Greece remains a danger to the Euro

Greece could yet trigger the collapse of the euro, says Exotix, a frontier market investment banking boutique, following an investment trip to the country.

The euro is being held together by two fragile Greek threads, Exotix explains. “The first represents Greek depositor loyalty; the mystery is not why 25% of deposits have left the Greek banking system in the last couple of years, but why 75% stay there. If these continue to disappear, then capital controls may be needed, which cannot be imposed within the euro.

“The second thread represents the hope the euro can survive the contagious forces that would be unleashed by Greek exit. If Greece left the euro, it could, in our opinion, highlight a dismal failure of international policy and see secondary market prices of GGBs plunge to the point of no return.”

Exotix added: “It is hard to imagine a more dismal economic outlook and we are left with considerable sympathy for Greeks let down by their own institutions and by poorly designed international rescue packages.”

The term “credit crunch” does not do justice to what the Greek economy is currently enduring. Government, firms and consumers are all desperate for liquidity, and because there are so few safe Greek assets, the leakages out of the country are both rational and crippling.

Of particular concern, Exotix said, “it is by no means clear the Greek economy is close to the bottom. Greece is about to enter its fifth calendar year of declining output. But output is still ‘only’ 12.7% below peak. Until the credit choke issues are resolved one way or the other, it is hard for any investor to be confident that asset values are close to the bottom. Ongoing life support that does not provide upside is of limited help. Both Greece and prospective investors need to see upside potential.”

Established in 1999, Exotix is based in London, specializes in frontier market investment, offering expertise across sub-Saharan Africa, Argentina, North Korea, Cuba, the Balkans and other key frontier market geographies. Exotix is an independent business owned by its employees and Michael Spencer, chief executive of inter-dealer broker ICAP, together with his family trusts.

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