Greek default would not hit Estonia immediately, says PM (11)

Taavi Rõivas (right) in ERR radio studios (Courtesy of the Government Office)
6/29/2015 4:39 PM
Category: Politics

If Greece fails to pay the 1.5-billion-euro IMF loan repayment on Tuesday, Estonia's coffers will not be hit immediately, said PM Taavi Rõivas, despite Estonia guaranteeing around 450 million euros of loans to the nation.

“Nothing unreasonable was demanded from the Greeks – for example a decrease in tax exemptions was asked, including VAT on tourism, which would have meant 23 percent, the general VAT rate, but the Greeks wanted 13 percent,” Rõivas told ERR radio today.

He said Greece's islands currently enjoy 30-percent smaller tax rates, and the Greeks were not ready to change that. “Every sensible government would weigh these options without outside pressure when loan repayment deadlines are a few days away and there is no knowledge if the sum will be gathered or not,” Rõivas said.

Estonia will not have to pay immediately, if Greece defaults, as the European Financial Stability Facility (EFSF) loan deadline is in 2022, Rõivas said. Estonia's guarantee of EFSF's loans to Greece amounts to around 400 million euros. In addition, the Bank of Estonia, through the European Central Bank, holds around 50 million euros worth of Greek government bonds.

Rõivas added that a direct impact on the Estonian state budget cannot be ruled out just yet.

He said Greece's citizens should be explained why the reforms are necessary, and Estonia's path out of the financial crisis is the best example. “If the decision is made that Greece leaves the Eurozone, the debt will remain and creditors will still expect their money back. The national currency would be devalued very quickly if Greece leaves, and their insolvency would decrease further,” Rõivas said.

The Estonian Ministry of Finance today said EFSF loan and interest guarantee payments would only begin in 2022 and 2023.

According to the Guardian, a further 300 million euros could be added to Estonia's bill as part of around 110 billion euros loaned by the European Central Bank to Greek banks. The daily calculated Estonia's exposure to Greece's potential debt to 800 million euros, or 4 percent of GDP. In the Eurozone, only Malta (5 percent of GDP) and Slovakia (4.2 percent) could suffer more, while Ireland (1.4 percent) and Cyprus (2.4 percent) would be the least affected.

J.M. Laats

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