lessons for the RBI from the Greek crisis

The Greek financial crises is temporarily on the hold. To believe that it has blown over, may prove to be wishful thinking. It’s difficult to anticipate even the trends. Greece, however, may not be the full story. As financial journalist Alan Kohler opines, irrespective of the fate of Greece, Europe’s foundations will continue to weaken. This will not be the last existential crises for the Eurozone. Unless greater fiscal and political union goes along with the monetary union the threats are real. Commentators believe that falling apart of the euro may be a noisy affair. 

A ‘yes’ vote in Greece gave the people access to what is left of their euro. It further enabled German cash to start flowing in. So far so good. Unfortunately decision makers, unaware of longitudinal thinking, have almost completely overlooked how much Germany owed Greece, some decades ago and how Greece waived it away. There is no accounting method to square up this state of affair.

There are other variables in the international play of financial forces. The Chinese economy appears to be on the retreat. Countries like Australia are much more vulnerable to this than what is happening in Mediterranean Europe. It will bear repetition to note that the Australian mining sector advantage is already on the retreat. The debt market is somewhat constrained. Only a few days ago, China reportedly released five tonnes of gold on the Shanghai market. In India, gold prices have spiraled down several thousand rupees. 

The basic question is: How does one manage investments — both individual and collectiveIJ Our central bank (the Reserve Bank of India) like many other national institutions either goes stoically silent or when it tweets, it is over some issues like the lowering or raising of interest rates. Such innocence is adorable, even if somewhat worrying. In contrast, financial institutions elsewhere choose to keep up with the times. 

The National Australian Bank, for example, recognises its vital interest in Europe, as it prepares to offload its trouble-plagued Clydesdale Bank before the end of the year. The chief of the National Australian Bank is focusing on public offerings. The discussions can be further extended. The trouble however is reflections on monetary and fiscal situation in India need to move beyond repetition on interest rates, non-performing assets and the extent of mandatory deposits. Irrespective ordinary life has a knack of moving ahead as if nothing has happened. It is this dualism of normalcy and turbulence which gets wires crossed. 

Getting back to Greece, the reports are that the Greek Ministry for Tourism does not anticipate any disruptions in visitors’ holiday experiences. This applies to both Greek islands and the mainland. Even before the European deal, the Greek Government had assured that all debit and credit cards would be fully functional. It is the small and not-so-small experiences of maximum limits on bank withdrawals that have really effected the flow of life. 

The automated teller machines still work. The trouble is more at the short-term level and at the medium-term level. As unemployment soars and economy shrinks the public debt has swollen from 110 per cent of gross domestic product to almost 180 per cent. These, at the best, remain mystery figures to the everyday life of the average resident in Greece. 

The core issue remains the role of banks in a unique social milieu. The banks must remain in front of their client.  The key is to respond to existing holders, and separate the act of capital raising. Nothing is as simple as it appears. But an act of confidence and facing — in an enlightened manner — the risk of business, is the key.

The leadership team of any bank needs to have a core composition. Some 40 per cent of its composition should be constantly reviewed, preferably every quarter, to look at the emerging economic scenario with the lenses of specialists. The wealth management division of the bank needs to be strengthened as does its insurance wing. Suitable linkages with stable and tested international financial systems, for a time bound period, may hold some answers. 

It is important to recognise that banks don’t appear to be losing the plot, so far as consumer trust is concerned.