Policy Alert #103 | July 2, 2015

Greece slipped deeper into its financial crisis at midnight Tuesday after it became the first developed economy to default on a loan with the International Monetary Fund. Greece will hold a referendum on Sunday, asking citizens to decide whether to accept the austerity demands of its international lenders in return for more cash. In this Policy Alert, we examine reactions from Russia, India, China, Japan, and South Korea to the ongoing Greek financial crisis.

RUSSIA

Russian officials expressed concern about Greece’s financial crisis while simultaneously dispelling rumors that Russia might offer Greece a bailout.

• “Moscow is watching developments in the European Union very closely in the context of the financial crisis in Greece,” Kremlin spokesman Dmitry Peskov told a conference call. “We are concerned about the possible negative consequences for the whole of the EU,” Peskov said. Peskov also added that finding a solution to Greece’s debt crisis is not a matter for Russia but for Athens and its creditors.
• Russian Envoy to the EU Vladimir Chizhov said that Moscow is prepared to help Greece out economically, including economic cooperation in privatizing the country’s infrastructure.”Russia is ready to cooperate with Greece. As far as I know, Greece has not turned to Russia for direct financial aid. We have the ability of increasing our economic cooperation, in particular Greece has the ability of privatizing, including railroads and the port [in Thessaloniki],” Chizhov told RIA Novosti in an interview.
• Despite concerns that Greece might turn to Moscow for financial assistance, Russian Deputy Finance Minister Sergei Storchak reported, “There have been no requests [for help from Greece]…There are no resources [in our budget to provide money].”
• “The Greek debt crisis shows that Russia must carefully think about how high its own state debt burden is, Russian Finance Minister Anton Siluanov told reporters on Wednesday. “We are not tied to Greece by any financial obligations so the effect (of the crisis) on Russia will be negligible. Indirectly it may affect Russian financial markets,” Siluanov said.

INDIA

Indian media and experts were divided on whether or not the Greece crisis will have a major impact on the Indian economy.

• Finance secretary Rajiv Mehrishi said the economic crisis in Greece may trigger capital outflows from India and the government is consulting the Reserve Bank of India to deal with the situation.
• Commerce secretary Rajeev Kher said exports from India would be impacted negatively if the European Union is hit from the Greece crisis, although he ruled out any major direct impact of the prevailing Greek situation. “India does not have large exposure of Greece as far as trade is concerned,” he said.
• Greece will be better off without the euro, according to the top economist at India’s biggest bank. “We believe that a possible Grexit from Euro will be good for Greece and also good for India,” Soumya Kanti Ghosh, chief economic adviser, State Bank of India, wrote in a report on Wednesday. “Reckless fiscal austerity imposed on Greece will continue to remain a non-starter… For the emerging economies including India, Greece provides a lesson that following extreme fiscal austerity blindly without considering the inherent structural characteristics can cause more harm than good.”
• India is well prepared to handle any situation that may arise out of the Greek crisis, according to Arvind Panagariya, Vice Chairmain of Delhi-based think tank NITI Aayog. “Inflation is in check and the current account deficit is at its lowest in recent times. At $355 billion, our foreign exchange reserves are at an all-time high. So macro-economically, we are in a sound position and extremely well prepared to handle any situation that may arise,” he said.
• Rajiv Kumar, Senior Fellow at the Delhi-based Centre for Policy Research agreed, stating “India has marginal direct exposure to Greece. A global or even a European contagion from a probable ‘Grexit’ looks unlikely…the Greek drama will hopefully prod us into re-examining India’s position in the global economy  and take necessary steps to exploit the opportunities offered by global markets.”
• “Our macro fundamentals are strong, current account deficit is under control, foreign exchange reserves have touched a record high and rupee continues to be stable, all of which provide the economy with the requisite strength to withstand any adverse fallout from the Greece crisis,” Confederation of Indian Industry Director General Chandrajit Banerjee said.

CHINA

China, preoccupied with its own stock market volatility, had little to say on the Greek financial crisis beyond expressing hope that China and the EU can continue to work together.

• “As a major customer and supplier of the 28-nation EU, and a responsible long-term holder of Eurobonds, China’s confidence in and commitment to a strong eurozone offers EU leaders the necessary support to look at the Greek crisis from a broader and longer perspective…China wants to see the EU maintain its integrity and a forward trajectory,” wrote the China Daily.
• “If Greece withdraws [from the eurozone], it will not embrace Russia or China to seek economic support in particular, as the two countries are not Greece’s inevitable choices,” said Feng Zhongping, vice president of the China Institutes of Contemporary International Relations. Instead, Athens is likely to take a “multi-faceted diplomatic strategy,” said Shen Jiru, a research fellow at the Chinese Academy of Social Sciences. Standing by Russia is contrary to the fiscally-fragile country’s interests, as Greece, which still heavily depends on the EU, will be isolated if it turns to Russia, Shen said.

JAPAN

The Greek financial crisis spurred commentators to examine Japan’s own debt-to-GDP ratio, which stands at 230% in 2014, compared to Greece’s 189%.

• “Greece raised taxes and cut spending but as a result has seen tax revenues fall for three straight years…Greece was doing what it thought was necessary. In fact, it pulled itself into further suffering with its economy shrinking,” said Japan’s economic minister Akira Amari. “Greece’s case demonstrates how growth is vital. We shouldn’t make the same mistake,” he added.
• Japan’s top government spokesman said on Monday it was “very regrettable” that Greece was unable to reach a deal with the IMF and Europe over the weekend. Chief Cabinet Secretary Yoshihide Suga told a news conference he had instructed the government to cooperate closely with the Bank of Japan over the Greek turmoil.
• Japanese Finance Minister Taro Aso told reporters Monday that he doesn’t think declines in Japanese stocks will spread or that the yen will unexpectedly spike in the wake of the Greek debt crisis.  He opined that it if Greece exited the euro zone, there might be a big impact on world financial markets. However, if Athens merely defaulted but chose to stay in the euro zone, Aso predicted smaller waves.

SOUTH KOREA

South Korea is actively monitoring developments in the Greek crisis and bracing for impact on its own economy, which is still recovering from the after effects of the Middle East Respiratory Syndrom (MERS) outbreak last month.

• The JoongAng Daily, warning that the Korean economy is already suffering from the effects of the MERS outbreak that occurred last month, cautioned that although it  [Greece] takes up a mere 1.3 percent of the EU gross domestic product, its downfall has the potential to shake the global financial market.”
• South Korea is beefing up market monitoring over concerns that Greece may default on its debt, and is ready to take appropriate measures to reduce fallout, a senior government official said Monday. Vice Finance Minister Joo Hyung-hwan said the government has various contingency plans to cope with any trouble that may arise if a settlement is not reached between Athens and its international creditors. He stated the government has set up a joint inspection team made up of officials from the finance ministry, the Bank of Korea (BOK), the Financial Services Commission and the Financial Supervisory Service to monitor developments in the Greek crisis.
• “The main impact on Korea from heightened global uncertainty related to Greece would be export growth, with shipments to Europe possibly slowing and revenues being impacted by a weaker euro,” Frederic Neumann, a senior economist at HSBC told The Korea Times.

The Rising Powers Initiative Policy Alert project identifies and tracks the world views of major and aspiring powers in Asia and Eurasia. This project is supported by a grant from the Carnegie Corporation of New York.