plaguing the country since 2009 (see below for a brief timeline on the Greek economic crisis). Fast-forward to July 2015, with the Greek financial system on the verge of collapse and the majority of Greek citizens (61%) recently voting to reject new austerity measures—the rest of the world is left with a big question mark. What are the financial implications to investors if Greece leaves the Eurozone?
Step one: don’t panic.
Educators Financial Group has been getting numerous calls from clients, all wanting answers as to how the latest chapter in the Greek economic saga will impact their own investments. The first piece of advice we give to them: please don’t panic. “I always tell my clients to take the emotion out of investing,” says Educators’ Certified Financial Planner professional Marian Ollila. “We always see volatility in equity markets. That’s why it’s important to determine how much volatility you’re comfortable with before a big drop.”
Step two: stay the course.
Whether it’s the recent economic news coming out of Greece, or geopolitical events in the Middle East or Eastern Europe—the key thing to remember during global events that fuel market volatility is to stay focused on your long-term investment plan. Karen Hubbard, Educators Regional Assistant Vice-President, Client Advisory Services, advises to, “Invest for steady returns over the long haul. That way, when there’s an unavoidable short-term drop in the market, you’ll have the ability to wait out the storm and maintain your investment positions until the market begins to rise again.” Lisa Raponi, a Certified Financial Planner professional with Educators Financial Group, reminds clients of the importance of diversification and to keep it all in perspective when market waters get rough. “In the grand scheme of things Greece, like Canada, is a small player in the greater world economy,” says Lisa. “By diversifying your portfolio, you should be able to weather these small movements.”
Step three: seek out advice.
When you’re not feeling well, one of the worst things you can do is to ‘Google search’ your symptoms to try and self-diagnose. You’re most likely to cause yourself more panic than good. That’s why you should always go to your doctor first. The same goes for when there’s volatility in the market. Immediately seeking out advice from an Educators financial specialist will help to answer your questions, eliminate your fears, and provide you with a sound perspective to stay focused on your overall investment plan. Our experience in serving education members during 40 years of ups and down in the market means we can provide you with tips on how to not only weather the storm, but to possibly even profit from it.
Feeling overwhelmed from all of the information coming out on the Greek economic crisis? Educators Financial Group can help you make sense of it all.
Contact us, and one of our financial specialists will gladly be in touch to answer any concerns or questions you may have about your own investment portfolio.
Plus be sure to sign up for Educators eNews, so you don’t miss out on the latest financial tips, resources, and more—all geared specifically to the education community.
History lesson: a timeline of the Greek economic crisis*.
|June 1975||Greece applies to be a part of the European Union (EU).|
|January 1981||Greece officially joins the EU.|
|Late 2009||Fears arise in regards to Greece’s ability to meet debt obligations when it is discovered that the Greek government had misreported previous data on government debt levels and deficits.|
|April 2010||Debt-to-GDP ratio (the ratio between a country’s debt and its gross domestic product) rises to 146% (from 109% reported in 2008). Credit rating agencies downgrade the Greek government debt to ‘junk bond’ status (below investment grade), making the private capital lending market inaccessible as a funding source for Greece.|
|May 2010||A €110 billion bailout loan is provided to Greece by the European Commission, European Central Bank, and International Monetary Fund (later nicknamed the ‘Troika’) to rescue it from sovereign default (the failure of a government or sovereign state to pay back its debt in full) and to cover its financial needs until June 2013—conditional on austerity measures (a set of policies with the aim of reducing government budget deficits), structural reforms and privatization of government assets.|
|February 2012||After a worsened recession in 2011, along with a delay to implement the conditions of the initial bailout program in 2010, a second bailout in the amount of €130 billion is provided to Greece (total cost of bailout up to this point: €240 billion).|
|December 2012||With the recession continuing to worsen and a continued delay of implementation of the bailout conditions, Troika provides Greece with the last round of significant debt relief measures, while the International Monetary Fund (IMF) extends its support with an extra €8.2 billion in loans to be transferred during the period of January 2015 to March 2016.|
|2013 to third quarter of 2014||Greek government regains access to the private lending market for the first time since eruption of the debt crisis due to a decline in the unemployment rate, the return of positive economic growth, and the achievement of a government structural surplus (when the economy is operating at a surplus regardless of its point in the business cycle—i.e. with a cyclical surplus, at the high point of the business cycle government revenue will be expected to be higher and government expenditure lower, meaning revenue exceeds expenditure and the government experiences a surplus).|
|December 2014||New fourth recession starts—attributed to a premature election called by the Greek parliament and the following formation of a Syriza (left-wing political party) -led government refusing to respect the terms of its current bailout agreement. The rising political uncertainty that follows causes Troika to suspend all scheduled remaining aid to Greece under its current program until the Greek government either accepts the previously negotiated conditional payment terms, or alternately reaches a mutually accepted agreement of some new updated terms with its public creditors.|
|January 2015||Eurogroup grants Greece a further four-month technical extension on its bailout program (accepting payment terms attached to its last tranche to be renegotiated with the new Greek government before the end of April 2015).|
|May 2015||Renegotiation deal still pends beyond 4-month extension.|
|June 2015||Eurogroup makes final attempts to reach a renegotiated bailout agreement with Greek government.|
|June 26, 2015||Greek government breaks off negotiations with Troika.|
|June 27, 2015||Greek media announces a referendum would be held on July 5, 2015 to approve or reject the achieved preliminary negotiation result (the latest counter proposal submitted and offered by Troika on June 25, 2015) for a new set of updated terms ensuring completion of the second bailout agreement.|
|June 28, 2015||The referendum is approved by the Greek parliament and European Central Bank (ECB) decides to maintain availability of its Emergency Liquidity Assistance to Greek banks at its current level. Greek citizens begin to rapidly withdraw cash from ATMs due to fear that capital controls would soon be invoked to stop their liquidity loss.|
|July 5, 2015||The citizens of Greece vote to reject the referendum (a 61% to 39% decision). This causes indexes worldwide to tumble.|
|July 7, 2015||As European finance ministers start their meeting in Brussels, it is being termed as the final opportunity for Greece to come up with an acceptable plan for a debt deal with the EU and ECB. While Greek banks stay closed, a new debt deal will also need an endorsement by the European parliament, which puts extra pressure on the Greek government to have a deal done as soon as possible.|
|UPDATE: July 13, 2015||After a marathon weekend of negotiations between the Eurozone and Greece, a tentative agreement to avoid a ‘Grexit is made. The agreement forms the basis for an eventual third financial assistance program. This includes a potential funding envelope for Greece of €82-86 billion, alongside which the IMF is slated to continue providing support. Terms of the agreement include significant tax and pension reforms, and a scaled up privatization program, which will include the transfer of Greek assets to a €50 billion independent fund to help ensure satisfactory returns from the privatization process. The agreement has yet to be rectified by Greek and various European parliaments. The Greek parliament is scheduled to convene later in the week to vote on the program. In the meantime, Greek banks stay closed until the agreement is rectified by all parties (as the ECB decides to wait for the necessary parliamentary approvals before opening the tap on temporary funding for Greek banks).|
*Source: Wikipedia and AEGON Capital Management Inc.
The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy.