Despite optimism around the new proposals it is still looking challenging to avoid a Grexit. In such a scenario Greece will need additional financial aid in order to help stabilise its economy and manage the difficult transition to a new currency.
Open Europe estimates that, in terms of bare essentials, Greece could need between €18bn and €33bn in transitional funding to help support its economy after Grexit. This would cover things such as certain debt payments, some deficit funding and money to bolster reserves to aid in managing the new currency. It does not include the cost of bank recapitalisation which might be managed via nationalisation. If money was needed for this the cost could jump by tens of billions. Of course, there would be much wider costs to Grexit to both the eurozone and Greece in terms of economic decline, contagion and Greek default on direct eurozone exposures.
This money is unlikely to be provided entirely by the Eurozone. Open Europe expects it could be split equally between the eurozone, the EU and the IMF. The eurozone could provide funds bilaterally while the EU would utilise either the Balance of Payments assistance facility or the European Financial Stabilisation Mechanism. From the UK perspective this could mean underwriting shares of between €1bn and €1.84bn. While the cost of transitional funding should be predominantly shouldered by the Eurozone, there is a geopolitical and humanitarian case on the part of other EU members for helping stabilise Greece and keep it inside the EU. Furthermore, with a default and devaluation there might be more hope of these loans being repaid by Greece.
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