ed Greek crisis and Korea

Seoul’s financial markets reacted negatively Monday to Greece’s debt crisis that worsened over the weekend. The benchmark Korea Composite Stock Price Index (KOSPI) closed 1.42 percent lower with institutions net-selling. The Korean currency also remained weak against the greenback, apparently affected by the Greek turmoil.

The Korean government has strengthened its market monitoring to closely watch the fallout from Greece’s possible default and eventual exit from the eurozone. At Monday’s macroeconomic and financial policy meeting, Vice Finance Minister Joo Hyung-hwan said market stabilization measures would be taken swiftly in line with preset contingency plans.

Greece’s Cabinet, after an eight-hour session, decided early Monday to shut banks for a week and impose capital controls as anxious citizens emptied cash machines. Banks will remain closed until July 6, the day after a referendum on creditors’ bailout proposals abruptly called by the country’s leftist premier, Alexis Tsipras.

Earlier, EU and IMF creditors rejected a request to extend Greece’s bailout beyond its June 30 expiration date, sparking fears that Greece could default on a debt payment to the IMF due the same day and possibly crash out of the eurozone.

The future of the Greek crisis could change according to the result of the referendum, which is set for July 5. There is still a ray of hope, considering that two recent opinion polls indicated that more Greeks want to stay in the eurozone and make a deal with creditors although both polls were conducted before Tsipras’ referendum call.

The IMF and the Eurogroup, the gathering of the eurozone’s finance ministers, are reportedly ready to resume talks if their bailout proposals are approved via the referendum. But whatever the result may be, the latest Greek turmoil will have a considerable impact on the global economy, let alone Europe.

Given Korea’s relatively small trade volume with Greece and enough foreign exchange reserves, there is no reason not to trust the government’s optimism that even if there is a default in Greece, its impact on our economy will be limited.

Even so, there is no denying the possibility that financial market jitters could be greater than expected once ``Grexit’’ becomes a reality, as foreign funds, especially European ones, flow out of Korea in droves. Exports to Europe will also be negatively affected.

Of course, there can be a positive effect such as the easing of a weak yen amid investors’ global trend to look for a safe haven.

To be sure, this is no time for complacency, especially given that the economy is still suffering from fallout of the Middle East Respiratory Syndrome outbreak. The government should be ready to take all measures to brace for the worst.