Global stock exchanges appear to have weathered the initial shock wave from the powerful “no” vote in the Greek referendum, largely in the belief that the Syriza-led government is even more anxious to secure an agreement with the European Union and the International Monetary Fund to impose austerity.
At the same time, however, the financial markets could soon be hit by the ongoing meltdown of Chinese share prices.
Yesterday the New York the Dow Jones index was down by only 47 points, or 0.3 percent, while European markets fell by between 1 and 2 percent.
The relatively muted reaction of the markets to Greece—at least so far—is not only based on an assessment of the further move to the right by the Syriza government. It also reflects changes in the composition of the Greek debt over the past seven years.
In 2008, when the global financial crisis erupted, private banks were exposed to Greece to the tune of $US300 billion. That has been cut to $54 billion today as a result of bailout operations organised by the EU, the IMF and the European Central Bank. In 2012, when markets were last gripped by fears of a Greek exit from the euro zone, around 80 percent of Greek debt was owed to private banks and 20 percent to public institutions. Those ratios have now been reversed.
Of the more than €200 billion in the bailout, only 11 percent has gone to the Greek government. The rest has been used to pay off private bank debts, an operation financed by the impoverishment of millions of Greek workers and youth. Gross domestic product has fallen by around 25 percent. Moreover, this money provided for the bailout of the banks has also contributed to the escalating demands by the ruling elites for austerity throughout Europe.
While financial speculators were breathing a sigh of relief that Greek-caused turbulence has not yet been as marked as might have been expected, the crisis in the Chinese markets and financial system looms as a new threat.
Emergency measures taken by the Chinese government over the weekend, including an explicit commitment by the country’s central banks to provide an unlimited amount of money, have largely failed to halt the slide, which has wiped out almost $3 trillion in market capitalisation over the past month.