According to IIF director Charles Dallara in a Bloomberg interview, "ECB will be insolvent if Greece were to exit the euro. Europe would have to first and foremost recapitalize its central bank."
Excuse me for asking but how would they attempt to do that? Print Euros?
Please consider Dallara Says Greek Euro Exit May Exceed 1 Trillion Euros
The cost of Greece exiting the euro would be unmanageable and probably exceed the 1 trillion euros ($1.25 trillion) previously estimated by the Institute of International Finance, the group’s managing director said.
The Washington-based IIF’s projection from earlier this year is “a bit dated now” and “probably on the low side,” Charles Dallara said in an interview in Rome today. “Those who think that Europe, and more broadly the global economy, are really prepared for a Greek exit should think again.”
The European Central Bank’s exposure to Greek liabilities is more than twice as big as the ECB’s capital, said Dallara, who represented banks in their negotiations with the Greek government on its debt restructuring. As a result, he predicted the bank would be unable to provide liquidity and stabilize the euro-area financial sector.
“The ECB will be insolvent” if Greece were to exit the euro, Dallara said. “Europe would have to first and foremost recapitalize its central bank.”
In February, the IIF estimated that Greece’s liabilities, in the event of a euro exit, could be crippling. “It is hard to see how they would not exceed 1 trillion euros,” the group said in an internal Feb. 18 report that hasn’t been made public.
It’s not clear whether Spain will need a bailout as it seeks to help its banks weather the euro crisis, he said.
“The only way to help markets see past that obscurity is to remove the cloud of uncertainties of national fiscal position and move toward unification,” Dallara said.
The impact of a Greek exit from the eurozone would be substantial but "manageable", Germany's Bundesbank said, raising pressure on Athens to keep its painful economic reforms on track.
Echoing German political leaders, the Bundesbank warned against Europe easing the conditions for Greece to access aid.
"Attempting to kick-start the economy in the short term and putting off consolidation efforts in the long term are not conducive to regaining lost confidence."
A German banking association that represents Deutsche Bank AG (DBK), Commerzbank AG (CBK) and more than 200 other lenders said investors are prepared should Greece leave the euro area.
“It would be manageable for markets,” Andreas Schmitz, president of the BdB Association of German Banks told reporters in Frankfurt yesterday. “The risks have largely been priced in. A Greek exit would bring lower risks than two years ago but is not to be underestimated.”
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