The FINANCIAL — The portfolio of EUR deposits in Georgia has dropped by 2% in 2012 as a result of the crisis in the Euro zone.
The FINANCIAL — The portfolio of EUR deposits in Georgia has dropped by 2% in 2012 as a result of the crisis in the Euro zone.
While the fate of the European Union remains a million dollar question, experts recommend converting EUR savings to USD or GEL.
“The European Monetary Union is facing a period of the worst uncertainty of its history. 2010-2011 have been the most difficult years of its existence. The drop of national incomes in the southernmost countries of the EU became the testing bays of the financial sectors of the whole continent. Depreciation of private savings, income-cuts, massive unemployment, government defaults and even the collapse of the Union’s currency can all be listed as probable outcomes of the recent developments,” said Dr. Archil Jacobashvili, Business School Professor of Georgian-American University (GAU).
“Whereas at the beginning of 2012 the total share of deposits in EUR was over 22%, by the end of April the figure had slumped to just over 20%. The reduction in EUR saving was related to the total scale of deposits. The figure was 956 million GEL in January which then slumped to 883 million GEL, equivalent in EUR. Georgian depositors exchanged their savings in EUR to other currencies. Total reduction of EUR savings was caused by the devaluation of the European currency against the GEL,” David Narmania, Executive Director of the Caucasian Institute for Economic and Social Research, (CIESR) told The FINANCIAL.
The total volume of term deposits in the EUR currency was increasing from 2009 to 2011, but the share of EUR deposits out of total deposits was decreasing. In December 2009 term deposits in EUR amounted to 372,976 thousand GEL (equivalent in EUR), in December 2010 – 444,059 thousand GEL and in 2011 – 486,494 thousand GEL. In January 2012 EUR deposits reached 523,683 thousand GEL.
Procredit Bank Georgia has 24,218 depositors saving money in EUR. “During the past three years the amount of EUR savings decreased by 3% while deposits in USD and the national currency increased,” said Teo Lezhava, Marketing Specialist at Procredit Bank Georgia.
As of April 2012 the volume of EUR deposits at Procredit Bank was 31 million. “58% of customers are saving money in USD, 26% in GEL and 15% in EUR,” Lezhava said.
“Talks about the collapse of the single European currency are of an inflated character. They are far from the reality, but near to the wishes of the market speculators. In 2010-2011 the EUR underwent the same turmoil as the USD did in 2007-2009. Private and public defaults have been expected, but the fiscal strengthening and monetary discipline by the policy makers in the USA protected and promoted the economy, and similar developments are now being observed in the EU area,” Jacobashvili said.
Jacobashvili said that the EUR has been recognized as the third-best-appreciated currency against other currencies, it is lying over the unit parity against the USD and the EUR/USD exchange rate has been moving stably within the range of 1.25-1.35 since the beginning of 2012. So the EUR is not facing the question of its survival. The member countries which have joined the Euro zone with certain reserves and neglected the necessary reforms of their own economic structures however, are facing the question of their own survival in the Euro zone.
“Georgians would be well-advised to hold savings in the national currency foremost. The GEL is becoming a success story, despite some exogenous turbulence in 2008, recalling the preconditions of its introduction seventeen years ago. I think that even during the period of currency tensions in the world economy, the GEL might offer the domestic population good opportunities, in particular competitive rates and higher GEL liquidity of commercial banks,” Jacobashvili said.
“The maximum value of EUR against GEL was recorded in 2004 when one EUR cost 2.68 GEL. Since then the EUR has been devaluating against the GEL. Whereas in 2011 one EUR cost 2.51 GEL, on May 17 it was 2.07 GEL. Considering this tendency, and to avoid further devaluation, saving in EUR is not recommended,” said Dimitri Japaridze, Professor at Ilia Chavchavadze State University.
“The main sources of the private inflows in EUR are the family transfers of those Georgians who live and work in the EU area. The total exposure of the EUR-denominated deposits remains stable at around 20% among foreign currencies and should remain stable at this level. The most popular foreign currency in Georgia is USD, because even emigrants from the EU area are transferring money in USD,” said Jacobashvili, GAU.
“For the public sector there are other priorities, like debt services and government loans, important for the currency composition of the official international reserves. In 2008-2009 many Central Asian banks switched part of their official reserves from USD into EUR, but didn’t reverse that in 2010-2011. They are the stylized facts pro the EUR which mean that holding on to it does not pose any dramatic danger,” Jacobashvili added.
According to Japaridze, it is difficult to make long term prognoses regarding the future of the Euro zone. “Political tension in the Euro zone is reaching its peak regarding Greece. The political crisis in Greece and society’s scepticism towards the austerity measures presents the question of whether it will remain in the Union. The possibility of Greece quitting the Euro zone is associated with the final collapse of the Union. Greece’s problem was a good experience for solving the problems of other GIIPS countries and maintaining the European Union,” he said.
“There are several optimistic factors regarding solving this problem. United Germany with its huge economy is keen to save the Euro zone. Another optimistic sign is the recent statement of newly elected French officials to switch from the previous austerity measures to a stimulating economic policy,” Japaridze said.
Japaridze hopes that the Euro zone, which is the main player of the global economy, will manage to overcome the crisis in the long term and restore the stability of its currency.
“Germany, which is the economical motor of the European Union, is doing its best to resist the current crisis. Greece, however, is not managing to solve its economical problems. And even members of the EU cannot make accurate prognoses regarding the future of the EU,” said Narmania, CIESR.
