Grexit could cost Italy €11 billion in interest

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The Parthenon temple is seen behind a European Union flag in in Athens on July 2nd. Photo: Louisa Gouliamaki/AFP
16:54 CEST+02:00
Italy could have to pay an extra €11 billion to service its bad debt due to higher interest rates if Greece leaves the euro, according to forecasts from the ratings agency, Standard & Poor’s.

The agency said Italy would face the biggest rise in interest costs over the next year in the event of a so-called Grexit, which could cost the entire economic bloc an additional €30 million.

Greeks will on Sunday vote in a referendum on whether to accept cuts demanded by international creditors as a condition of extending further funds. The announcement of the vote last weekend sent stock markets across Europe plunging on Monday morning.

Italian Prime Minister Matteo Renzi said on Monday that Greeks will be effectively voting on whether to stay in the euro but played down the threat of Italy being hit by fallout, saying the country was “out of the firing line” thanks to its structural reforms.

Finance Minister Pier Carlo Padoan has also played down fears of a hike in Italy’s borrowing costs, saying it was unlikely.

“The BCE can intervene through QE (Quantitative Easing), the purchase of bonds on national markets to stabilize the spread,” he said in an interview with Corriere della Sera on Monday.

The “spread” Padoan referred to is the gap between German borrowing costs on capital markets and those of Italy, a figure which is closely followed as a benchmark indicator of market confidence in the country’s economy and finances and ultimately its ability to remain part of the eurozone.

“I’d remind you that we are no longer in 2011, today our (eurozone) institutions are much stronger, as is our economy,” Padoan added.

The minister said Italy’s exposure to Greece was €10.2 billion in bilateral loans and €27.2 billion in contributions to European bailout funds. He also said the possibility of default had been accounted for and would have no implications for the government’s debt levels.

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Padoan also said he remained hopeful a last-ditch deal could be done to avoid a messy Grexit, citing the ECB’s decision on Sunday to keep liquidity taps to Greece turned on.

“That was a very important political signal that, from the European institutions’ side, everyone has the intention of seeking an agreed and positive outcome,” he said. 

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