Greek Crisis without a Direct Impact on BH

The Greece referendum to be held on 05 July, if voters decide on declining the support to the aid program, could mean the definitive exit of Greece from the euro area. Such an outcome would certainly have an impact on the whole EU, and especially on the EMU countries. Most analysts expect that such scenario would mean a depreciation of euro against the US Dollar and other hard currencies such as the USD, CHF, GBP and JPY. Given the fact that many events related to Greek bankruptcy are uncertain, as the legal regulations referring to these events, it is simply not possible to assess all the direct impacts on the economy and EMU currency, and consequently, the concrete effects that these events could have on BH economy. In any case, such an outcome would certainly significantly shake the EU and EMU and this is why the question arises what the consequences it could have for BH.

Generally speaking, BH should not encounter any major changes, and not to mention, problems, for the following reasons:

- Greek banks do not operate in Bosnia and Herzegovina, and therefore, BH should not expect any negative implications on the financial system in BH, as the banking sector in BH is not exposed to Greek banks, and there will be no direct impact as it might happen in countries of the region as Macedonia, Serbia, Albania and Bulgaria, where there are Greek banks and companies, although officials of these countries have already stated that they have taken all necessary steps to minimize these effects.

- Greece is not a significant trading partner of BH, and in this context, one should not expect disturbances.

- Balance of direct investments in BH from Greece, according to the latest available data, does not exceed 1.4 million.

Greece exit from EMU will have far greater implications for euro and the EU. This scenario increases uncertainty in the EMU and jeopardizes its credibility. The exit of one country from the EMU would mean that every other country with a similar problem, could leave the monetary union.

EUR, being currently global and stable currency, would be subject to the pressures, and in the case of Greece exiting the euro area, we can expect the depreciation of this currency. Given the fact that the local currency KM is pegged to EUR, the depreciation of euro would mean the automatic weakening of KM against other currencies. However, neither these developments should have a significant impact on BH economy, since BH main trading partners are neighboring countries, which, either adapt their currencies to the euro exchange rate, or use the euro as the local currency.

In addition to depreciation of euro (and consequently BAM, too), it is to expect a further deceleration of euro area economic growth due to capital outflow and reduced consumption of the population from the region. If there is no significant expansion of the debt crisis and the spillover effects of Greek bankruptcy to other EMU countries with high indebtedness levels, one can expect, in the medium term, stabilization of the European economy, which would be mostly caused by the stimulating effect of the euro depreciation on exports of this region, as it has been the case recently.

As for the investments in EMU market, the realization of this scenario could mean the fall of yields of strong EMU countries and the increase of the yields of weaker countries, which could have an impact on BH foreign exchange reserves.

We remind you that the ECB Governing Board stated that it has closely monitored the situation in the financial market, as well as, the potential implications for monetary policy and financial stability risks at EMU and it reiterated its own determination to use all instruments available in the scope of its mandate.

We are confident that the financial institutions of the European Union and the EMU will do all possible to prevent instability spillover effects into other euro area countries.