The Real Price Others Will Pay If Greece Quits The Euro Zone

If Athens opts out of the euro zone, the economic union as a whole will probably survive. But it won't be pretty, especially for Germany, which stands to lose upwards of 100 billion euros, according to economists.

Alexis Tsipras (center), head of the Coalition of the Radical Left SYRIZA parliamentary group (PIAZZA del POPOLO)
Alexis Tsipras (center), head of the Coalition of the Radical Left SYRIZA parliamentary group (PIAZZA del POPOLO)
Martin Greive

BERLIN -- Two years ago, the idea of Greece leaving the euro zone was considered out of the question. But more recently – even before last week's elections, which strengthened both left and right-wing parties thus making the formation of a stable government that much more difficult – politicians, banks and economists have begun crunching the numbers to get some notion of how the country would fare if it were no longer a part of the euro zone, and how high the costs of its quitting the euro would be.

"I still think it's more probable that Greece will stay in the euro zone," says Ulrich Kater, head economist at DekaBank, the German Savings Bank Finance Group's central asset manager. "But results of the elections have increased the risk of their leaving."

Kater has reacted to the recent events by asking his team of economists to work through just how expensive it would be for German taxpayers if Greece were indeed to leave the zone. Die Welt has reviewed the resulting report, according to which the German federal budget would suffer losses of at least 86 billion euros.

According to the report, Germany would have to write off its 15.2-billion euro contribution to the first rescue program. Since then, the European bailout fund has paid a further 103.7 billion euros to Greece, 30 billion of which came from Germany. If Athens were to quit the euro, this money too would be lost.

Add to that the losses that would be incurred by the European Central Bank (ECB), which bought 50 billion euros worth of Greek government bonds. For Germany, that would mean another 1.3-billion euro loss. Finally, the Deutsche Bundesbank (the central bank of the Federal Republic of Germany) would have to write off 28 billion euros of payments it made in the framework of TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System).

If Athens does not pay back the International Monetary Fund (IMF), which also contributed to bailout funds for Greece, Germany would also lose its share of that money – 2.9 billion euros. All in all, the costs could top the 100 billion euro level, according to the DekaBank projection.

German regional state banks might also have to write-off their German-government-guaranteed Greek government bonds. Finally, the European Union would most likely have to make currency available to Greece to bridge the period of change to the drachma.

Low risk of contagion

Economist Kater says that while Greece leaving the euro zone would be very costly, and contribute to the ambient chaos of the entire situation, "the view that the euro couldn't survive Greece's leaving the zone is wrong."

Kater believes the danger of contagion is slim, and that Greece is a unique case because in other member countries there continues to be political support for the necessary reforms. "If Greece were to leave, all the negative consequences could even have a strong disciplinary effect on the other members of the zone," he says.

The German Ministry of Finance is also looking at how Greece could be protected from poverty were it to leave the zone. According to Der Spiegel magazine, Athens could count on receiving further billions from the European EFSF bailout fund if it left. The fund would only stop paying monies that went straight to the Greek budget, but those billions serving the government bonds that the ECB bought would continue to flow, thus avoiding ECB losses that would negatively impact member state budgets.

Finance Ministry planning also foresees Greece continuing to be able to count on aid from Brussels as long as the country remains a member of the European Union. Whether or not the IMF would lose billions if Greece leaves the euro zone depends on whether Greece honors present claims.

Meanwhile, Germany's ruling center-right Black Yellow Coalition is becoming more and more receptive to the idea of Athens pulling out of the euro zone. "We would be a pretty strange government if we weren't preparing ourselves for all possible constellations," German Minister of Finance Wolfgang Schäuble told Die Welt.

German Minister of the Economy Philipp Rösler favors not giving the Greeks additional time following the elections to reach austerity goals. "There will not be any changes to, or watering down of, established programs," he said.

Jean-Claude Juncker, president of the Euro Group, has recommended that European heads of government revise the schedule, but DekaBank economist Kater warns of accommodating Greece too much. "In this situation, concessions would only encourage other countries to use radical election results to leverage themselves out of existing crisis plans."

Read the original article in German


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Iran-Saudi Arabia Rivalry May Be Set To Ease, Or Get Much Worse

The Saudis may be awaiting the outcome of Iran's nuclear talks with the West, to see whether Tehran will moderate its regional policies, or lash out like never before.

Military parade in Tehran, Iran, on Oct. 3


LONDON — The Iranian Foreign Ministry spokesman Saeed Khatibzadeh said earlier this month that Iranian and Saudi negotiators had so far had four rounds of "continuous" talks, though both sides had agreed to keep them private. The talks are to ease fraught relations between Iran's radical Shia regime and the Saudi kingdom, a key Western ally in the Middle East.

Iran's Foreign Minister Hossein Amirabdollahian has said that the talks were going in the right direction, while an Iranian trade official was recently hopeful these might even allow trade opportunities for Iranian businessmen in Saudi Arabia. As the broadcaster France 24 observed separately, it will take more than positive signals to heal a five-year-rift and decades of mutual suspicions.

Agence France-Presse news agency, meanwhile, has cited an unnamed French diplomat as saying that Saudi Arabia wants to end its costly discord with Tehran. The sides may already have agreed to reopen consular offices. For Saudi Arabia, the costs include its war on Iran-backed Houthis rebels fighting an UN-recognized government in next-door Yemen.

The role of the nuclear pact

Bilateral relations were severed in January 2016, after regime militiamen stormed the Saudi embassy in Tehran. Amirabdollahian was then the deputy foreign minister for Arab affairs. In 2019, he told the website Iranian Diplomacy that Saudi Arabia had taken measures vis-a-vis Iran's nuclear pact with the world powers.

It's unlikely Ali Khamenei will tolerate the Saudi kingdom's rising power in the region.

He said "the Saudis' insane conduct toward [the pact] led them to conclude that they must prevent [its implementation] in a peaceful environment ... I think the Saudis are quite deluded, and their delusion consists in thinking that Trump is an opportunity for them to place themselves on the path of conflict with the Islamic Republic while relying on Trump." He meant the administration led by the U.S. President Donald J.Trump, which was hostile to Iran's regime. This, he said, "is not how we view Saudi Arabia. I think Yemen should have been a big lesson for the Saudis."

The minister was effectively admitting the Houthis were the Islamic Republic's tool for getting back at Saudi Arabia.

Yet in the past two years, both sides have taken steps to improve relations, without firm results as yet. Nor is the situation likely to change this time.

Photo of Iranian Supreme Leader Ali Khamenei in 2020

Iranian Supreme Leader Ali Khamenei in 2020

Riyadh's warming relations with Israel

Iran's former ambassador in Lebanon, Ahmad Dastmalchian, told the ILNA news agency in Tehran that Saudi Arabia is doing Israel's bidding in the region, and has "entrusted its national security, and life and death to Tel Aviv." Riyadh, he said, had been financing a good many "security and political projects in the region," or acting as a "logistical supplier."

The United States, said Dastmalchian, has "in turn tried to provide intelligence and security backing, while Israel has simply followed its own interests in all this."

Furthermore, it seems unlikely Iran's Supreme Leader Ali Khamenei will tolerate, even in this weak period of his leadership, the kingdom's rising power in the region and beyond, and especially its financial clout. He is usually disparaging when he speaks of Riyadh's princely rulers. In 2017, he compared them to "dairy cows," saying, "the idiots think that by giving money and aid, they can attract the goodwill of Islam's enemies."

Iranian regime officials are hopeful of moving toward better diplomatic ties and a reopening of embassies. Yet the balance of power between the sides began to change in Riyadh's favor years ago. For the kingdom's power has shifted from relying mostly on arms, to economic and political clout. The countries might have had peaceful relations before in considerably quieter, and more equitable, conditions than today's acute clash of interests.

If nuclear talks break down, Iran's regime may become more aggressive.

Beyond this, the Abraham Accord or reconciliation of Arab states and Israel has been possible thanks to the green light that the Saudis gave their regional partners, and it is a considerable political and ideological defeat for the Islamic Republic.

Assuming all Houthis follow Tehran's instructions — and they may not — improved ties may curb attacks on Saudi interests and aid its economy. Tehran will also benefit from no longer having to support them. Unlike Iran's regime, the Saudis are not pressed for cash or resources and could even offer the Houthis a better deal. Presently, they may consider it more convenient to keep the softer approach toward Tehran.

For if nuclear talks with the West break down, Iran's regime may become more aggressive, and as experience has shown, tensions often prompt a renewal of missile or drone attacks on the Saudis, on tankers and on foreign shipping. Riyadh must have a way of keeping the Tehran regime quiet, in a distinctly unquiet time.

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