The Greek Crisis: Financial and Political Risks to the Balkans

Although the Greek banks reopened on July 20, and Athens repaid some of its debt to the International Monetary Fund and the European Central Bank, unease about the Greek crisis continues in the Balkans. The last 25 years of turbulent political and economic transition have taught the former Communist countries in the region that economic change and financial recovery are slow to come and require political will. Confidence in Greece's SYRIZA-led government, however, is low, and the Balkan countries prefer to take precautions to limit the potential spillover of a financial collapse in Greece.

In May, the IMF warned that some Southeastern European (SEE) countries might be affected by a worsening situation in Greece, mostly through banking links. As trade balances have been gradually shrinking over the past four years of debt crisis in Greece, the country's financial links with the Balkan region have remained more significant (Imf.org, May 2015). Greek banks account for 22 percent of total banking assets in Bulgaria, around 20 percent in Macedonia, 16 percent in Albania, 14 percent in Serbia and about 12 percent in Romania. "If the situation in Greece gets worse, it could cause spillovers to the financial sectors of some SEE countries through a loss of confidence, deposit outflows, and possibly pressure on the currencies-particularly in countries with pegged exchange rate regimes and high euroization," the IMF report said.

The Greek banks Piraeus, the National Bank of Greece, Eurobank and Alpha Bank have substantial assets in the Balkans. Thus, the countries in the region have taken substantial steps to limit their exposure to the financial crisis in Greece. For example, most of the Greek banks in the region operate as separate entities registered under the local law and subject to local bank regulations, including liquidity requirements, which limits their exposure to financial risks threatening the parent banks.

In Bulgaria, which is the most exposed to the Greek crisis, the central bank (Bulgarian National Bank-BNB) mandates Greek banks to maintain higher deposits with the central bank and restricts the amount of funds that can be transferred from local subsidiaries to their parent bank in Greece. Also, the BNB does not allow subsidiaries to raise funds from their parent bank or hold Greek government bonds. For example, before the Bulgarian branch of Alpha Bank was sold to Postbank (the Greek Eurobank) on July 17, all parent bank assets were cleared from its balance sheet at the request of the BNB. Alpha Bank Bulgaria reduced its liabilities to its parent bank by two billion leva ($1.1 billion), which were reportedly recorded as assets of the branch through a deal in 2012. The transaction also reduced the share of Greek banks on the Bulgarian market to under 20 percent (Capital Weekly, July 19).

The Macedonian National Bank monitors daily all transactions between Greek banks and their local entities. On June 29, Macedonia imposed temporary limits on capital outflows to Greece in an attempt to avoid risks to its financial stability. In addition, the central bank in Skopje instructed Macedonian banks to withdraw deposits and loans from banks based in Greece. Similarly, the National Bank of Serbia (NBS) increased monitoring and limited transactions of the local Greek-owned lenders with their parent banks in order to avoid spillover effects from the Greek crisis (SeeNews, July 13).

The Romanian central bank has said that the four banks with Greek majority capital in the country are well capitalized. Moreover, the Greek banks in Romania have acquired sufficient state securities allowing them to request state funding if necessary. One of the measures applied by the central banks in the region is maintaining a higher capital-adequacy ratio for Greek banks. Thus, their capital-adequacy ratio is well above the international requirement of 8 percent: 20 percent in Serbia and Bulgaria, 17 percent in Romania and 13 percent in Macedonia (EIU, June 30).

However, the risk of a bank run caused by panic among customers still remains high. Just a year ago, the Bulgarian Corporate Commercial Bank, the fourth-largest lender in the country, collapsed when depositors rushed to withdraw their money, alerted of a corruption scheme in the bank.

As it became evident by the sale of Alpha Bank in Bulgaria, the Greek banks would like to sell their subsidiaries and branches, preferably before the pending stress tests by the European Central Bank, the Greek media reported. The aim is to raise funds for their recapitalization and to ensure their viability, but also to create conditions for covering capital needs from individual deposits (Ethnos, July 16).

The Greek crisis has also imposed political risks on both the European Union and the Balkans. The behavior of the SYRIZA government, in particular, shook public confidence in the EU and undermined the Eurozone, which new EU members Romania and Bulgaria desperately wanted to join, until recently. Both countries have now dropped talk about entering the Eurozone until the crisis is resolved.

In addition, the Greek crisis sobered expectations about EU enlargement in the region, prompting stronger engagement by EU and US officials with Balkan capitals. German Chancellor Angela Merkel visited the region to assure aspiring EU members Albania, Serbia and Bosnia-Herzegovina that their integration will not be derailed by the financial troubles in Greece. Merkel praised Serbian Prime Minister Aleksandar Vučić for accepting austerity demands from creditors, despite domestic pro-Russian opposition to such belt-tightening. She stressed that the austerity measures in Serbia will yield success just as in Ireland, Spain and Portugal a few years ago (BETA Monitor, July 13).

US Assistant Secretary for Europe and Eurasia, Victoria Nuland, also rushed to the Balkans to discuss Euro-Atlantic and regional integration with the authorities and political leaders in Bosnia-Herzegovina, Montenegro, Kosovo, Macedonia, Albania and Serbia, in an attempt to resolve several regional disputes (BalkanInsight, July 13). The United States had reduced its role in the Balkans in the past 15 years, but the war in Ukraine, Russian assertiveness in the Balkans, and the Greek crisis have again returned the region to the forefront of geopolitical importance.