Numbers announced by European leaders concerning the private sector participation to the rescue do not add up: the total losses would amount to EUR55 bn, far from the EUR100 bn trumpeted.

1. http://marketsandbeyond.blogspot.com/
http://www.pcgwm.com/
European rescue package: truth and fallacy
07 November 2011
It occurred to me that the EUR100 bn private sector participation to the latest Greek
rescue might no be as large as trumpeted by European leaders on 26th October.
The statement:
“…we invite Greece, private investors and all parties concerned to develop a voluntary
bond exchange with a nominal discount of 50% on notional Greek debt held by private
investors.”
The facts:
1. Greek’s sovereign debt holders split:
• Commercial banks: EUR81 bn
• ECB: EUR45 bn
• EU/IMF: EUR65 bn
• Others (SWFs, asset managers, central banks, public sector funds): EUR159 bn
2. As per EBA data published in July stress test, Greek banks shared 59% of the total held
by commercial banks, i.e. EUR48 bn. The reduction in Greek debt will be at least partly
compensated by a bank recapitalization (I estimate it at around EUR30 bn – same as the
EBA): the net effect on the Geek sovereign debt reduction is therefore rather minimal at
approximately EUR18 bn (assuming that Greece and not the EFSF recapitalizes).
3. According to a research published by Barclay’s Bank in July, EUR11.3 bn are held by EZ
Insurance companies: 50% is EUR5.7 bn
4. Non-Greek European banks will take a EUR16.5 bn loss.
5. Remains private assets managers and smaller holders of Greek bonds which I believe
are not significant: say EUR 30bn to be generous or a EUR15 bn loss.
The total losses realized by the private sector would therefore amount to EUR55 bn, far
from the EUR100 bn trumpeted.
1

2. http://marketsandbeyond.blogspot.com/
http://www.pcgwm.com/
Conclusion
If non-Greek European private sector banks would write-down +/- EUR16.5 bn, one may
wonder why the EBA requires them to raise EUR76 bn whilst they are profitable enough
(but for a few exceptions) to absorb losses on Greece and reach the 9.5% Basle III capital
requirements.
Because, there is more to come; then EUR106 bn will not be enough; watch non-
performing private sector loans in Greece and elsewhere as well as Italy, France, Portugal,
Belgium, etc. sovereign debt… Italy’s interest rates on its debt are close to unsustainable at
6.6% and France together with Belgium are rapidly going the same way: any 1% increase
translates into +/- EUR19 bn additional interest payment in a full year for Italy and EUR17
bn for France.
The EUR1 tr EFSF will not be enough, nor the EUR200 bn recapitalization recommended
by the IMF: the only remaining solution would be for the ECB to monetize sovereign debt
for BIGSPIF. Germany has already started to eat its hat; when enough will be enough for
Germans?…
BIGSPIF: Belgium, Ireland, Greece, Spain, Portugal, Italy, France.
Source:
European Banking Authority: The EBA details the EU measures to restore confidence in
the banking sector
http://www.eba.europa.eu/News--Communications/Year/2011/The-EBA-details-the-EU-
measures-to-restore-confide.aspx
The Institute of International Finance: Press Statement on Euro Area Stablization
Measures
http://www.iif.com/
European Commission: Euro Summit Statement
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/125644.pdf
2