Crisis in Greece: risks for the ECB

Many figures are circulating about the consequences of a Greek default on the ECB’s balance sheet. What is the real situation?

The Eurosystem, i.e. all the central banks in the euro area (ECB and national central banks – NCBs), is directly [1] exposed to Greece as a whole through:

– ELA (Emergency Liquidity Assistance), which are loans granted by the Central Bank of Greece to Greek banks in exchange for low-quality collateral. Currently around €89 billion (source: ECB)

– the SMP (Security Market Program), an asset purchase program led by the ECB, which began in May 2010 and was halted a few months later. Approximately €18 billion (Reuters, see below).

– ANFA (Agreement on Net Financial Assets), which are assets held by national central banks (especially the Bank of Greece) for investment purposes. Currently around €7 billion (source: euronews, see below).

– Bonds provided as collateral under TLTROs conducted before February 2015 (amounts unknown, but potentially negligible).

– TARGET 2 claims, which are claims reflecting payment flows from Greece to other eurozone countries. (latest data from May 2015: €100 billion [2], amount higher since then). Due to the specific nature of these claims (which are not « debt » with a maturity date), losses may only materialize in the event of an exit from the eurozone (a detail that is often overlooked).

The ECB is directly exposed in this situation only in the context of the SMP. ELA is in fact managed by the Bank of Greece, which « assumes the costs and risks associated with the provision of emergency liquidity » (see below). ANFAs are held by national central banks as part of their investment activities (see letter from Mario Draghi), so the risks are logically borne by the respective central banks. It should be noted that the Bank of Greece holds the largest share, one-third according to this IIF report recently cited by Bruegel. TARGET2 claims are held by the ECB, but the ECB acts as an intermediary here: when it records a TARGET2 claim on Greece, it records a corresponding debt on another Eurosystem central bank. Thus, if Greece were to leave the eurozone and TARGET2 debts were partially written off, it is highly likely that the corresponding ECB debts would also be written off, so that it would be the national central banks and not the ECB that would bear the loss.

Ultimately, according to our reasoning , the ECB’s total exposure is €18 billion, relating solely to the SMP [3]. The exposure of the Eurosystem as a whole if it leaves the euro area (excluding the Bank of Greece), assuming that the Target 2 balance follows the same trend as in the previous month, amounts to €125 billion (€ 18 billion SMP, approximately €5 billion ANFA, €102 billion TARGET 2).

With effective capital (including revaluation reserves) of €500 billion for the Eurosystem, the exposure remains negligible from an economic point of view, but politically significant. Any loss at this level represents a loss for European taxpayers: since central bank profits are transferred to their respective treasuries, losses will result in a loss of tax revenue for eurozone countries. For France, for example, assuming that losses are distributed in proportion to the capital held, French taxpayers’ exposure through the Eurosystem in the event of Greece’s exit from the eurozone exceeds €17 billion [4].

Julien Pinter

@JulienP_BSI