Greece’s Infant Infection Inference
Greece’s post-referendum EU rescue and euro adhesion doubts washed over neighbors contending with their own debt and financial sector fractures as securities markets braced for further fallout. Bulgaria, with the largest Greek bank one-quarter external share, got another ECB backstop after the collapse of CCB last year, as foreign bondholders there continue to press claims after the central bank head resigned. That calamity cost $2.5 billion in depositor payouts and exports to Greece are also over 5 percent of the total and could dent the 2.5 percent of GDP current account surplus. The system loan-to-deposit ratio has come down to 90 percent as domestic banks turn more cautious and place excess liquidity abroad. A March EUR 3 billion Eurobond went for repayment of a commercial bridge loan for CCB’s shutdown, as net FDI inflows help rebuild reserves to EUR 18 billion or seven months imports. After early elections the new government has implemented fiscal restraint to keep the deficit below 3 percent of GDP, with revenue measures including carbon emission allowance sale. Consumption and fixed-investment have weakened in response as economic growth registers below 2 percent on no inflation. Along with the ECB facility EU cohesion funds in the pipeline have been unblocked on stronger anti-corruption moves, but the MSCI index was stuck at a 25 percent loss through mid-year.
Cyprus shares shed around 10 percent through the period as ratings agency Moody’s predicted another round of asset quality slippage from Athens’ maneuvering, with NPLs still at half of portfolios. A compromise was reached on the foreclosure law and the Limassol port was opened to commercial operation, as the IMF and EU released another bailout installment in the EUR 10 billion program on estimated 1 percent GDP growth. The EBRD unveiled its own privatization assistance push as the new president in the Turkey-controlled north resumed reunification talks. The budget gap continues to exceed the 1.5 percent of GDP target mainly due to soft real estate prices in 6.5 percent annual decline. Officials under attack from the opposition party coalition for alleged mismanagement and malfeasance are considering set up of a bad asset disposal agency as they take credit for removing remaining capital controls. They contrast their approach with Greece’s imposition of a more severe EUR 60 withdrawal limit, and reiterate that the depositor haircut applied only to big accounts.
Hungary is trying to preserve double-digit gains as interest rates were again eased, despite skittishness over reduced foreign bondholder positions and retail broker closures implicated in frauds. Franklin Templeton was reported to shrink ownership 20 percent after a longtime overweight as it absorbs likely write-offs from Ukraine’s restructuring. Quaestor, the largest brokerage is accused of illegal bond sale and banks unconnected to the episode will have to contribute to a compensation fund for 30,000 clients. The levy revived anger against the Orban administration after its imposition of special taxes and takeover of foreign-controlled units. It tried to mollify executives by allowing eventual tax offsets for the insurance pool upon Quaestor’s liquidation, which could take a decade beyond patience expectation.
