Cap­i­tal flight ac­cel­er­ates dramatically, con­trols needed says Ifo

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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