India unnerved as Greece stares uncertainty

The membership of Greece in Europe’s joint currency union faced an uncertain future on Monday. The Greek government has vowed to quickly restart negotiations with creditors in other Eurozone countries and with the institutions that oversaw the country’s bailout: the ECB, European Commission and International Monetary Fund.

Why did Greece vote against the EU?
Inability of Greece to pay up its debt and its refusal to implement austerity measures in the country in exchange for aid raised concerns about a potential financial crisis in the Eurozone. Greece said around 61% of those voted in the referendum had backed the government and rejected the bailout conditions.

Did Greece crisis impact India?
India’s stock and money markets on Monday shrugged off the initial losses and showed strength towards the close of the day. The 30-stock BSE Sensex opened at 27832, almost 260 points below the previous close, but steadily inched up and closed at 28,208, 115 points up. The rupee opened the session on a strong note at the Rs 63.62 levels against the previous close of 63.44 levels. It recouped its early losses and closed stronger at Rs 63.40 to the dollar.

Why Greece is a no-show in India?
India is among the most stable economically, a cut above the rest in BRICS countries. It can withstand global tremors much more effectively. And, India’s direct and indirect exposure to Greece is limited. India’s current account deficit (CAD) has shrunk, foreign exchange reserves have increased substantially. India is relatively well protected from shocks emanating in Greece, according to Sajjid Chinoy, chief India economist, JP Morgan.

Will there be any spillover effect?
“The rub-off effects of Greece will impact neighbouring countries Italy and Spain. This is a concern because almost the entire debt in these countries is held by foreign institutions. But the mandate for Europe to sign a better offer for Greece may open a Pandora’s Box as it would mean that other countries in the area will also demand for such dispensation,” says Ananth Narayan of Standard Chartered Bank.
It is likely that the price of crude will remain below $60 a barrel. Commodity prices will remain soft. Also, the US Federal Reserve may postpone its plans to hike interest rates by September.

 

[“source – dnaindia.com”]