Greek crisis poses questions for Kosovo and Montenegro

The Greek crisis poses questions for bank depositors in Kosovo and Montenegro, which use the euro without a safety net.

The EU aspirants unilaterally adopted the single currency in 2002.

It was their third switch in just a few years. They changed the Yugoslav dinar, due to hyperinflation, in the 1990s for the deutschmark. Then the deutschmark ceased to be.

Looking at events in Greece, their finance ministries and central banks say their exposure to the crisis is minimal.

But Raiffeisen, the top private bank in the region, says it’s not negligible.

Kosovo’s finance minister, Avdullah Hoti, told EUobserver: “We don’t expect any immediate risks coming from a potential exit of Greece from the monetary union”.

He noted that: “Kosovo has very stable public finances, with very low debt levels and manageable deficits, as well as a very stable, well-capitalised and liquid financial [banking] sector”.

“We have no Greek banks operating in our country”, he added.

The Central Bank of Montenegro said in a statement on Tuesday (30 June): “Montenegro is one of the countries that will not significantly feel the effects of the Greek crisis”.

It said “the Montenegrin banking system is not connected with the Greek banking system, export to Greece is negligible (a mere €295,000 in 2014), as is Greek FDI [investment]”.

It also said if the euro loses value, it could boost exports.

It added that “it is likely that a certain number of tourists will cancel their travel to Greece, which opens the possibility of attracting more tourists to Montenegro”.

For its part, Raiffeisen says they’re right to a great extent.

Andreas Schwabe, one of the bank’s senior economists, told this website: “I don’t see any immediate risks to unilateral euro-adopters”.

He noted that there’s “no visible stress” in their foreign currency (FX) reserves.

According to the International Monetary Fund, Kosovo had €685.5 million in its fund in March. Montenegro, which has more recent figures, had €796 million in May.

But the Raiffeisen economist added, that if worst comes to worst, neither of them can turn to the European Central Bank (ECB) because they have no formal relations.

Montenegro doesn’t think things will get that bad.

The 30 June analysis by its central bank excluded the possibility of a Greek euro exit.

Its worst case scenario is that “Greeks reject the creditors` offer at the referendum, which results in bank run and capital flight, leaving Greece with the only option of seeking assistance from the euro-area member states”.

But Raiffeisen, and other big banks, aren’t so optimistic.

Fisnik Latifi, a trader at Raiffeisen Pristina office, said that if Greece leaves the eurozone, the crisis could culminate in a potential “rupture in the value of the euro” and of “dire straits” in market confidence in the currency.

If it happened and if Balkan depositors, like their Greek counterparts, made beelines to ATM machines, there’s no one to help.

Kosovo and Montenegro cannot ask for ECB liquidity assistance but, because they use the euro, they cannot print their own banknotes either.

Instead, they’d have to rely on the kind heart of foreign banks, such as Raiffeisen, to prop up their subsidiaries in the region.

They’d also have to tap their own FX reserves, but these are relatively small, and the lion’s share of them is denominated in euros, limiting central banks’ firepower.

“In case there should be higher demand for notes the central banks of the two countries, obviously, cannot not print currency (or receive ECB support like Greece), but would be forced to use their euro-denominated FX reserves to help their banks”, Schwabe noted.

Latifi said: “the banking system in Kosovo is heavy reliant on the well-being of the euro”.

“An extreme economic rupture may prove critical for banks … [and] depositors would be severely harmed”.

With 40 percent of Kosovo’s GDP based on a cash-in-hand grey market, many Kosovars wouldn’t even be able to turn to their central bank for help, being left only with the paper in their pockets.