Why Greek Default Is Not The Major Issue, But Its Downstream Effect Is

Greece is on the cusp of a default, but the default in itself might not be as severe or impactful as the contagion effect it can create.

Tim Edwards, senior director of index investment strategy for S&P Dow Jones Indices, was on CNBC Wednesday to explain the reasons for that.

2 Levels Of Implications

"There's two levels of implications. The first is the immediate as it pertains to Greek assets and the second is then the downstream effect," Edwards said. "And the former actually is not as big as you might think.

"Firstly, you've got Greek debt. By now, most of the Greek government debt is actually owned not by general investors, but by the IMF and by the EU. There are few others holders and traders of those bonds, but there’s not many of them and they are certainly very aware of the risks of default."

He continued, "The second is the Greek equity market, which again is actually quite small compared to the rest of Europe. If you look at across the whole of Europe, you got an equity market that's worth around 10 trillion euros. The Greek equity market is worth only 2,000 to that."

"And finally you look at the Greek economy, which is about 1.5 of overall euros and again it's not a big number, it's arguably the difference between one quarter of fantastic growth and a quarter of disappointing growth. So, taken just as Greek assets, it seems fairly bearable. The risk has always been about contagion and about the downstream effect of a Greek default," Edwards concluded.