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Eurozone and the GCC

As the eurozone crisis contin­ues to rage, seemingly beyond the control of the political and fiscal masters of Europe, the crisis is beginning to have an impact on various parts of the global economy.


July 13, 2012 11:37 by

As the eurozone crisis contin­ues to rage, seemingly beyond the control of the political and fiscal masters of Europe, the crisis is beginning to have an impact on various parts of the global economy. Al­ready, the President of the United States, Barak Obama, has blamed eurozone leaders for not being able to handle the crisis, stating that it is impacting the US measures to boost its own economy. In the meanwhile, economies of even the BRIC countries seem to be hurt, as the European Union is a major trading part­ner for all the BRIC nations. So it would be a rather safe assumption then that the Gulf Cooperation Council economies would also be hurt by the Eurozone cri­sis. So how badly is it impacted by the developments in Athens, Berlin, Madrid or Paris?

TRENDS posed the question to sev­eral financial and economic experts and the answer is mixed, with some business leaders shrugging off the developments in the EU as being too far removed from the GCC, while others sounding alarm bells that the crisis could rapidly engulf the GCC economies as well, in direct and indirect fashion.

“Some positives, some negatives. On the positive side GCC imports a lot from Europe. With the euro depreciating you would have a positive spinoff in terms of your import cost. Also, with asset prices going down and the euro going down as well, this could also signal huge buying opportunities for Middle East business and sovereign wealth funds. That’s on the positive side. The negative side is that Europe as a zone is producing more than a quarter of the world’s GDP and we are a highly globalised and inter-connected world, so any downturn in Europe is likely to have a moderating impact on the global growth,” says V Shankar, Chief Executive Officer of Standard & Char­tered Bank, which has extensive presence in developing economies in Asia and Africa and which, according to Shankar, escaped the Eurozone banking crisis en­tirely as it had no exposure to the Greek, Spanish or other such economies.

“None of the GCC economies are re­ally vulnerable, the fact that oil prices might go down will not make them vul­nerable, it may well reduce their willing­ness to be more generous with their social sector schemes, but they are not really vulnerable – not economically at least,” says a leading banker from the region.

Like Shankar, a financial sector ex­pert believes that the eurozone crisis could spell a boon and a bane, simulta­neously, for the GCC economies. “Let me talk about the opportunities. As you know, I mean, there are lot of govern­ments here in the region right now that are flush with cash. Governments have budgetary surpluses because of high oil prices. So the crisis could be a chance to acquire certain assets, equities at rock bottom prices. You see what Qatar has been doing. You will probably see more and more of that for the next few years also because of the Arab spring. Lot of people here are realizing that we can have a movement like the Arab spring in any country and that means they could end up losing everything, so it’s better to put their money in the US or Europe etc. So from that point of view that will allow Gulf countries, rather Gulf com­panies to take more increasing stakes in European companies, key strategic com­panies. And that’s why I quoted for the diversification purposes. That’s work­ing,” he says.

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