Eric Dor's team at the IESEG School of Management in Lille has put together a table on the direct costs to Germany and France if Greece is pushed out of the euro, reports Ambrose Evans-Pritchard. .
These assume that relations between Europe and Greece break down in acrimony, with a full-fledged "stuff-you" default on euro liabilities. It assumes a drachma devaluation of 50pc.
Potential losses for the states, including central banks.
Upper bound of the losses
Billions €
| ||
French State
|
German State
| |
| TARGET2 liabilities of the Bank of Greece |
22.7
|
30.2
|
| Greek sovereign bonds held by the Eurosystem: SMP |
9.8
|
14
|
| Bilateral loans to Greece in the context of the first programme |
11.4
|
15.1
|
| Guarantees to bonds issued by the EFSF to provide loans to Greece in the context of the second programme |
8.4
|
11.2
|
| Guarantees to debts issued by the EFSF in the context of its participation to the “Private Sector Involvement” –restructuration of the Greek debt:“sweetener” |
6.5
|
8.6
|
| Guarantees to debts issued by the EFSF in the context of its participation to the “Private Sector Involvement” –restructuration of the Greek debt: payment of accrued interest |
1
|
1.4
|
| Guarantees to bonds issued by the EFSF to provide loans to Greece in order to buy back sovereign bonds used by banks as collateral to obtain funding from the Eurosystem |
7.6
|
10.2
|
Total
|
66.4
|
89.8
|
They conclude:
The total losses could reach €66.4bn for France and €89.8bn for Germany. These are upper bounds, but even in the case of a partial default, the losses would be huge.
Assuming that the new national currency would depreciate by 50 per cent against the euro, which is realistic, the losses for French banks would reach €19.8bn. They would reach €4.5bn for German banks.
Evans-Pritchard correctly points out that:
the real danger is contagion to Portugal, Ireland, Spain, Italy, Belgium, France, and the deadly linkages between €15 trillion in public and private debt in these countries and the €27 trillion European banking nexus.Obviously, in the short-term the ECB would step in, but the price-inflationary ramifications of continuing to prop up the F PIIGS means this is no long term solution. At some point, the eurozone breaks up and every F PIIGS country inflates itself into monetary madness at its own pace.
The Eurocrats and central bankers must be praying the Greeks don't learn the two words they dislike, almost as much as the word "default" and, a word Murray Rothbard liked, "repudiate".
ReplyDeleteI am referring to the words "odious debt".
As this 1991 Cato publication (pdf) by Patricia Adams shows, the concept of Odious Debt was actually pioneered by the US.
The Mises Institute's Stephan Kinsella also provides a brief intro to the doctrine.
It could be argued that a Greek government that saw the three defining principles of 'odious debt' applying to itself would be "gilding the lily".
Perhaps - but no more so than the statistical chicanery performed by previous Greek administrations when seeking entry into the Eurozone.
Although some have argued thus was the greatest scam since the Trojan Horse, a more likely hypothesis is that a deliberate blind eye was given to the fraud from the welcoming Eurocrats. In others words Empire first, taxpayers second.