The Central Bank and the financial services watchdog have assured Maltese investors and depositors that Greece’s likely exit from the eurozone would not pose any serious threats to their interests.
“While the Central Bank of Malta has no Greek bonds, the exposure of Maltese banks to the Greek economy is insignificant because they have very little investment there and the amount of unsecured loans is very low,” Central Bank Governor Josef Bonnici said yesterday.
Malta Financial Services Authority chairman Joe Bannister agrees. “We keep monitoring the situation, we know where each bank has placed investment and given loans and the result of that analysis is that there will be limited impact,” he said.
The two chiefs gave their assurances when asked by Times of Malta on the possible implications for Malta if Greece were to from the Eurozone, what is usually referred to as Grexit).
Greece is poised to default on its €1.6 billion loan repayment to the International Monetary Fund, which it must pay by tomorrow. This scenario looks likely after eurogroup finance ministers turned down its request for a temporary extension of the bailout programme.
The rejection came in the wake of a surprise announcement by the Greek government late on Friday calling a referendum on an offer tabled by its creditors. The ballot is set for Sunday with the Greek government urging voters to say no to the proposed deal.
“Contrary to a few years ago, when the Greek financial crisis erupted for the first time, the this time around the European Central Bank has much more tools at its disposal to prevent contagion to other countries, such as quantitative easing,” Prof. Bonnici noted.
Quantitative easing involves the injection of money into the economy through the purchasing of government securities from the market in order to lower interest rates and increase the money supply.
The Greeks will suffer a fate worse than the effect of the austerity measures demanded by their creditors
Asked about the fate of some €177 million Malta had loaned to Greece as part of two European bailout packages since 2010, Prof. Bonnici said this would depend on the course of action decided by eurozone countries.
Commenting on this issue, Prime Minister Joseph Muscat said yesterday that, as a creditor, Malta could recoup the money by withholding the amount due from any loans Greece would secure from international markets. He noted that ditching the euro to reinstate the drachma alone would not solve Greece’s problems because it would still be forced to seek loans to keep its economy going.
Dr Muscat was speaking during an interview on One Radio during which he expressed his views on the decision by Athens to hold a referendum. “If, next Sunday, the Greeks vote to take up this offer, the future of their government would be in question because they would have to sign a deal they had already refused,” Dr Muscat pointed out.
Economist Lino Briguglio blamed the Greek government for resorting to brinkmanship, thinking such a move would break the resolve of its creditors.
“Clearly it did not. If Greece leaves the euro area, the Greeks will suffer a fate worse than the effect of the austerity measures demanded by their creditors,” said Prof. Briguglio. He said that, unfortunately, the consequences would be borne by innocent people and not just tax evaders and crooked politicians.
In his view, Greece faced the unenviable decision of choosing the lesser of two evils but he said that further austerity measures would be less damaging than exiting the eurozone. “Only such measures can convince the lending agencies they would not be throwing money down the drain if they renew their financial support to the Greek government,” he said.
Prof. Briguglio noted that other eurozone countries like Ireland and Cyprus that had also required a bailout managed to strengthen their economy through improved fiscal prudence and better economic governance.