Greek nerves turning Asian money off Europe, ADB economist says

Asian companies are thinking twice about their dealings with European partners as jitters persist over whether Greece will splinter the euro area, the Asian Development Bank’s chief economist said.

“The private sector is trying to adjust their strategy,” Shang-Jin Wei said in an interview in Frankfurt on Thursday. “If a firm used to depend very heavily on the European market, they are trying to look for ways to diversify their trading relations. Any CEO worth his salt will try to adjust their weighting.”

While policy makers insist the 19-nation currency bloc is better insulated against contagion from the Greek crisis than it was during the last flare-up in 2012, Moody’s Investors Service warned last week against complacency. The Mediterranean country faces running out of cash amid an impasse over bailout talks with its international creditors.

“Greece itself is not a major trading partner, or source of capital flow for Asia, so the direct impact from Greece to Asia would not be big,” Wei said. “The bigger impact will come from the implication of Greece for Europe as a whole. We certainly hope that Europe will be able to solve this issue.”

‘Confidence Shock’

“The impact of a Greek exit should not be underestimated,” Alastair Wilson, Moody’s managing director for global sovereign risk, said in a report published on Thursday. “The direct impact might be limited because of Greece’s limited trade links and lower financial market exposure to Greece in other euro-area countries. But its exit could nevertheless cause a confidence shock.”

Wei also warned that China should beware of the risks of a too-rapid internationalization of its currency. The country is pushing the yuan’s role in clearing and settlement of payments, signing agreements with financial centers including Frankfurt, Paris, London, Hong Kong, Taipei, Singapore and Seoul.

The currency reclaimed fifth place in rankings tracking usage for global payments, with a market share of 2.03 percent in March, according to the Society for Worldwide Financial Telecommunications. It trails the dollar, euro, pound and yen.

The risk is that companies will feel more comfortable borrowing in international markets, potentially running up debt that they struggle to repay when borrowing costs and exchange rates adjust, Wei said.

“You need to have many complementary, additional measures to put in place to improve the risk-recognition capacity, to improve the risk-control capacity, within financial institutions but also supervisory capacities,” he said. “I worry about the level of enthusiasm for internationalization of the currency.”


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