Markets are bracing for a swell in global volatility as investors grapple with the consequences of the Greek referendum, which sets the country on a course to potentially exit the euro zone.
Greek voters rejected new austerity measures demanded by its creditors in return for additional funding, landing the country in a state of limbo over its membership in the currency union.
Confusion over Greece's fate is sure to provoke swings in asset prices in the days ahead, with the vote producing little in the way of a conclusive outcome. The Greek financial system is on the verge of collapse, its economy is shutting down and it's unknown how European leaders are likely to respond.
But unlike past episodes of the Greek saga, the market has so far met this latest flare-up with no small amount of resilience, reflecting some confidence that a potential exit of Greece from the euro zone will not amount to a global systemic shock.
"I think we're mildly vulnerable, but it's just a different world than it was three or four years ago," said Doug Porter, chief economist for the Bank of Montreal. The global economy is stronger and European officials have made strides in strengthening the institutions of the euro zone to limit the spread of financial contagion from Greece.
"That's not to say we won't see a reaction on Monday," Mr. Porter said. "But I suspect it will be a fraction of what we would have seen even two years ago."
And yet the potential for material declines in asset prices is far from remote, as the Greek vote comes to bear on global investor confidence.
"If this historic No win is confirmed, look initially for a general selloff in global equities, along with price pressures on the bonds issued by Greece, other peripheral euro zone economies and emerging markets," Mohamed El-Erian, the former chief executive at Pacific Investment Management Co. and current chief economic adviser at Allianz, posted on social media on Sunday.
Such an investor reaction would resemble the week just past, which saw headlines dominated by the bombshell referendum announcement.
In response to heightened risk, the premium that investors demanded to hold peripheral euro zone government debt rose, but just barely. Italian and Spanish yields each rose on the week by a meagre 10 basis points to 2.24 per cent and 2.20 per cent, respectively. In 2011 and 2012, when the European debt crisis consumed global markets, those yields rose to higher than 7 per cent.
A measured investor response also registered on the VIX index, which is a gauge of global volatility. It rose to 16.8 by the end of the week, which was up by 20 per cent, but from an extremely low base. By contrast, the so-called fear index topped out at 48 in August, 2011.
Perhaps most remarkably, the euro was virtually unchanged on the week, and even rose marginally on Monday.
"I think there is a view that others would not follow Greece out the door if it did leave," Mr. Porter said.
Previously, losing Greece from the currency union was seen as an existential threat to the euro, for fear that a precedent might be set that other larger, more important eurozone members might follow.
Were Greece to leave the euro zone, not only could it avoid the kind of punishing austerity tied to its bailouts, it could also reap the benefits of a devalued currency – options that might start to look good to Portugal, Italy or Spain.
But those countries have stabilized in the intervening years. "If anything, the chaos we've seen in Greece might make it less likely for others to follow their lead," Mr. Porter said, suggesting the euro is drawing strength from Greece seeming more and more like a special case.
Bond investors, meanwhile, seem to have taken comfort in the efforts of the euro zone to ring-fence Greece. Most Greek government debt is now held by institutions rather than banks, and the European Central Bank promised to do whatever is necessary to prevent a euro zone collapse.
On Sunday, the European Central Bank reaffirmed that pledge: "In the current circumstances of great uncertainty in Europe and the world, the ECB has been clear that if we need to do more we will do more. We will find the necessary instruments."