History tells us how the Greek drama could end

As uncertainty over Greece’s financial situation weighs on global markets, past crises in emerging markets (EM) paint a gloomy picture of how things might pan out for the country, a top Commerzbank analyst told CNBC Wednesday.

Simon Quijano-Evans, head of emerging-markets research at the German bank, said that those worried Greece could be about to default on its debts should take note of EM crises in Latvia in 2008, Turkey in 2001, Argentina in 1999 and Thailand in 1997.

Greece is actually in a worse position than those countries were when they faced a default, he argued.

“In spite of Greece having taken more painful adjustment measures than EM peers, public sector debt/GDP (gross domestic product) remains at an excruciating 175 percent, real GDP has failed to recover meaningfully, deposit withdrawals continue and unemployment pressure remains,” Quijano-Evans said in a note on the subject published last week.

Greece was not in a position to reduce its debt/ GDP, he added, and could be reaching the point where its only option was for it to leave the euro zone.

“At a certain stage, an economy cannot take anymore,” he told CNBC Wednesday. “It can’t reach the primary surplus target of about 4.5 percent of GDP, in order to get that debt to GDP ratio down. That’s what the Greek electorate told us some months ago (when it elected anti-austerity party Syriza) and that’s what markets are telling us now.”

His comments come amid deep uncertainty over whether Greece can avoid bankruptcy and default. The country remains embroiled in reforms-for-aid talks with lenders, and a deal– that could release a vital 7.2 billion euros ($8 billion) worth of aid – seems some way off.

European Union Economic Affairs Commissioner, Pierre Moscovici, said Wednesday that an agreement in the next few weeks was “do-able,” but there were still big gaps on pension and labor market reforms, Reuters reported.

In the meantime, Greece is rapidly running out of money and could struggle to pay both its domestic wages and pension bill next month, and debt repayments due to the International Monetary Fund (IMF), and European Central Bank (ECB).


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.