South east exposure to greece in february 2010

by Unicredit research

Since Greece announced that its budget deficit for 2009 was close to 13%, concerns on the sustainability of Greek debt have mounted. We believe a default is unlikely, but the saga could continue to create turbulence and directly impact Greek economic growth, and thus the strategy of Greek companies abroad.Greece is under strict control by the European Commission following the explosion of is annual deficit.
A slowdown of Greece could in principle have an impact on the open and small South Eastern European economies. Bulgaria is the most exposed as Greece is one of the top-3 export destinations (almost 10% of exports) and Greek FDI in the country is significant. Greek FDI in Serbia is notable as well. However, all in all, we think spill-over effects via real links, even if not negligible, should not be considered a major source of concern: #1 trade links are not so important as to be able to affect significantly economic growth, even for Bulgaria; #2 FDI has peaked over the past few years and will not be a driver of growth.
In contrast, Greek banks provide a more relevant transmission channel for SEE, where Greek banks have a significant role: there are 4 Greek controlled banks among the top-10 in Bulgaria, 3 in Serbia, 2 in Romania and one in Turkey. Market concern on a possible delay of Euro adoption seems to us sensibly overestimated: first, it’s a long term process, and second, when entering the Eurozone, CEE countries will be in a better shape than EMU peripheries in terms of fiscal performance.
Since Greece announced that its budget deficit for 2009 was close to 13%, concerns on the sustainability of Greek debt have mounted. We believe a default is unlikely, but the saga could continue to create turbulence and directly impact Greek economic growth, and thus the strategy of Greek companies abroad, especially banks. Can the Greek problems have a significant impact on the SEE economies which are in a relatively fragile situation following a difficult 2009?
Someone belives that the Greek financial system is in peril and the state finances are approaching collapse. Wich are the possible consequencies of this situation for the investments that Athens has made in South Eastern Europe?
In this piece we provide an overview of the possible Greek spill-over effects for the SEE countries, focusing on the following transmission channels. Trade flows: Greece and SEE economies are open and highly integrated; FDI: Greek companies are active players on SEE markets in various markets; Presence of Greek banks in the region; Possibility that the Euro adoption process of Eastern European countries could be negatively affected.

Original title: South East exposure to Greece in February 2010