Greece: who loses from the debt crisis?

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Greece: who loses from the debt crisis?

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For analysis of the Greek debt crisis, euronews spoke to Manoj Ladwa of ETX Capital in London

euronews: Manoj, Greece has been in the headlines for quite some time now. We know that the country is on the brink of bankruptcy, we know the country needs urgent help – who is the real loser in all this?

Ladwa: I think everyone generally across Europe loses out if Greece does default. It’s pretty much the banking crisis of 2008 all over again if Greece does go down the route of defaulting on its sovereign debt. Unfortunately the Greek people have a lot invested in their own banks as well. It’s also the case that a number of foreign banks are very heavily invested in the Greek banking system. We found out in recent days that the French banks have an increasing amount of exposure, which is why we are seeing ratings agencies coming out with negative comments on non-Greek banks as well. Unfortunately, it seems to be a Europe-wide problem, it’s not something that’s just localised to Greece.

euronews: It is obvious that the Greek population has to suffer a lot, given the massive tightening of the budget. What can you tell Greek citizens to expect from their government in the future?

Ladwa: Unfortunately it seems that the Greek citizens are going to be under the threat of increased austerity measures such as reduced public spending and increased taxation. This is primarily because, in order to relieve the situation with regard to this debt, the Greek government does need to implement roughly 80 billion euros worth of reductions. It needs to decide on that by July, and it needs to have a five-year plan in place, otherwise default is the only other option and it becomes a lot more difficult for Greece as a country to do business.

euronews: Moody’s has placed three French banks under surveillance because of their exposure to the Greek market. German banks are probably in a similar situation. In general, how big is the risk for investors in Europe?

Ladwa: It’s fairly sizeable. We know that some of the German banks have reduced exposure such as Deutsche Bank – they have written their exposure down to next to zero. Some of the German banks do not have as much exposure as the French banks, which is why we are seeing this Moody’s downgrade. It’s also the case that some of the banks in the UK do have significant amounts of exposure and this is having almost a domino effect on these countries. So if something happens in Greece, and if the situation carries on as it has been, then it is going to have a domino effect into the rest of Europe.

euronews: In the past, investors have gone through the ‘Tango Crisis’, the ‘Tequila Crisis’ and many more. Somehow, all these storms were eventually weathered. Let’s call the Greek problem the ‘Sirtaki Crisis’ – how long do we have to dance this one?

Ladwa: It’s very difficult to say at the moment because we are seeing the yield on Greek debt continuing to push higher on an almost daily basis. The insurance for insuring Greek debt, the credit default swaps, continue to push higher as well. There doesn’t seem to be an end in sight to resolving the Greek debt crisis. It’s difficult to predict.