Why a Grexit would be worse than default

The direct losses for Germany and other euro-area countries would likely be much larger if Greece were to exit the eurozone than if it stays.

Bruegel

A few days ago the influential IFO Institute published a short paper suggesting that a Greek default inside the euro area would cost Germany €77.1 billion, while a default combined with an exit from the euro would cost €75.8 billion. The two numbers are about the same, yet unsurprisingly, media reports emphasised that a Grexit would be cheaper for Germany by €1.3 billion (see e.g. a Focus report here).

We think that the publication of such numbers falsely suggests that direct losses can be calculated precisely. Even more importantly, we noticed that the calculation did not consider three major factors:

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