By Andrei Skvarsky.
Swiss bank Lombard Odier argues that the Greek crisis is not systemic to the euro zone and does not jeopardise its recovery, not at this point at least.
European banks’ exposure to Greece has plummeted to $34bn from $250bn in 2009, and today more than three quarters of the country’s debt is owned by the European Central Bank, International Monetary Fund and European Union, the Geneva-based lender points out in the latest issue of its investment bulletin.
Furthermore, European countries’ exports to Greece account for around 0.2% of their total GDP, with Cyprus and Bulgaria being the only exceptions.
Hence the Greek crisis is not any considerable obstacle to the euro zone’s recovery. “Strong tailwinds such as cheap oil, lower euro, expansionary monetary policies are fully at play this year and should support growth in the region,” Lombard Odier says.
But there remain lurking fears that Greece will break away from the euro, the bank argues, though it says the markets seem confident there will no “Grexit”.
A potential Grexit is a political issue, not a financial or commercial one, Lombard Odier says, warning that the euro zone might well be a bigger loser than Greece if the latter did break away.
In the event of a Grexit, Greece would default on its external debt, use its public and external surpluses to boost growth and benefit from a depreciated currency, Lombard Odier says.
On the other hand, there would be surging anti-euro populism in other euro countries where austerity is hurting, mainly Spain.
This is the card that Greece’s Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis are playing in their talks with the EU.
“Obviously, the [euro zone] cannot give in too easily, as it would create a precedent, and a sense of ‘moral hazard’ that the [zone] definitely cannot have. It’s part of the game not to offer a compromise too easily,” Lombard Odier says.
The bank believes ways to resolve the Greek crisis should include softer austerity, sufficient short-term funding to make a new pro-growth plan possible, and avoidance of the word “default” in any debt restructuring arrangement.