Capital flight accelerates dramatically, controls needed says Ifo
Capital flight from Greece accelerated dramatically in January, with the Greek central bank asking the other central banks in the Eurozone, as well as the ECB, to fill foreign bank accounts with a net sum of almost EUR 27 bln, the Ifo Institute in Munich said on Friday.
The Eurosystem thus effectively granted Greece over a billion euros per working day in additional overdraft credit, according to the latest figures released by the Bank of Greece. “To prevent a replay of events in Cyprus in 2012, the ECB should force the Greek government to introduce capital controls by refusing to grant more fresh emergency liquidity assistance,” said Ifo President Hans-Werner Sinn.
In Cyprus, the central bank system provided EUR 11 bln of Target credit, equalling almost 60% of the country’s annual economic output, before capital controls were introduced in March 2013. This Target credit protected flight capital from losses, and subsequently forced the parliaments of the euro countries, as well as the International Monetary Fund, to grant Cyprus EUR 10 bln in bail-out funds to replace the ECB credit.
Capital flight in January pushed Greece’s total Target credit up to EUR 76 bln, or 41% of GDP. This increased the total of fiscal and quasi-fiscal bail-out credit issued to Greece from EUR 264 bln at the end of December 2014 to EUR 290 bln at the end of January 2015. Greece’s repayment of around half a billion euros to the IMF has already been deducted. This represents 158% of Greece’s GDP. The rise in bail-out credit granted significantly increased the Eurosystem’s liabilities vis-à-vis Greece. If the Greek government and its banks were now to declare bankruptcy and exit the euro, these liabilities could total a maximum of EUR 84 bln for Germany, the Ifo Institute added.