Insight: Greek Exit Could Cost Eurozone 100s Of Billions Of Euros
A Greek exit from the euro zone could expose the European Central Bank and the currency bloc it seeks to protect to hundreds of billions of euros in losses, landing Germany and its partners with a crippling bill, Reuters reported in an analysis. A Greek departure would take Europe into uncharted legal waters. The size of the burden other euro zone states could bear gives them a powerful incentive to keep Greece in the currency club. With most of Greek's private creditors having taken heavy writedowns as part of the country's second, 130 billion euros bailout, it is estimated that the ECB, International Monetary Fund and euro zone nations hold approaching 200 billion of its debt. "In the event of an exit, they (Greece) will default. And the loss given default will probably be very high, high enough to eliminate the ECB's capital," said Andrew Bosomworth, senior portfolio manager at asset manager Pimco. "They might need recapitalization from governments, who are not exactly in the best position to provide additional capital." Those are not the only losses the ECB and its national shareholders might face as is explained in detail below. Even once Greece had left the currency club, the costs to the rest of the euro zone would continue to mount as it would probably be compelled to avert a complete Greek collapse and wider contagion. Read more.