Would a Greek default drag down the FTSE 100?
The world's stock markets ended jittery last week, amid fears of a Greek bailout default, and the FTSE 100 is down to 6,730 as I write — 393 points short of the 7,123 it touched in April.
And now the latest round of talks between Greece and its EU taskmasters has failed.
Although progress was made over the weekend, there are apparently still "significant gaps" between the two sides' positions.
While the Greek government is prepared to make more cuts at the behest of EU lenders, the main stumbling block appears to be pensions — the EU and IMF want them cut, but the Greeks are having none of it.
An eventual collapse of the Greek bailout seems inevitable, and in the long term the slower and more drawn-out it is the worse it will be. Greece is in a dire situation, brought about by the failure of the naively conceived and badly-implemented single currency, and the idea of a full Greek exit from the eurozone is still a very real possibility.
It probably won't happen yet, but the FTSE and the rest of the West's stock markets are going to suffer either way. If, as expected, a short-term deal is forged at Thursday's upcoming last-ditch talks, the FTSE will probably recover a little. It really shouldn't matter, as it will say nothing about the long-term fundamental value of our top companies — but institutional investors who lie awake at night worrying about short-term asset allocation really don't like uncertainty.
A full Greek exit from the eurozone would hit the markets considerably harder, and I could see a panic sell-off knocking the FTSE down a fair way. But it would recover, and in the long term the event would be good for the economies of Europe and its bourses.
It would help recreate that apparently forgotten ideal of a free market, rather than what we now have — a market manipulated by the powerful nations for their own benefit at the expense of the weaker members.
At the moment, the European economic levers are set the way Germany and France want them — and the best answer is surely for Greece, Spain and Italy to seize back their own levers and adjust them to suit their own needs. It would be a bitter pill for Europe's stock markets to swallow in the short term, but the sooner the medicine is taken the sooner its beneficial long-term effect will be felt.
What if the UK leaves?
Anyway, if you're worried about the effect of Greece on your shareholdings, it will surely be dwarfed by the fallout from a UK withdrawal from the EU if that's what the forthcoming referendum should decide. That would be a genuine disaster, with a real hit to the long-term competitiveness of the UK's companies — we have some of the most efficient companies in Europe, and we'll all be poorer if they're shut out from taking part in the free market.
No, my take on what's best for the future of our companies and the wealth they generate is — EU good, eurozone bad.
In the meantime, we should stick to a tried-and-tested FTSE 100 investment approach that we know can bring great long-term rewards.
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