Tuesday, May 29, 2012

When it comes to credit, Greece is already out of the Eurozone

Following up on an earlier discussion that shows extraordinarily tight liquidity conditions in Greece, we are starting to see further evidence of "credit isolation".
Capital Economics: - Recently, the problem of tight credit conditions have been exacerbated by domestic and foreign firms becoming more unwilling to sell goods to Greek customers unless they are paid for up front. In other words, credit risk is stopping some transactions from taking place. What’s more, some foreign buyers of Greek goods and services are delaying payment, in case Greece exits and the size of their bill (in euro-terms) drops.
Greek refiners continue to purchase Iranian crude because Iran is the only nation willing to provide these firms credit to finance crude purchases until this oil is refined.

Such behavior is quite similar to the way suppliers and customers treat a company that is about to file. This is all at the time when Greek banks are unable to step in to deal with this isolation. New domestic lending has pretty much halted, as existing loans roll off.

Total loans outstanding to Greek citizens from Greek banks
(excluding loans to government, EUR millions, source: BoG)

That isolation is translating into collapse in growth. The latest Greek GDP forecast by Capital Economics is quite sobering.

Source: Capital Economics
Capital Economics: - ...we still think that, regardless of the election result, Greece will probably leave the euro-zone by the end of the year.

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