European central banks have lent 110 billion euros ($118b) to Greek banks, the head of France’s monetary authority said in comments published Monday, warning that any move by Athens to leave the eurozone would be “traumatic”.
Concern is mounting that Greece, which urgently needs new financing to pay salaries at the end of the month and its creditors, could default on its huge debt and potentially exit the single currency bloc, AFP reported.
The country wants the last tranche of its bailout funding worth 7.2 billion euros ($7.7b) but has balked at tough reform conditions demanded by its creditors in exchange. Negotiations are ongoing.
In an interview with Le Figaro daily, Christian Noyer, head of France’s central bank, said the level of funding of the Greek economy by the Eurosystem – the eurozone’s monetary authority – was “by far the biggest in the eurozone”.
“We are currently at 110 billion euros and we have more than doubled liquidity contributions in six months.”
Noyer added that the amount of emergency liquidity accorded to Greece has increased considerably, and urged Greece to “very quickly make a complete proposal of reforms that would allow them to find a viable economic model”.
A Greek exit from the eurozone would be “traumatic,” said the French central banker.
“The shock would carry wider risks, and the entire global economy would be affected, as it is after any strong jolt.
“But... the most dramatic consequences would be for Greece, which would experience a major economic crisis without resolving its fundamental problems of growth and unemployment.”
Grexit?
Greece’s Finance Minister Yanis Varoufakis said in an interview broadcast on Sunday that if Greece were to leave the eurozone, there would be an inevitable contagion effect.
“Anyone who toys with the idea of cutting off bits of the eurozone hoping the rest will survive is playing with fire,” he told La Sexta, a Spanish TV channel, in an interview recorded 10 days ago.
“Some claim that the rest of Europe has been ring-fenced from Greece and that the ECB has tools at its disposal to amputate Greece, if need be, cauterize the wound and allow the rest of eurozone to carry on.”
“I very much doubt that that is the case. Not just because of Greece but for any part of the union,” he said, speaking in English.
“Once the idea enters peoples’ minds that monetary union is not forever, speculation begins ... who’s next? That question is the solvent of any monetary union. Sooner or later it’s going to start raising interest rates, political tensions, capital flight.”
