With less than 20 days left until the Greek general elections, bluffs, counterbluffs, speculation, and propaganda are running wild, all of which, however, can be reduced to the following simply question: who has the leverage? Is it still Greece, which can play the Eurozone like a fiddle demanding anything, and knowing that a Grexit, while suicidal for Athens, would be just as suicidal for Brussles, or your classical Mutual Assured Destruction layout; or is it Germany, which in the past two weeks has seen its pro-Grexit rhetoric pick up to unprecedented levels, repeating on various occasions that Greece is "no longer systematically important", and that Europe will no longer be "blackmailed" by Syriza's demands for an end to austerity (which in Europe has become a code word for government corruption and incompetence).
The point of this post is not to speculate one way or another: there are many other articles that have laid out both sides of this complicated dance which takes place in what is supposed to be a monetary if not (and never will be) fiscal union, but to inquire who would be hurt the most if Greece defaults, i.e.who is the biggest owner of Greek debt.
For the answer we go to today's Bloomberg Brief which gives the answer:
Who owns Greece's public debt? That's the 322 billion-euro question, according to the Finance Ministry's figures from the third quarter of last year. Most of the debt has changed hands since a bailout in 2010, a second in 2012 and a restructuring involving private creditors that same year. Private owners now hold only 17 percent. The secondary market has become very thin — bear that in mind when looking at 10-year bond yields. ... A default would have to be absorbed instead by official creditors, holding the remaining 83 percent of outstanding loans and bonds. These include euro-area governments (62 percent), the International Monetary Fund (10 percent) through its participation in the two bailouts, and the European Central Bank (8 percent), which purchased bonds in 2010 through its Securities Market Program. The remaining 3 percent are repurchase agreements and assets held by the Central Bank of Greece. It is unclear where losses on that portion would fall.
The chart is below:
All of that is largely known, yet Bloomberg does bring up a relevant point: "The nominal amounts at stake do illustrate the motives for German resistance to restructuring. Yet a more relevant measure would adjust for a country's ability to absorb those losses. The picture radically changes when that exposure is expressed as a share of 2013 nominal GDP. On this ranking, Germany falls to No. 9 with an exposure amounting to 2.2 percent of its economy's size. France falls to No. 8 (2.2 percent) and Italy to No. 7 (2.5 percent). Portugal (3.2 percent), Cyprus (2.8 percent) and Slovenia (2.6 percent) top the ranking, meaning these countries have the most to lose if Greece decides to write down its public debt."
Recent comments from national leaders in Europe don't reflect those rankings. Germany has sent the strongest warnings against a Syriza-led government, yet the country isn't the most at risk — at least not in terms of GDP. The silence of euro-area nations with greater exposure might have something to do with the fact that they may have to negotiate their own restructurings. (For example, see “Spanish Default Risk Rises as Euro-Area Inflation Slows,” here on Bloomberg.) In the meantime, those countries might save face by keeping quiet.
In other words, those countries who have least to fear are the most vocal and most eager to remind everyone there will be no contagion. Of course, those countries which will be crippled by Greek contagion, have yet to utter a peep.
What Bloomberg forgets, however, is that contagion - once broken out - will impact not just countries but corporations and, more improtantly, banks. And nobody stands to lose more than Europe's biggest bank by a mile: Deutsche Bank, the one bank which like Portugal, Cyprus and Slovenia has kept its mouth resolutely shut on the topic of a potential Grexit as soon as a few weeks from now.
