An Ideas-Based Online Magazine of the Global Network for Advanced Management

What Does the Greek Crisis Mean for Global Business?

Experts from the Global Network for Advanced Management weigh in on how the Greek crisis could affect the economy in their respective countries.

Euro countries as dominoes

As the debt crisis in Greece continues to develop, markets and businesses are preparing for the ripple effects if the country can’t reach agreement with its creditors and decides to leave the Eurozone. Would this scenario lead to further deterioration of the euro, and what would that mean for Europe’s trading partners? Could a spreading crisis affect global commodity prices, and how would that impact an exporting country? Global Network Perspectives spoke with experts at several schools in the Global Network for Advanced Management to get the view from Brazil, Germany, Chile, Hong Kong, Mexico and Turkey.

UPDATED: July 9, 2015


Álvaro de Garay, Economist and Director at EGADE Business School, Tecnológico de Monterrey, Mexico City

Mexico does not have Greece’s debt problems nor does it belong to a monetary system like the Eurozone. It is also not trapped in a kind of historic economic dilemma. Nonetheless there are important lessons to be learnt from the Greek experience and Mexico would do well to pay careful attention to its fiscal policy.

With a challenging global economic outlook and several important structural challenges to overcome in the Mexican economy, the Enrique Peña Nieto-led government in 2013 made an ambitious reform program the centrepiece of its administration. Sweeping legislative changes have been introduced in the fiscal, energy, telecommunications and education sectors, designed to encourage more foreign direct investment and enhance the productivity and competitiveness of the Mexican economy. So far, the all-important fiscal reform has not delivered the expected results. At around 10 percent of GDP, Mexico has one of the lowest tax revenue levels in Latin America. The original fiscal reform proposal sought to increase tax revenue by 1.4 percent of GDP in 2014, finally delivering a more modest 0.8 percent increase. Taxes were raised at a time when the Mexican economy was slowing, with weaker levels of consumption and private investment. The fall in oil prices caused government revenue to plummet, since almost a third of its revenue comes from Pemex, the state owned oil-company. Mexico’s economic growth is not now forecast to exceed a modest 3 percent by the end of 2015.

In this scenario, government debt has increased, as has the fiscal deficit. The combination of a poorly designed fiscal reform and oil prices that are 50 percent lower than they had been in previous years has contributed to the creation of an extremely unfavorable fiscal scenario in Mexico. The government is being forced to rethink its fiscal strategy if the economy is to get back onto a growth path in line with the size and potential of its economy. In sum, what Greece and Mexico have in common are public finances with structural problems and whilst the underlying causes may be different, the consequences will inevitably be the same. Mexico’s only advantage right now is that there is still time to change course and avoid the problems of Greece.


Sumru Altug, Professor, Koç University and CEPR

We are now in the fifth year of the Greek debt crisis. In the aftermath of the global financial crisis of 2008-09, Greece became the subject of several bailout programs beginning in 2010 and continuing through 2012. The Greek government debt now stands at 240 billion euro, which amounts to 175% of GDP. This is despite massive austerity measures that have led to a significant decline in the standard of living of ordinary Greeks and a dramatic increase in unemployment to 26%, with youth unemployment skyrocketing to 62%.  

The Greeks are understandably angry and confused. After all, membership in the EU and the Eurozone were supposed to bring Greeks prosperity and an increasing standard of living. By contrast, Greece's neighbor Turkey has shown a stronger growth performance since the global financial crisis, despite the recent slowing down of its economy, and it possesses sustainable sovereign debt dynamics. As many commentators have noted, Greece is now in the unenviable position of facing further austerity if it abides by the conditions of the EU-sponsored bailout agreement or enduring massive uncertainty and volatility if it decides to quit the euro.

In this environment, the cures don't seem to be coming from the international institutions. So could more neighborly relations and a concomitant mutual reduction in defense spending be the answer?  At more than 2% of both Greek and Turkish GDP, defense spending is substantially higher than for many other advanced EU members such as Germany and Italy, and reducing it might improve the economic outlooks for the two neighbors. Indeed, modern macroeconomic prescriptions seem have to focused overly on fiscal surpluses and government financing requirements but the key to prosperity comes from living in peace and trading with your neighbors. That's what people in the Mediterranean region have done for centuries, as is evident from visiting any ancient city in our region. Perhaps Greeks and Turks should teach this as a lesson to their European colleagues. 

ORIGINAL: July 1, 2015


Marcos Fernandes G. da Silva, Professor and Researcher, FGV Escola de Administração de Empresas de São Paulo

Firstly, Greek economic crisis is literally the chronicle of a death foretold. This crisis is already priced by the markets. Economic agents know today what they did not know in the 1990s: how to differentiate Brazil from countries on other continents with different economic situations.

In the short term, therefore, the Greek crisis would not impact Brazil. In the medium term we do not know how the weakest European economies (from the macroeconomic point of view) will react to the crisis. This could be a problem to Brazil, but improbable.

However, there is evidence that these economies are relatively adjusted. In Brazil, the problems are endogenous, resulting from an expansionist fiscal policy aligned with the electoral political cycle. In Brazil, the current account deficit in 12 months is around 4.39% of GDP; for 2017 the Central Bank forecast is 4.17% of GDP against 4.47% of GDP in 2014. This is not a comfortable situation, but reversible.

In fact, the signs of a costly macroeconomic adjustment initiated in 2015 are already apparent in a fall in domestic absorption (consumption plus investment plus government spending), exchange rate adjustment (the problem here is very high domestic interest, attracting speculative capital), and an adjustment in the current account deficit.

Ironically, the biggest problem for Brazil is not Greece, but the United States' possible recovery. If the Federal Reserve increases interest rates, there will be capital flight. But as the signs of the U.S. economy are ambiguous, at least for a while we have some relief.


Sascha Steffen, Associate Professor of Finance and Karl-Heinz Kipp Chair in Research, ESMT

The Greek financial crisis matters in Germany for various reasons. First, a lot of taxpayer money is at stake. Billions of Euros of bailout funds have been provided by the ECB (European Central Bank). With the increase in emergency liquidity assistance (ELA), potential losses of taxpayers increase every day. Germany (and specifically its leaders, the German chancellor Angela Merkel and finance minister Wolfgang Schäuble) is at the center of attention in how Europe deals with the crisis and will be associated with the success or failure (whatever this means) of crisis management. Merkel and Schäuble will receive blame for every possible outcome (there is probably no “winning”).

Third, there is a clear political will: keep Greece in the euro. This is understandable given the history of the creation of the euro as well as recent anti-European voices in France, Spain, the UK, and other countries. Importantly, Greece is only one of several crises that the EU is facing, in addition to the war in Ukraine and a military build-up of both Russia and the NATO.

There are also geopolitical reasons to keep Greece close. However, German taxpayers are likely more hesitant to support a policy that does “whatever it takes” to keep Greece in the euro area. Since Greece joined, pension, product prices, and wages have increased there to an extent that their levels exceed those in Germany (particularly relative to productivity). Thus, Merkel has to walk a fine line between a maybe politically motivated solution and an economically sound solution (which the German electorate might also support).


Rodrigo Cerda Norambuena, Deputy Director of the Latin American Center for Economic and Social Policy. Pontificia Universidad Católica de Chile

The direct effect of the Greek economic crisis on the Chilean economy might not be large. In fact, Chilean exports to Greece represent just 0.2% of total Chilean exports while imports from Greece are just 0.03% of total Chilean imports.

However, there are indirect effects that might be more intense. In fact, we might observe a larger weakness in the euro, which would probably be transmitted to emerging market exchange rates, such as the Chilean peso. It would not be surprising to see a depreciation of the Chilean peso which might mildly accelerate inflation. 

A more stringent scenario for the Chilean economy is a scenario where the Greek crisis is transmitted to the rest of the Eurozone: the Eurozone represents almost 25% of Chilean exports. That contagion scenario is far more complicated as (1) the growth rate of the Eurozone would be decelerated, and Chilean exports would be required to be sent to other geographic locations, (2) the Euro would weaken further and (3) commodity prices might continue to deteriorate, which is especially important for the Chilean economy in the case of copper—the main Chilean export, representing almost 50% of total exports.

China and Hong Kong

Samuel Liang, Associate Director of the Value Partners Center for Investing, HKUST

The impacts of Greek crisis on the international financial market, particularly in China and Hong Kong, will be short-lived.  The Greek crisis has been dragged on for some six years, during which investors and finance institutions around the world have been keeping an “arm’s distance” with Greece, reducing loans to the nation and thus minimizing the default risk on debt. Meanwhile, investors have fully expected and prepared that Greece would withdraw from the Eurozone.

After all, today’s global investment market is more likely to be driven by a rational response, rather than market sentiment, as reflected in the recent bond market in Europe. For instance, as of June 26, Italy, Spain, and Portugal’s government 10-year bond yields were 2-3% amid the Greek crisis—a level much lower than 7% or higher at a time when Europe was first or previously hit by the same problem. It reveals that the impact of Greek crisis has been diluted today.

Although Greek crisis would have a limited impact on the global finance market and the European economy, it would see damaging disruptions to Greece’s financial system and bring far-reaching political implications to Europe, such as triggering a new wave of protests against tight fiscal policy among EU member nations.

Global Network for Advanced Management