Greek Crisis Without Direct Impact on BiH

The holding of a referendum in Greece on July 5, if voters decide not to support the aid program, could mean Greece's definitive exit from the eurozone. Such an outcome will certainly have an impact on the entire EU, and especially on the EMU member states, reports the BiH news agency Patria.

Most analysts expect that such a scenario would mean the depreciation of the EUR against the USD and other strong currencies such as USD, CHF, GBP, and JPY. Given that many events related to a Greek bankruptcy are uncertain, as is the legal regulation of these events, it is simply not possible to assess all direct impacts on the EMU economy and currency, and therefore not the concrete effects that these events would have on the BiH economy. In any case, such an outcome would certainly significantly shake the EU and EMU, and the question arises as to what the consequences could be for BiH.

Generally speaking, BiH should not experience any major changes, and especially problems, due to the following:

Greek banks do not operate in BiH, and therefore BiH should not expect any negative implications for the financial system in BiH, as the banking sector in BiH is not exposed to Greek banks, and there will be no direct impact as there might be in countries in the region such as Macedonia, Serbia, Albania, and Bulgaria where Greek banks and firms are present, although officials from these countries have already announced that they have taken the necessary steps to minimize these effects.
Greece is not a significant trading partner for BiH, and in that context, disruptions should not be expected.
According to the latest available data, the value of direct investments in BiH from Greece does not exceed 1.4 million KM.

Greece's exit from the EMU will have much greater implications for the EUR and the EU. Such a scenario increases uncertainty in the EMU, its security, and certainly its credibility. The exit of one country from the EMU would mean that any other country with a similar problem could leave the monetary union.

The EUR, as a currently global and stable currency, would be exposed to downward pressure, and in the event of Greece's exit from the eurozone, depreciation of this currency can be expected. Given that the domestic currency, the KM, is fixed to the EUR, the depreciation of the EUR would mean an automatic weakening of the KM against other currencies. However, even these developments should not have a significant impact on the BiH economy, because BiH's main trading partners are neighboring countries that either adjust their currency against the EUR or use the EUR as their domestic currency.

In addition to the depreciation of the EUR (and thus the KM), a further slowdown in the eurozone's economic growth is expected due to capital outflow and reduced consumption by the population of this region. If there is no significant spread of the debt crisis and spillover of the consequences of the Greek bankruptcy to other EMU countries with high levels of debt, stabilization of the European economy could occur in the medium term, primarily due to the stimulating effect that the depreciation of the EUR would have on the region's exports, as was recently the case.

Regarding investments in the EMU market, the realization of this scenario could mean a drop in the yields of strong EMU countries and a rise in the yields of weaker countries, which could affect BiH's foreign exchange reserves.

We note that the ECB Governing Council has announced that it is closely monitoring the situation in the financial market, as well as the potential implications for monetary policy and financial stability risks for the EMU, and has stated that it is determined to use all instruments available within their mandate.

We are confident that the financial institutions of the European Union and the EU will do everything to prevent the spillover of instability to other member states of the eurozone.