Share

Rand hinges on Greek vote

accreditation
Alexis Tsipras. (Petros Giannakouris, AP)
Alexis Tsipras. (Petros Giannakouris, AP)

Greek voters take to the polls today to decide whether to accept or reject a set of measures proposed by Greece’s creditors before the creditors will be willing to extend another bailout to the essentially bankrupt country.

Greece defaulted on a €1.5bn (R20.4bn) International Monetary Fund (IMF) repayment on Tuesday, and other creditors are waiting in the wings.

Two yen-denominated bonds are due to mature on Tuesday, according to Bloomberg data, and the Financial Times reports that the country has debt repayments of €18.7bn remaining this year.

Daniel Solomon, an economist at market research firm Euromonitor International, said: “I think the probability of a comprehensive default, as opposed to just defaulting on the IMF payment, is around 50%.”

An immediate bailout hinges on the results of today’s referendum, which Prime Minister Alexis Tsipras called on June 26 amid a deadlock with creditors.

According to Nedbank economist Isaac Matshego, if Greek voters reject creditors’ proposals – which include cutting high state-pension payments, a move Tsipras’ leftist government does not want – this would be seen as a rejection of the euro monetary union. This would have ripple effects for financial markets, most significantly for emerging market currencies such as South Africa’s.

Here is how economists think Greeks will vote, and how it will affect South Africa.

Isaac Matshego, Nedbank

A “no” vote would not necessarily mean a Greek exit (Grexit), but would be an indication that Greek voters are rejecting the Eurozone, and there would be no point for the country to remain in the monetary union and use the strong euro as its currency.

Opinion polls indicate a victory for the “yes” vote, and this suggests Greek voters acknowledge the disruption a Grexit would have on their livelihoods. If Greece reintroduces the drachma, the currency will be very weak. A scenario like the one with the [Zimbabwean] dollar could easily play out in Greece, as Greece has a very narrow export base.

If a “no” vote rattles global financial markets, emerging market assets would be hard hit. The rand could fall significantly and the JSE could come under severe pressure. A weak rand would fan inflation and probably prompt the Reserve Bank to hike interest rates a bit more aggressively than we currently anticipate. Stronger export growth in South Africa would depend on the extent to which global demand is disrupted by the Greek fallout, and on whether we can maintain our output growth.

Annabel Bishop, Investec

Rising global risk aversion translates into rand weakness – the rand is in an emerging market. Quantitative easing (a set of economic stimulus measures driven by the US) has assisted in improving sentiment and a Grexit, should it occur, is not perceived as the catastrophe to the Eurozone it was regarded as a few years ago.

Alex Smith, FNB

The Greek government hopes a “no” vote will strengthen its negotiating position, as the other European governments may attempt to offer new terms to avoid a Grexit.

Greece is small in terms of South African exports, so unless a Grexit impacts on other European countries, the impact on exports will be muted. The monetary-policy impact will depend on the impact on the rand. In the short term, the rand may weaken, but it’s not likely to have a longer-term impact and, as such, monetary policy will likely be able to look past it.

I don’t think a Grexit will have a meaningful impact on credit availability, because credit is already quite hard to come by.

John Cairns, RBM

We think a Greek “no” would add 20c to the rand-dollar exchange rate. Euro-rand moves would be smaller. Consensus seems to indicate that the Greeks will vote a pro-euro yes. The latest poll shows 47% for, 43% against. Betting odds favour a yes vote two to one and a Reuters poll of investors shows pretty much the same.

A no would be rand negative, as the probability of a Grexit would skyrocket. We reiterate that today the global fallout would probably not be massive – if we had faced such a referendum three years ago, markets would have been in panic.

Daniel Solomon, Euromonitor International

The polls I’ve seen suggest that Greeks are likely to accept the most recent proposal for further funds in exchange for more fiscal consolidation and structural reforms from creditors, so maybe it’s slightly more likely that Greece ends up avoiding a full default.

At the same time, the current difficulties Greeks are facing with the imposition of capital controls and the run on the banking system may encourage many people to think a default will happen anyway, so they might as well vote no in the referendum.

In general, a Greek default is likely to be messy and lead Greece into a recession during this year and the next.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Voting Booth
City Press aims to deliver quality journalism to our readers. We aim to bring you groundbreaking news across different beats of the publication. Which beat do you enjoy reading most from us?
Please select an option Oops! Something went wrong, please try again later.
Results
News
64% - 120 votes
Politics
24% - 45 votes
Entertainment
2% - 3 votes
Opinion
5% - 9 votes
Sports
6% - 11 votes
Vote