Eastern Europe will be affected most by Greek vote

Steen Jakobsen, chief economist at Saxo Bank, warns that the “Greek tragedy” officially began on Sunday, with the negative Greek vote concerning the austerity measures. He says that the political confusion has not helped the people in taking their decision. “What did the Greeks say NO to, actually?” he asks.

However, even if it is hard to foresee what will happen in the political scenery, Jakobsen says that the economic aspects are easier to predict. Financing costs of Bulgaria, Croatia and Romania could rise considerably in the coming weeks, equity markets will register a decline of 5 percent and EUR/USD will know a variation of two to five percent.

He predicts:

• DAX index will open with a fall of five percent – again – and will probably lose 10 percent in the coming weeks, unless the ECB and the Federal Reserve do not repeat the protective measures they took in 2010 – 2011;

• Club Med spreads will rise by 20-50bps in the coming weeks;

• Bulgaria, Croatia and Romania should register significant increases in their spreads;

• EUR / USD – this is more difficult: I expect a weaker opening, but if Greece leaves the monetary union, it will be stronger at the week end. For now, I expect a 2-5 percent variation in the first 24-48 hours.

Among the risks arising from this vote Jakobsen mentions the lack of liquidity and inability of the Greek authorities to reopen the banks, which were closed all last week, as well the Athens stock exchange.

Jakobsen believes that the baseline scenario is a Greek exit from the Eurozone. In his view, “there is a 25 percent chance that Europe interprets the geopolitical situation as very serious and expands the Greek bail program, despite its harsh rhetoric – but we also have the 75 percent chance against”.

On the other hand, analysts cited by Bloomberg are optimistic about the situation, saying that the referendum in Greece will have limited long-term impact on financial markets. The Euro weakened, but only reached last week’s minimum, they show.

The Euro fell in London by 0.6 percent to USD 1.1052 per unit and the Asian markets decline reached 1.3 percent, the lowest level after 20 June. Shares of major European companies, led by Italian and Portuguese securities, began trading at a lowered value. On Asian markets, the Nikkei Average Tokyo Stock Exchange fell by 2.4 percent, Hong Kong Stock Exchange by 3.5 percent and the Shanghai Composite is up by 1.3 percent.

This comes as Greek citizens voted at a rate of 61.28 percent against the measures proposed by international lenders, 38.72 percent ruling in their favor, according to partial official results.

Greek Prime Minister Alexi Tsipras said that Greek representatives will return to the negotiating table. Finance Minister Yanis Varoufakis announced his resignation, saying his presence at the talks would affect negotiations.

German chancellor Angela Merkel and French President Francois Hollande convened an emergency summit of European leaders, set to take place on Tuesday, July 7.

Natalia Martian

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