Malta has so far issued Greece with loans and guarantees worth €112 million as part of the bailout programme agreed with the EU, which it could risk losing if the Greeks default.
Maltese banks have minimal investments in Greece- Fenech
The money is an almost insignificant fraction compared with the billions the EU pumped into the Hellenic Republic since the bailout package was agreed at the end of 2011. However, it represents around two per cent of the country’s GDP.
According to the latest figures released to The Sunday Times by the Finance Ministry, Malta has issued some €56.3 million in loans and guarantees worth €55.9 million.
The loan forms part of a bilateral concession of €78 million that Malta signed with Greece as a eurozone member, while the guarantees are part of the wider €700 billion European bailout fund set up as a safety net for faltering members like Greece, Ireland and Portugal. Malta pledged a maximum of €700 million (or 0.001 per cent) in guarantees to the total fund.
The figures emerge as Greece yesterday dissolved Parliament to hold fresh elections on June 17 after polls produced a hung parliament and coalition government talks failed.
The fragmented parties ended up rallying for or against the austerity measures agreed in exchange for Greece’s bailout package, with none of the formations having enough seats to form a government.
The situation has made the prospect of Greece leaving the euro and defaulting on its loans a distinct possibility, particularly if an anti-austerity coalition is elected next month.
Finance Minister Tonio Fenech acknowledged that the situation in Greece had become riskier, but he argued he would rather cross that bridge when and if we come to it.
“A lot depends on the result of the fresh elections,” he said.
Ironically, he argued, the negative press surrounding the prospect of Greece returning to its old currency, the drachma, could push Greeks to vote for parties that would ensure it respected the bailout commitments.
Even in the event of Greece leaving the eurozone, it would not mean an automatic default on European loans and in any case, governments are prioritised creditors.
The biggest problem with a default, however, will likely not be the money lost by government but the impact of a Greek exit on the European economy and beyond.
Analysts predict the move would reignite an economic and financial crisis, equal to the one after the Lehman Brothers crash in 2008.
Here too, Mr Fenech would rather not speculate, but he took comfort in the fact that Malta was not too exposed to Greece directly. Maltese banks have minimal investments in Greece and were well capitalised, he said.
“We would obviously suffer the consequences of a crisis in our main European markets, but it all depends on the result of the new elections and how things unfold.”
Economic analyst John Cassar White agreed with the minister’s assessment about Malta’s direct exposure but was more pessimistic about signs emerging from Greece and their implications for Malta’s economy.
“We do not have any large direct exposure to Greece but as an open economy any ripple that affects our main markets will have a negative effect on us,” he said.
Moreover, the situation was already damaging for the economy. Mr Cassar White said: “I am concerned about this sustained period of uncertainty and instability in the eurozone which inevitably is bad news for investment.”
The European crisis has been top of the agenda since the global financial crisis erupted in 2008 and over these years many claimed it had been resolved, only to find at the next corner that the crisis was still there, he said.
The problem in Malta’s case was that the island was largely a spectator with not much clout to influence the situation. Nonetheless, Mr Cassar White said the government should do more to rein in debt and place Malta in a better situation to tackle future challenges.