Fallout from Greek crisis

THIS WEEK'S TOPIC: What do you think will be the wider repercussions of the uncertainties surrounding Greece's place in the eurozone? What is the worst-case scenario that you foresee?

Mark McFarland Global Chief Economist Coutts

WHILE investors are understandably concerned about the situation in Greece, markets appear to be reacting fairly calmly so far. European equities have stabilised after declining and the euro has recouped its losses, while German and peripheral European government bond yields have stayed well within the range of the last few months.

However turbulent the situation gets in Greece, we do not expect it to disrupt Europe's economic recovery or have a major and sustained impact on markets outside of Greece. The Greek economy represents less than 2 per cent of eurozone GDP. ECB quantitative easing and Outright Monetary Transactions programmes ring-fence the rest of peripheral Europe from Greece, as the ECB can buy large amounts of government debt in countries like Italy, Spain and Portugal if needed, keeping Greece's debt woes from spreading.

Sen Sui Chief Executive Officer - Singapore Credit Agricole Private Banking

THE Greek situation is very complex. However, the risk of contagion is limited.

On the political front, the worst case scenario has not been adopted: total default and a eurozone exit. The bungling ways of the current Greek government are a fact, leading the people to believe during the elections that Greece could avoid such a situation vis-à-vis its creditors. Meanwhile, the Eurogroup's negotiators have failed to find a basis for successful negotiation. Responsibilities are thus shared; we are well and truly at the heart of a political and moral problem.

We expect a financial solution to be put in place based on the implementation of exceptional arrangements specific to Greece. Last comments by the ECB point in this direction, with the central bank keeping liquidity available. At the purely economic level, Greece will remain in a challenging situation for many years to come. All eurozone countries will need to take responsibility for this stage of European integration so as not to endanger the still-fragile economic equilibrium in Europe.

Peter Allen CEO Grant Thornton Singapore

NO likely outcome leaves either the Greek people, or those in the EU who mistakenly put their trust in currency union as a driver of political union, in a good position. If Greece exits the euro and continues on a downward spiral, European security on its Eastern flank is imperilled. If she stays in on Europe's terms, her recovery will take a decade or more. If she stays in on her terms, the eurozone's fiscal discipline is broken. If she exits and recovers, the European integrationist project, already damaged, is irretrievable.

Of these four outcomes, the first is the worst case and the second is the most likely.

Mike Buffini Associate Partner St James's Place Wealth Management (Singapore)

THE consensus is that Greece will remain in the euro, despite the bitter negotiations of the Troika. This is a geopolitical rather than a financial concern. It is in the interests of the eurozone that Greece remains part of the single currency to ensure that Russia does not enhance its relationships any further in Europe.

The referendum of the Greek people is likely to result in 70-80 per cent agreeing to stay in the eurozone. Therefore the IMF, ECB and others will make use of the EU-approved Outright Monetary Transactions (OMT) to prevent contagion spreading across other countries. The main results will be a weakening of the euro against other currencies and Greek banks experiencing similar problems to those faced by Cyprus in 2013 - which they will survive. Greek people will suffer as some reforms in the tax system will be made with the country likely experiencing a deep recession.

John Bittleston Chairman Terrific Mentors International

THE worst case is the most likely case - case deferred. Germany clearly does not want to pay for Greece's extravagance - and so this implies that it might do the same for anyone else - but it does not want a default either. The rock and the hard place are getting overwhelmed by it.

The idea of handing our problems to our children and grandchildren now seems totally accepted as the way to live, wicked as it clearly is. It is time for prudence, modified living and a realisation that you earn what you work for.

The final fallout from a failed Greece is the contraction of the EU into a much smaller group. Now 27, it will probably end up about 10. It will then represent a club of rich nations - the antithesis of what it wanted to be. When the Gods want to destroy, they first make mad.

Goh Yang Chye Managing Director GYC Financial Advisory

EUROPE is better prepared for Greece this time after a "rehearsal" in 2011. Private sector exposure to Greek government debt has been reduced by over 80 per cent since the 2008 crisis and the ECB now has the 500 billion-euro (S$750 billion) European Stability Mechanism (ESM) to backstop any contagion to other European peripheral economies.

We believe that the recent actions by Greek Prime Minister Alexis Tsipras are all calculated moves. Greek Finance Minister Yanis Varoufakis is well known as a former economics professor who has written several books on game theory as well as a study on overcoming the euro crisis. A Grexit is undoubtedly ugly which will lead to the loss of EU subsidies, the breaking of trade treaties, a complete disappearance of Greek wealth and financial system, and creating a host of other innumerable problems, all of which the Greek government would likely want to avoid despite their political posturing.

Our worst case scenario posits for a Greek default but for Greece still remaining in the bloc; which would result in massive short term volatility for European equity, bond and currency markets. With Greece quite isolated, we will see stability returning to the markets following ECB intervention and definitely not a repeat of the 2011 crisis.

Rohith Murthy Managing Director SingSaver.com.sg

GREECE has already shut down its banking system for many days and imposed capital controls. If it votes "no" in the referendum on international bailout, Greece will make a messy exit from the European Union and abandon the euro. This could lead to political and civil instability, further aggravating the financial crisis. Unemployment and poverty will continue to rise, spawning frantic migration to the rest of Europe for jobs. Tourism will fall significantly and Greece could quickly be isolated not only from Europe but also the rest of the world.

On a bigger scale, this will rock the foundation of EU and the euro, further weakening the already unstable banking and financial systems. While this may not immediately trigger the fall of the eurozone, this could definitely dent the EU economic recovery.

Gerald Foo President Walton International Group (S) Pte Ltd

RECENT developments suggest that it is only a matter of time before Greece defaults. The knock-on impact would be felt first by creditor financial institutions and eurozone countries with higher levels of indebtedness relative to economic growth (measured by debt-to-GDP), in the form of higher borrowing costs. Flight to safety by investors and expected aggressive intervention by the ECB to calm the markets and force down rates, will lead to a depreciation of the euro, mainly against the US dollar.

It bears repeating that the eurozone crisis has been festering since 2009. The worst case scenario is that contagion cannot be contained, and economically-weaker eurozone members (eg, Portugal, Spain, Italy, France) will soon find it very expensive and difficult to borrow money.

Should they be forced to go to the IMF to borrow, they would likely be subject to the same stringent conditions that Greece faced and ultimately could not bear. Without complete political union, the eventual result would be a disintegration of the eurozone.

Given the above scenario, we will face uncertain and challenging times ahead. The FX, debt and stock markets have already registered initial adverse reactions. Where we go from here depends chiefly on policymakers, and secondly on central bankers, who have already been called on to do so much. The danger is that we may be testing the limits of central banking; it should be noted that central banks have incredible power (to expand base money), but are still subject to the laws of accounting, and can and have gone bankrupt themselves in the past.

Chrisol Correia Director, Global AML LexisNexis Risk Solutions

WITH negative reports continually emerging from Greece and economies such as Italy, Spain and Portugal under pressure, capital flight to stable countries like Singapore and the UK could be a reality.

This could provide an opportunity for money launderers to move black money without being detected. Even ordinary Greek citizens constrained by the daily cash withdrawal limit could get involved in money laundering activities.

As banks compliance departments could be overwhelmed with the huge capital flows, black money transfers could escape from their monitoring. Banks will need to increase preparedness and scrutiny for this rush and utilise an efficient combination of data and technology with detection capabilities to check the money flow for red flags.

Dora Hoan Group CEO Best World International Ltd

THE uncertainties surrounding Greece's default have led to the global stock markets crashing down last Monday over fears that Greece could be heading for a Grexit - or exit from the eurozone. The euro fell and banks in Greece were closed. Many were unable to withdraw money for their living expenses. The worst case scenario would be a Grexit.

Going forward, the prospect of Greece leaving the euro and having a new drachma might prompt many to withdraw their euros from the banks. Failing to do that, it might lead to riots and massive unrest. Investors might also reduce or withdraw their investments in the eurozone for fear of disintegration of the eurozone due to withdrawal of Greece.

Should Greek voters fail to support the new reform plan by its creditors, it would be a catastrophic event too much for the world to take as a Greek exit would wipe out billions of euros in European taxpayer money, and trigger the breakdown of the eurozone. The disintegration of the European Union would cause an uncontrollable financial meltdown and the possible start of another Great Depression.

Internally, a much devalued drachma would cause the standard of living in Greece to drop drastically, and lead to recession, loss of jobs, and also high inflation due to higher prices of imported goods. Simultaneously, the country's economic output would drop, putting more people out of work. There would be an increase in crime rate as people struggle to pay bills.

Reuter Chua Head ACCA Singapore

THE global financial crisis impacted hard across the European Union. While the recovery is well underway in some countries, Greece's protracted debt crisis continues. Volatility is now the norm. The global economy is more inter-connected than ever, so the impact of the Greek crisis is likely to be significant on global markets which are already jittery ahead of the vote in Greece, which is forecast to be a "no" result.

At the time of writing, the situation is still fast moving, with negotiations at a frantic pace. So what we foresee is more process, more discussions, more horse trading; but over the long term we are confident Greece will recover and continue to play an influential role in both the European economy and global economy.

To progress we need to ensure accountability, transparency and best practice in financial reporting. Finance professionals have a crucial role to play in putting the lessons learnt from the financial crisis into action; by doing this they can mitigate the broader impact on the global economy.

Lim Soon Hock Managing Director Plan-B Icag Pte Ltd

GREECE has defaulted on the IMF loan. The world is on edge. All bets are on and anything can happen. It can either unleash another financial tsunami or be contained, to be followed by a Grexit from the European Union.

I contend that the main contagion is political rather than financial. This is because the default has been expected and fast money has already exited the eurozone.

Our local banks have announced that the development will have minimum impact, if any at all, on their balance sheets. This is a reliable barometer of the potential impact on local businesses. If any, it would be indirect, through the eurozone-US route. The US will be the first market to be affected after the eurozone, and when that happens, it would have a domino effect on Asia, and ultimately Singapore.

Businesses should stay calm. Companies can be contrarian to seize opportunities to invest or buy assets when risk aversion is high or there is widespread fear.

Christophe Duchatellier CEO Adecco Asia

ONE of the first consequences that usually come with economic uncertainty - such as in Greece right now - is labour market deterioration: higher unemployment, especially youth unemployment, lower salaries and the exit migration of younger talented workers. It's likely that we will see companies in Greece restructuring their workforces and emerging as leaner and far more flexible. It will certainly be difficult for some time for companies to hire full-time employees with such market uncertainty, so temporary and contract arrangements for employees could be prevalent for some time - as company leaders watch costs and aim for maximum productivity.

One area that could do well going forward is tourism. Not only is Greece popular with tourists, but it's also cheaper to visit right now than many other interesting European locations. I would hope to see some stability in tourism employment in Greece, and this could be one area that helps Greece through the turbulent period that it finds itself in right now.

Chris Comer CEO and Property Developer Castlewood Group

UNFORTUNATELY it's no surprise that Greece has let down its banks and stock exchange, and has been unable to avert requesting another bank run after the ECB rejected the bumper plea. Challenging times are on the horizon, and Greece's economic waters are muddled regardless.

The nation could be forced to exit the eurozone and, under a worst case scenario, its membership in the European Union may be at risk. Such a move would have dire consequences for the nation's economy and fiscal stability, and a "Grecovery" would not seem likely in the near future if it's on its own. On the flip side, if Greece accepts the bailout terms and undergoes austere fiscal reform, some may say hope for a full "Grecovery" would be bleak in the light of higher taxation, and Greece may find itself in the same situation before long.

David Pugh GM APAC Fry Group

ECONOMICALLY, Greece accounts for less than 2 per cent of eurozone GDP, and 75 per cent of its debt is held by the public sector. This means its ability to damage other economies is very much reduced. However, its actions can create market volatility and generate headlines.

Despite the saturated news coverage, it is important to separate the impact on Greece from the impact on investments. The bottom line is that the current situation isn't a surprise. Most fund houses and therefore retail funds will have positioned themselves accordingly.

The greatest job we can do as advisers is to make sure clients don't fall into the trap of selling at the bottom and then buying back at the top. No easy feat! However, we advise clients not to be overly concerned. Decide if you need your money in the short term. If not, let the markets do what they do, with time on your side.

Hans Hanegraaf Country Executive ABN Amro Bank NV Singapore, and Chief Executive Officer ABN Amro Private Banking Asia & Middle East

WHILE the scenario where Greece eventually initiates a process to exit the eurozone has become more likely, we are of the view that European authorities will do what they can to guarantee financial stability in the eurozone, as they have a significant arsenal of tools at their disposal.

A euro exit would not be good for Greece. In the first year, it would mean an even more severe economic crash. The weakness in the economy, banking stress and fiscal tightening would be "complemented" by a collapse in the value of the new currency. Inflation would soar, social hardship would become severe, and there would be a risk of serious political instability.

That said, it is worth noting that this is not 2011/2012 when the first Greek crisis pushed the eurozone into a recession. We believe the consequences this time around will be less severe because the Greek exposure of the rest of the eurozone is much lower than in the past, and policymakers would likely intervene.

Although the initial reaction of financial markets may likely be very negative, we think that the authorities will restore calm relatively quickly and the eurozone economy should eventually regain its footing. We have to keep in mind that the project of European integration stumbles from crisis to crisis, only to get more solid with every step.

Yoon Wai Nam Chief Executive Officer Centre for Non-Profit Leadership

IF we look back at the tumultuous history of Europe, we can see that the EU was very much forged from the desire to build friendship, alliances and cooperation rather than conflict - conflict had led to centuries of the darkest age of Europe and the world twice over. Although the repercussions surrounding a Greece exit are complex and wide ranging, to say the least, I would like to see that pure common sense would finally prevail. The worst case scenario may see a disintegrating Europe having then to unilaterally cope with not only financial but also social issues such as illegal immigrants and minorities at home.

We must also not forget that it was bad governance that allowed Greece to slip past the regulators and accord it EU membership in the first place. However, the real crux of the problem now is really income inequality among the EU nations. The challenges of a widening income inequality, a phenomenon found in many developed nations worldwide including Singapore, will be a key area that EU has to deal with among its member states as a unified body.

Ultimately, I hope to see strong leadership in Europe ensure that friendship prevails over conflict. The world as it is now can least afford to see the worst of Europe.

There are also lessons to be learnt here for leaders in the non-profit sector - on how we manage funds and keep our eyes always focused on the sole objective of helping communities to forge a stronger multi-cultural society.

Yash Mishra Managing Director Taurus Wealth Advisors

THE worst case scenario Taurus foresees is: Greece defaults, there is a "no" vote on the referendum, and the real process of Greece to exit the EU commences. This can lead to significant "contagion spread" to other European countries and potentially to the rest of the financial world.

The idea of the EU and a common currency was to create a political and monetary union to prevent future conflict and allow Europe to speak with a powerful single voice to the rest of the world. The wider repercussion of the uncertainties of Greece's place in the eurozone has made clear the fundamental issues and potential pitfalls of a common currency encompassing divergent economies. The real issue and debate about the Greek crisis is whether Europe now wants more or less of Europe and what it means to be a member of this club. Both choices mean sacrifice and a new way of thinking .

We are likely to see a "risk off" trade which means investors would prefer to be in safer assets such as US dollar; or government bonds of strong countries such as the US, Germany; and the Japanese yen. We are also likely to see the euro come under pressure and heightened volatility in the financial markets globally. At Taurus, we help clients understand and navigate such volatility. Therefore, in anticipation of increased volatility within portfolios, we have increased allocation to cash and reduced exposure to riskier assets.

Tom Evrard Managing Director Strategic Communications FTI Consulting Singapore

IN an act of political brinkmanship, Greece's Prime Minister Alexis Tsipras unexpectedly announced that Greece would hold a referendum on two proposals put forward by its creditors. In the birthplace of democracy, the decision on Greece's future in the eurozone has now fatefully been handed over to its citizens.

A "no" vote would undoubtedly bring Greece to the end of the line.

Should the Greeks vote "yes", the ball will be thrown back to the politicians - and it is hard to see how Mr Tsipras can continue as PM in such an eventuality. In the case of his resignation two possible scenarios emerge: early elections or a unity government. The latter is the most favourable scenario for creditors, but finding the right man to lead this unity government and earn approval from both Europeans and domestic actors will be the key challenge to overcome.

David Leong Managing Director PeopleWorldwide Consulting Pte Ltd

"GREXIT" is a very probable and real outcome for Greece and the world is no longer holding their breath for them as their PM Alexis Tsipras is playing the game of brinkmanship with EU.

Whatever the referendum result may be, the outcome itself will not save the Greeks from further debts and insolvency. The referendum, at best, only buys time for the Greek government to postpone eventual death of their financial system.

Asian markets may have a knee-jerk reaction temporarily but the world will not go into a financial crisis. All the negative aspects of Grexit have already been factored in. The world will just witness the collapse of a financial system which is just too stubborn to change its ways. No one can help them - not the Germans nor the French but themselves. It will be as dramatic and as exciting to watch how Greece will resurrect again after their dismal collapse.

READ MORE:

Read more on the Greek crisis here