Where did this €698bn exposure come from?

Q How did this exposure arise?

A When money is transferred from a bank in Greece to a bank in Germany through the Target2 payments system, the Bundesbank creates the money in the account. It is owed that amount by the European Central Bank until such time as it can be retrieved from Greece’s central bank.

Q What happens if Greece leaves the Eurozone?

A The Greek central bank will not pay up, leaving the Target2 system and ECB with a shortfall. The gap will then have to be paid by the ECB’s shareholders – the largest of which is the Bundesbank. That can be funded either by the German government borrowing money to recapitalise the system, or the ECB lending the cash, which would monetise the shortfall, boosting inflation. Either way, the German taxpayer will have to take the hit.

Q Can Germany stop their exposure rising?

A No. It is unlikely that exposures to Greece can rise much further – its banks have very little money left. However, the inflows are also coming from Spain and Italy, which have a lot more cash.