From Nana Mouskouri to feta cheese and kalamata olives, Greece and Australia have a long history of trade, migration, cultural and even military relations.
By the numbers it may not be a huge one: Greece is currently Australia’s 70th largest merchandise trading partner, according to DFAT statistics.
But for a country that could soon be out in the currency cold, with a devalued drachma and demoralised population, trade is a lifeline.
Greece shocked the world last Sunday when it voted with a resounding “Oxi” – “No” – to the referendum on further austerity cuts. The vote even caught bookmakers out, despite the bookies frequently beating opinion polls.
Reactions are mixed: on one hand there’s sympathy for the Greek people, who are having a miserable time, along with an acknowledgement that austerity doesn’t always work.
On the other hand there are valid fears that further debt relief will be a disincentive for Greece to follow through with critical structural reforms, and infuriate the Portuguese and Irish, who weren’t let off so lightly.
Negotiations have moved on to the next level now, with the Greeks submitting a proposal on Thursday night that contains a large number of concessions.
A rollercoaster ride
So where does all this leave the Aussie? As well as the many Australian companies exporting and importing to Greece?
The markets certainly didn’t like it. The Greek No-vote combined with softer commodity prices wiped over $30 billion off the Australian stock market last week, as well as sending other Asian markets tumbling.
The Australian dollar slumped to its lowest level since May 2009 on open, following the result, finding support at 74 US cents on Friday after a brief dip below.
This is such uncharted territory that unprecedented uncertainty lies ahead. Greece and the Euro are not the only influences on AUD/USD of course: the pair has also taken a hammering from commodity price falls and the development in the Chinese stock markets.
But it’s fair to say that we expect continued volatility for some time ahead.
The Reserve Bank of Australia remains relatively unconcerned about the longer-term impact of events in Europe on Australia.
“Despite fluctuations in markets associated with the respective developments in China and Greece, long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low,” the RBA said in its statement this week (Tuesday).
The RBA is happy with current inflation, and is no doubt delighted that the Aussie has finally started to soften against the Greenback. We’ll learn more when the full minutes are released in a couple of weeks, but for now the Bank seems content.
Amid all the volatility, businesses trading with Eurozone countries may want to consider a hedging strategy. But for those dealing directly with Greece, getting paid at all is a bigger issue than currency lost right now. Many of Greece’s suppliers are tightening credit terms, or demanding payment upfront.
Cash flow is the biggest issue for Greek companies due to the capital controls in place. Greek importers have limited ability to transfer money overseas, except with special government approval. In the UK, companies affected by events in Greece are even being given tax deadline extensions.
Export insurance is also going to be harder to get, and/or more expensive. Trade credit insurers Euler Hermes and Atradius are reviewing coverage on companies trading with Greece, and Britain’s public export-guarantee agency, UK Export Finance, has already suspended activity on exports to Greece.
Anyone travelling to Greece, for business or leisure, is being advised to take large amounts of euros with them in cash.
What’s next? More negotiations and another attempt to keep Greece in the Eurozone? Or an auf wiedersehen/au revoir/antio/yia sas and hello to Grexit and the New Drachma?
Even a parallel currency is being suggested; where Greece would continue to do business in euros but pay pensions and public sector salaries in another denomination or ‘IOUs’. However, it’s reported that this suggestion was what led to former Greek finance minister Yanis Varoufakis being kicked out of his job on Monday.
In what manner and to what timetable Greece is going to dig itself (or get dug) out of its hole, remains unknown. The Hellenic-Australian Business Council talks optimistically of the “many structural and economic changes” Greece is going through “that will ultimately increase its competitiveness, and global positioning.”
But it’s going to get a lot darker before dawn.