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
Photo – PIAZZA del POPOLO
