Eurobank: The impact of Brexit to Greece

Eurobank: The impact of Brexit to Greece

Athens, July 6, 2016/Independent Balkan News Agency

By Spiros Sideris

A special study, entitled «Brexit: Impact on Greece and Southeast Europe”, published the Department of Economic Analysis and Research International Capital of Eurobank. The report is curated by economists of the bank, Messrs Dr. Platon Monokrousos, Ioannis Gionis, Stylianos Gogos, Anna Demetriadou, Paraskevi Petropoulou, Theodoros Stamatiou and Galatea Foka.

This study shows the potential impact of the June 23 referendum outcome in the UK to Greece and economies of Central, Eastern and Southeastern Europe.

Some of the main conclusions of the analysis are presented below:

«The outcome of the referendum of June 23 in the United Kingdom (UK) for an exit of the country from the European Union (EU) is expected to have a significant impact on the country itself, EU Member States and the rest of the world, both economically and politically.

Trade, investment, banking and financial sector, the labour market and public finances, are some of the main effects of transmission paths.

However, the precise product-size income loss for each country is expected to vary with the particular links that connect it to the UK, the form of the future trade cooperation UK – EU and the initiatives of competent authorities in order to mitigate any adverse effects.

In particular, for Greece, the impact of the referendum result could prove significant.

Firstly, the UK It is one of the major contributors to the EU budget. Therefore, its departure from the EU is not impossible to have a direct impact on the Community budget size with negative consequences for the total funds currently available for Greece (around EUR 35 billion in 2020).

Second, the prolonged uncertainty associated with the negotiations and the new trade relationship between the UK and the EU is likely to have a negative impact on the prospects of the greek economy, both directly through trade and tourism and indirectly, through the slowing of eurozone’s economy. Such a development could lead to a deterioration of the investment climate, complicating the effort to stabilize the domestic economy.

At the same time, the potential UK exit from the EU does not exclude to result in the addition of an additional risk premium (risk premium) in differential yields on government bonds of peripheral countries and those of Greece, especially taking into account that Greece is the only member country of the euro zone that remains in sn adjustment program .

As regards the state of negotiations with the official sector partners to implement the existing economic adjustment program of Greece, there seem to be conflicting opinions.

According to the first aspect, whatever the scope of flexibility of creditors in the upcoming negotiations they are possible to expand in order to avoid a new crisis.

According to the second aspect, the UK vote favour of Brexit may significantly limit the trading margins of Greek government official creditors on the implementation of the prerequisite actions related to the payment of the second sub-tranche of EUR 2.3 billion in September and the second evaluation in October 2016. The main argument for this view is related to the increase in euro-skepticism in the eurozone, after the referendum in the UK

Particular mention is made of the expected impact of Brexit on Greek shipping and tourism. According to the most recent data from UNCTAD (2015), based on tonnage (dead weight tons) by country of origin of the main shareholder, the Greek merchant fleet ranks first among 165 countries, while only 0.03% of the Greek fleet under the national flag of the UK

Therefore, any change in the commercial relations between the UK with the EU and the world would have a limited impact on Greek shipping.

On the other hand, much of the Greek merchant fleet management is, at this moment, situated in London, therefore, the UK exit from the EU could weight some of the Greek shipping companies with relocation costs.

Although one can not exclude the possibility of relocation of some companies to Greece (Athens/Piraeus), the relevant expectations are moderate, since the domestic market is far behind in terms of possibilities to attract such enterprises (tax incentives, access to international banks, environment-friendly investments, facilities, etc.).

Finally, any negative impact on shipping due to a possible exit of the UK by the EU, will further burden the prospects of the industry, which is already under significant pressure from factors such as excess capacity of the world merchant fleet, slowing global growth and concerns about the prospects of China’s economy.

Regarding Greek tourism, the referendum is expected to have a negative effect both in the short and long term”.