Official Sector Losses in the Greek Re-default.
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Posted 29 May 2012 - 11:01 PM
The bad chorus of bailout and stimulus rumors real and imagined runs around the clock. These still seems to be good for more Hail Mary rallies. Often, these subsequently fade [China has no plans for big stimulus]. Many of these rumors seem to be about Germany blinking, and “stepping up to the plate”, being the “fire-fighter” to ”do what’s necessary. Given the refrain of this endless propaganda, even I have caught myself focusing on the poor bailout politics of Germany [Is Germany the Great Savior of Europe?] , Germany that, Germany this.However, a simple look at the percentage participations of various existing bailout funding schemes is in order. Taking one of the insolvents, Greece, Mark Grant calculates true debt to GDP at 422%, taking into account its contingent liabilities. Greece runs out money (again) in June. One can conservatively assume the next Greek default haircut will be 50% or more. The private sector has already been severely haircut-ed and has little more blood to bleed. The hit for this one will fall squarely on the official sector. The first chart shows the exposure of the official sector in the Greek “rescue” programs.Taking the IMF item of 22 bn lent to Greece, it is a simple matter to go to the IMF site and look at member quotas. Almost every country in the world contributes some amount, but the big players are the US at 17.69%, Japan 6.56%, Germany 6.12% , UK and France 4.51% a piece, and China 4%. Of particular note is Spain 1.69%, and Italy at 3.31%. If we assume a fresh Greek haircut of 50% of 11 bn euro, Italy and Spain will take a 550 million euro loss.Of course the IMF loss is small potatoes relative to the losses on the EFSF, bilateral loans, and Target 2 liabilities. Bilateral and Target II liabilities are approximate to the EFSF “contribution keys”. Here we can total up all three schemes and arrive at 233 billion euros lent to Greece. In this instance Germany exposure is 29.07% and France is 21.83%. Applying a 50% haircut to the Greek re-default, Germany’s loss is 33.8 bn euros, and France loses 25.4 bn. Italy and Spain’s share of loses (assuming Germany and France don’t pick it up), those two countries are hit 22.4 bn and 14.8 bn euros respectively.Unfortunately that’s not all, as the ECB has 126 bn euros on the line with Greece. Germany share of the ECB is 27.85%, and France has 21.83% exposure. In a 50% re-default haircut Germany loses 17.5 bn euros, and France 13.2 bn. Italy’s loss is 11.6 bn, Spain loses 7.7 bn, and even Portugal is sent the tab for 1.6 bn, and Ireland 1.0 bn. The total official sector tab for these schemes for already vulnerable Italy and Spain, is 34.4 bn euros and 22.7 bn euros respectively. So much for the theory of a bailout free lunch and Germany footing the lion share of the bill.
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