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'Grexit' would benefit Greece, economist at top Indian bank says

Wednesday, July 1, 2015 - 19:52
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Greece will be better off without the euro, according to the top economist at India's biggest bank.

[NEW DELHI] Greece will be better off without the euro, according to the top economist at India's biggest bank.

"We believe that a possible Grexit from Euro will be good for Greece and also good for India," Soumya Kanti Ghosh, chief economic adviser at government-run State Bank of India, wrote in a report on Wednesday. "Reckless fiscal austerity imposed on Greece will continue to remain a non-starter."

The report provides a view of events unfolding in Europe from the world's fastest growing major economy. While India has limited exposure to Greece, capital outflows from emerging markets threaten to weaken the currency.

Greek Prime Minister Alexis Tsipras's call for a July 5 referendum escalated a fight with European creditors over demands for austerity. He imposed capital controls and closed banks, leading to cash shortages throughout the country.

Greece shows emerging economies once again that "one-size- fits-all" austerity policies can deepen a recession and deteriorate long-run solvency, Mr Ghosh wrote. He called on creditors to acknowledge that fiscal austerity isn't the solution if Greece stays in the euro area.

"For the emerging economies including India, Greece provides a lesson that following extreme fiscal austerity blindly without considering the inherent structural characteristics can cause more harm than good."

Greece accounted for less than 1 per cent of Indian trade in 2014, behind Ukraine and Egypt, according to data compiled by Bloomberg. Even so, Ghosh warned that the crisis could lead to slowing growth in the European Union, the biggest market for Indian exports.

Mr Ghosh noted that 69 currency exits over the past century have had few negative economic consequences and provide a road map if Greece leaves the euro.

"Extreme negativity around Greece will make the markets jittery," he wrote. "If the news is painted in a rational light, the markets might respond in a composed manner and survive whichever path Greece takes without spreading self- fulfilling panic."

BLOOMBERG

Read more on the Greek crisis here

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