Macro Highlights June 29th 2015

Analysis - 6/30/2015

Our Investment Research Department publishes a weekly newsletter with a round-up on the main economic developments and news flow.

Will the ecb make it possible to avoid a Lehman Moment?

The Greek debt saga is once again looming large among investors’ concerns as the rate of capital flight has picked up. Summing up, Alexis Tsipras’ government on Friday evening announced that it would hold a referendum on 5 July to give the people a say in the aid plan being offered to Greece. This was seen as pure provocation, prompting the Euro Zone finance ministers to call time on bailout talks on Saturday. The decision by European lenders to refuse extra time to Greece has placed the ECB in the front line.

So on Sunday, Mario Draghi called an urgent governors meeting, bringing together the 6 members of the executive plus the 19 governors of the Euro Zone’s central banks. The charismatic ECB boss, who in recent months has stayed out of the crossfire between Greece and its lenders, has thus found himself centre stage – which is precisely where he does not want to be. For the umpteenth time, he called on elected officials to face up to their responsibilities, stating that his role was merely to execute their decisions. (...)

What risks does a Grexit entail?

Investor attention is riveted on the news about Greece and the consequences that a Grexit would have on the valuation of financial assets. While there are few economic ties to speak of between the emerging markets and the Greek economy, other variables need to be considered to predict how the emerging markets would react if Greece were to leave the Euro Zone.  

The classic vectors that are used to gauge the interdependence of two economies are banking ties and international trade. Bulgaria, Romania and Serbia face a not inconsiderable risk on these measures, given the extent of their financial links with Greece. It is estimated that the main Greek lenders hold 28% Bulgarian bank assets and at least 12% of those of the other two countries. If they were to redeem these assets and repatriate the cash, the economies of all three former Soviet satellites would face a major problem. Moreover Greece ranks fifth among the buyers of Bulgarian exports, which adds to the risk overhanging that country. On the other hand, whether for the rest of Eastern Europe or the emerging economies in general, the flimsiness of their macroeconomc ties with Greece precludes a significant deterioration as a result of a Grexit. (...)