SEESOX, St. Anthony’s College, University of Oxford
The eurozone sovereign banking and fully blown financial crisis is unfolding daily in front of our eyes.
The latest developments will obviously negatively affect the SEE economies. This is a no brainer, but I would like to elaborate a little bit more on possible transmission cannels:
- the trade channel (exports, including tourism);
- risk contagion via higher pricing for the region, for example Croatia’s CDS, 250 to 530 BPS;
- the banking channel (the structure of the banking industry, foreign banks). In 2012 we can expect either no new capital inflows (either capital and/or deposits, especially long-term), or even deleveraging and outflows due to Austria’s regulator LDR of 110%, RBA’s and Erste’s announcements of deleverage (even exit) from some countries. Vienna seems to be dying if not dead, and some countries might experience a credit crunch. Again the banking channel, but via bad news that may create (another) run on banks. When our banks were privatized, reputable foreign owners added credibility to the domestic banking system, now it seems to work the other way around.
- Uncertainties about the euro in general create negative expectations for domestic savings and investments. We daily receive a lot of questions about what will happen to savings and economies if the euro disappears. Advanced economies have always been looked up to and creating positive expectations. Now, Mervyn King’s yesterday statement to get ready for the break-up of the eurozone is not good news for us. And in the era of globalization and IT, I observe a big difference when compared to the world fifteen years ago (the Asian crisis) – whatever bad news on euro/international developments is reported in specialized press, it finds its way to evening prime-time news.