A ‘Greecey’ Pole

We discussed in today’s radio a bit about the Euro / Greece negotiations.  To be honest, when you consider this,  we are a little perplexed as to why financial markets aren’t more on tender hooks.  The fact is that either way it goes is potentially quite bad.  If Greece walks away they will leave damaged creditors (direct and indirect) and potentially start a ‘trend’ with the other PIIGS likely to follow (Spain’s equivalent to Greece’s Syriza party now looking certain to get in in this year’s election).  Stay and the Euro Group need to extend over EUR240b with no prospect of repayment.  Maybe people just think Euro QE will mop it all up… you know… with more debt..

More directly for Aussies, few realise just how much our big banks borrow from the Eurozone cheaply and resell to us (as investment/mortgage loans) at the higher Aussie rates.  Look into their profits and you’ll see this works very well for them.  The problem is we are borrowing more and more.  The ABS just released the December figures showing ‘Investor Finance’ (investment properties etc) ended the year nearly 20% up on last year and now accounts for nearly half of total finance commitments (an all time record).  That total financial commitments is itself up 75% in just 4 years as well.  

So right now we have this cocktail of more and more people leveraging themselves into investment properties on record low interest rates and negative gearing whilst the very real threat of a 2012-like Euro collapse could see an unexpected jump in the cost of that cheap money from Europe.  Last we checked the big banks were not classified as charities…