Nelson D. Schwartz had a great piece in the New York Times a few days ago that showed how susceptible the entire Eurozone would be to a Greek default. Here are the key paragraphs:
The first domino is Greece. It owes nearly $10 billion to Portuguese banks, and with Portugal already falling two notches in S. & P.’s ratings and facing higher borrowing costs, a default by Greece would be a staggering blow. Portugal, in turn, owes $86 billion to banks in Spain; Spain’s debt was downgraded one notch last week.The numbers quickly mount. Ireland is heavily indebted to Germany and Britain. The exposure of German banks to Spanish debt totals $238 billion, according to the Bank for International Settlements, while French banks hold another $220 billion. And Italy, whose finances are perennially shaky, is owed $31 billion by Spain and owes France $511 billion, or nearly 20 percent of the French gross domestic product.
“This is not a bailout of Greece,” said Eric Fine, who manages Van Eck G-175 Strategies, a hedge fund specializing in currencies and emerging market debt. “This is a bailout of the euro system.”
Read the rest of the article here and check out the cool graphic showing the debt linkages here.
How much capital are banks required to hold for Greek, Portuguese, or Spanish bonds?
ReplyDeleteWell, zero, of course. First world government debt is ss good as gold.