LAUNCESTON, Australia, July 6 (Reuters) – What’s the bigger risk? Greece leaving the euro zone in a messy debt default or China continuing to pump money into its faltering stockmarket while trying to boost the rest of the economy through cheap debt?
While Greece is probably ahead in the news headline count, especially in the developed world, the main impact from the weekend rejection by Greek voters of the terms of a new bailout is likely to be short-term market volatility.
This can be seen in crude oil, with West Texas Intermediate futures dropping as much as 4.4 percent and Brent futures falling as much as 1.6 percent early on Monday. The euro currency and stocks outside of China also stumbled as the Greek vote against austerity brought the Mediterranean nation closer to a debt default and leaving the single currency.
But the declines were relatively modest and probably reflected the reality that Greece is just 0.25 percent of the global economy, and accounts for a tiny 0.5 percent of the euro zone’s total exports.
The debt Greece owes is largely to multilateral institutions such as the International Monetary Fund and the European Central Bank, with only a small amount owing to private creditors.
This means that even a Greek default and exit from the euro shouldn’t pose a systemic crisis for the global financial system, even if does inflict pain on the Greek public and lead to some kind of emergency aid to maintain public services.
Of far more importance to the rest of the world is China’s efforts to stabilise its equity markets after three weeks of declines wiped out some 30 percent of the value.
The Shanghai Composite Index jumped almost 8 percent at the opening on Monday, before paring gains to trade around 3 percent higher after a couple of hours trading.
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