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Greece Crises, Euro zone and India

7/6/2015 4:34:21 PM

BY Murthy Nagarajan 

“As was probably expected, the Greek populace has given a thumbs down to the referendum of accepting the terms of the creditors. This has hugely increased the chance of Greece exiting the Euro zone.

The Prime Minister of Greece, Mr. Alexis Tsipras had called for this referendum after the IMF (International Monetary Fund) and the EU (European Union) refused a moratorium of 2 years requested by the Greece government. Greece was required to pay €1.7 billion to the IMF on the 29th June 2015, for which it required further loans.

All eyes are now on European Central Bank to meet on Greece of all European Union leaders scheduled for Tuesday – 7th July, 2015. One of the key decisions will be made by the ECB whether to continue providing liquidity to Greek banks. What the ECB needs to consider is the ripple effect that will be felt throughout Europe and the world if the talks with Greece fail.

What are its implications for India –

The failure of Greece is not such a big event for the Indian economy, as most of its debt is owned by government of other countries. The European central Bank has ring-fenced other EU countries by stating it would buy the bonds of EU countries. In the Indian context, the effect is not expected to be high as the exposure is very low. The Greece issue would however increase risk aversion towards emerging markets, which would affect capital flows to the Indian markets on a temporary basis.”

(Murthy Nagarajan is Head of Fixed Income, with Quantum AMC)


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