The financing of capital flight from Greece via the Eurosystem has sharply increased the country’s payment obligations to international public institutions, according to the Ifo Institute, that said these payment obligations rose to €319 bln, or 173% of Greece’s annual economic output, by the end of January.
“There is no way for Greece to avoid a third bail-out package, and further packages in the future, if it stays in the euro. It would be better for the country to formally default, exit and devalue, so that its real economy can get back on its feet,” said Ifo President Hans-Werner Sinn in Munich.
“The country is practically bankrupt, but still continues to receive public funding. This is a way of delaying the bankruptcy, giving investors the opportunity to make a quick getaway at the expense of the Community of States.”
On Thursday, European Central Bank President Mario Draghi said after the Council Meeting in Nicosia that ECB lending to Greece had reached €100 bln and that the Eurosystem was ready to continue to support Greece, as long as Athens remains committed to its bailout programme.
The amount represents about 68% of Greek GDP, the highest in the Eurozone, while Draghi also said that the ECB decided to raise the ceiling of emergency liquidity assistance (ELA) to Greek banks by €0.5 bln to €69 bln.
The €319 bln figure calculated by the Munich-based Ifo takes into account the net payments from the bail-out packages financed by the euro countries and the International Monetary Fund, purchases of Greek government bonds by other central banks, as well as Target overdraft credit and the credit in the form of disproportionate issues of bank notes in Greece.
If the Greek government and the country’s banks were to go bankrupt, the maximum sum of liabilities can be broken down into €84.7 bln lost by Germany (state and central bank), 64.6 bln by France, 56.4 bln by Italy and 38.4 bln by Spain. The Netherlands will lose a maximum of €18.3 bln, while Belgium will lose 11.4 bln, Austria 8.9 bln and Finland 5.7 bln. Portugal’s loss well be €3.8 bln and Slovakia’s 2.7 bln. These numbers refer to the scenario of a Greece exit (Grexit) from the Eurozone, and thus to the more favourable scenario for the Community of States.
Should Greece remain in the euro, the Ifo report said, loans by Greece’s central bank to local commercial banks would feature in the total liability figure, instead of the Target liabilities and the disproportionate issue of bank notes. The losses would be slightly higher in this case, with Germany sustaining maximum losses of €85.2 bln as things stand, plus the additional costs of financing further bail-out packages to compensate for Greece’s lack of competitiveness.
