Posted by : Enzio von Pfeil
Channel News Asia TV Show
Q) Asian stocks got a lift from some positive earnings news, but the question of Europe’s debt still lingers. Now, there’s revived talk of Greece potentially leaving the EU. What’s the likelihood of this being a reality?
- It is very likely that Greece will leave the Euro - but not the EU!
- She will leave the Euro because her competitiveness is extremely sickly: Greeks will want the convenience of a Drachma devaluation in order to prod their few, price-sensitive exports. That a substantially weaker Drachma will boost imported inflation won’t be a concern of irate voters, who are mad at their vested interests being usurped by lenders from Germany, the EU and the IMF.
- However, she definitely won’t leave the EU: she gets far too good a deal off the Euro subsidies gravy-train. This gravy train pertains particularly to Greece’s farmers skimming off the EU’s subsidy programmes.
- Besides, not all EU members have adopted the Euro.
Q) What are the consequences and implications on the Asian economies if Greece does leave the EU.
- As just put forth: Greece probably will leave the Euro, but stay in the EU. So my observations focus on Greece exiting the Euro.
- The key consequence for us out here has to be less Asian exports to Europe:
- Price, or currency effect. The Euro weakens substantially, e.g. to USD 1.10/Euro. This means that all currencies, Asia's included, will strengthen against the Euro. Given the price-sensitivity particularly of China's exports to Europe, a stronger RMB will impinge upon China's exports. This tale of a weaker Euro will also affect particularly the price-sensitive exports particularly of price-sensitive Southeast Asia, e.g. those of the Philippines, Thailand and Malaysia.
- Income effect. With Europe's Economic Time® deteriorating, expect her personal income levels to keep sagging. This means that there will be less disposable income around: people will consume less, implying less imports from Asia.
Q) Once Greece leaves the EU, is a breakup of the union not far away? How catastrophic is this scenario on the world economy?
- I don't think that Greece will leave the EU: she likes receiving EU subsidies far too much! But she probably will leave the Euro.
- But even if Greece did leave the EU, this would not be catastrophic for Europe or for the world economy: Greece is a punk punching way above her weight. After all, she accounts for a mere two per cent of EU GDP!
- Thus, I even in the hypothetical case that Greece were to leave the EU: neither the EU nor the world economy would be hit