Wed, August 15, 2012
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EIB vice president warns against contagion of Greek exit to South Eastern Europe

2012-08-14 13:52:25 GMT2012-08-14 21:52:25(Beijing Time)  Xinhua English

By Lidia Moise

BUCHAREST, Aug. 14 (Xinhua) -- An eventual exit of Greece from the eurozone would severely affect South Eastern European (SEE) economies via banking, trade and investment channels, said Mihai Tanasescu, vice president of European Investment Bank (EIB).

"The main threat of a Greek exit lies in the tentacular expansion of its banks in the region," Tanasescu told Xinhua.

"There will be an indirect consequence via the fiscal channel as the funds will be fewer and more expensive and that will have negative effects on the economies of the region," he added.

Bulgaria is seen as the most vulnerable SEE economy to the Greek problems. According to the latest Standard & Poor's report on Bulgaria, "Greek banks own about one-third of the banking system, which has increased risks for Bulgarian banks with respect to the provision of liquidity and capital."

Romania has the second largest exposure to the problems of the Greek banking sector. At the end of 2011, Greek banks held 13.3 percent of Romania's banking sector assets, according to Unicredit Group's estimates.

In an extreme scenario of strong pressure in Greek banking system, there could be an acceleration of the deleveraging process in Romania, said Dan Bucsa, senior economist at Unicredit Tiriac Bank.

However, he added, "we don't expect a rapid drawdown of capital, since 70 percent of lines extended by Greek to local subsidiaries have maturities longer than one year and liquid assets are limited to less than 2 billion euros."

But if Greek banks are in a hurry to sell their liquid assets that would also affect the yields, warned Bucsa, adding that "the biggest two local banks with Greek capital held some 0.6 billion euros in Romanian government bonds in March 2012."

Elsewhere in the region, Serbia is now struggling to reach an agreement with IMF, which may act as a buffer to contagion troubles, since Greek banks have lent over 18.5 percent of Serbian GDP to local entities.

Tiny Albania is related to Greece and Italy not only via banking sector, but also through its remittances which provide an important source to feed the country's current account.

Last year Albanians workers sent back home more than 830 million euro, less than in previous years. Italy and Greece are the main commercial partners for Albania, amounting up to 70 percent of total merchandise trade by volume, so the economy could be affected by problems in peripheral eurozone.

The SEE countries are aware that some smaller Greek banks may leave the business, as all those countries share the local problem of high level of non performing loans. The Romanian central bank, for instance, permanently asked the banks for fresh funds to raise the capital adequacy and to weather the problems.

On the other hand, there is a strong overall support for Greece to stay in the eurozone, but there are also expectations that the country will act to reconstruct its economy and credibility, said Tanasescu.

"I think that Greeks understood that they have to keep their promises. They have to make efforts in order to receive further support from Europe. Not only Greece, but all the peripheral countries should exercise material efforts, corrections, reforms and fiscal discipline," he said.

The final solution to actual problems is the creation of a fiscal and a banking union, which could be a slow process but will prove safer for Europe, Roberto Nicastro, Unicredit Group's general manager, told Xinhua.

The immediate solution was exposed to the markets by Mario Draghi, the president of the European Central Bank (ECB), including the firewalls of the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM).

The German Constitutional Court will debate on whether or not Germany can legally participate in the launch of the ESM in mid September.

Germany is the largest contributor to the fund, so the ESM's launch has been put on hold until the Court finds out whether it is correctly related to its legislation. "We'll have quite an excited month ahead of us," said Tanasescu.

"It is not a crisis of euro. It's a crisis of debt. The cause of the problem is that, almost everywhere, the European communities were living beyond their means and they spend more than they could afford. Greece was particularly excessive," said Nicastro.

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