JP Morgan, the largest U.S. bank, made an estimation of the bill that Europe will have to pay when Greece will leave the euro area. Given the recent election results in Athens, for Greece leaving the monetary union is just a matter of days, according to Zerohedge.com. Once they identified the mistakes they made in so-called Greek austerity program, JP Morgan analysts have been calculating the costs that Europe will have to pay, after Greece will leave the euro area, the first country to do so. JP Morgan economists call the attention to the much larger economies such as Spain and Italy, which could be drawn down after the meltdown in financial markets.
The main losses are related to foreign debt of Greece, worth 240 billion euros (money from the EU and IMF), the 130 billion euros related to exposure of the Eurosystem in Greece, and the 25 billion euros to European banks. These are the cross-border claims that European banks (especially the French banks) have in the public-private and non-banking system in Greece. The immediate loss totals, therefore, almost 400 billion euros. A very large amount, but Europe can still manage it, some analysts said. Is it true?
Quitting the euro is no longer a taboo subject
Political turmoil in Greece gives the signal that the Greek state approaches a new round of elections, and the exit of the country from the euro area is no longer a taboo subject in Europe. The exit of Greece “is not necessarily fatal, but it is not at all attractive,” said on Saturday Patrick Honohan, member of the European Central Bank Governing Council, according to Bloomberg. The exit of Greece from the euro area is technically feasible, but would damage the euro, he added. The German Finance Minister, Wolfgang Schaeuble, reiterated, in an interview with Süddeutsche Zeitung, that the EU countries who want Greece to observe austerity measures can not force it to stay in the euro area.
Austerity versus growth debate
The subject will be placed at the center of discussions in the next days between the newly elected French president, Francois Hollande, and German Chancellor Angela Merkel. Holland has been promoted by the Socialist Party and has based his campaign on promises of economic growth and fiscal pact renegotiation with the EU, while Merkel has imposed over the last two years the austerity policy in the EU. Euro zone finance ministers meet in Brussels, and discussions will probably be monopolized by the situation in Greece and its exit from the euro area, which is now at the center of the crisis debate, as emphasized on its first page Der Spiegel, in an article called “Acropolis, Good Bye – why should Greece leave the euro zone.”
One of the main points highlighted by Spiegel is the possibility that the EU will continue to fund Greece even if the country is leaving the euro area. European Commission does not consider relaxing the conditions of the agreement with Greece said on Sunday the EC spokesman Amadeu Altafaj, denying an earlier news broadcast by Athens Real News. Also, central banks in Europe officials discuss the possibility of the exit of Greece from the euro area and strategies to deal with the consequences, said Friday Per Jansson, Deputy Governor of the Bank of Sweden.
European Commissioner for Economic and Monetary Policy, Olli Rehn, said that the euro zone is stronger than two years ago in case of a possible departure of Greece. “I still believe that Greece can remain in the euro area and can find a way to ensure that they comply with their promises . It would be much worse for Greece and for its citizens, especially the poorest, than for the rest of Europe. Europe would also suffer, but Greece would suffer more,” said Rehn. The government in Athens would be out of money in early July if foreign creditors would decide not to distribute the next tranche of external financing program, according to a report presented last week by Bank of America Merrill Lynch.
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