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IIF: Greece’s Disorderly Default Would Cost EZ One Trillion Euros

Reuters has obtained a secret report in which the Institute of International Finance (IIF) says that a Disorderly Greek default would probably cause a damage of one trillion euros to the euro zone. The impact would be hazardous for countries like Italy, Spain, Ireland and Portugal. As the “secret” report in all over the internet, and here are some excerpts:

Reuters: Bondholder group sees 1 trln euro Greek default risk

“A disorderly Greek default would probably leave Italy and Spain needing outside help to stop contagion spreading and cause more than 1 trillion euros ($1.3 trillion) of damage to the euro zone, the group representing Athens’ bondholders warned.

Greek private creditors have until Thursday night to say whether they will take part in a bond swap that is part of a 130 billion euros bailout deal to put the country on a more stable footing and cut its debt by more than 100 billion euros.

Finance Minister EvangelosVenizelos told Reuters on Monday the exchange was the best deal bondholders will get and he would activate laws forcing losses on bond holders who did not sign up.

Analysts said the Institute of International Finance Feb. 18 document, marked “IIF Staff Note: Confidential” may have been designed to alarm investors into participating in the exchange.

“There are some very important and damaging ramifications that would result from a disorderly default on Greek government debt,” the IIF said in a document obtained by Reuters.

“It is difficult to add all these contingent liabilities up with any degree of precision, although it is hard to see how they would not exceed 1 trillion euros.”

If the Greek deal fell apart, the European Central Bank would likely suffer substantial losses, the document said, estimating the central bank’s exposure to Greece of 177 billion euros was over 200 percent of its capital base.

Both Ireland and Portugal would need more outside help to insulate them from Greece, which could cost 380 billion euros over five years, the IIF estimated.

A disorderly Greek default would also probably require “substantial support to Spain and Italy to stem contagion there”, which could cost another 350 billion euros, it said.

The IIF, which helped negotiate the bond swap on behalf of creditors, also said there would be more massive bank recapitalisation costs, which could easily hit 160 billion euros.”( and further reading)

Meanwhile, Greece says that there would be no extension for participation in the PSI, a procedure that ends on Friday, March 9 th 2012. Athens threatens to activate the Collective action clauses (CACs) in case the participation of Greek bond holders would be no more than 75 percent.

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  1. In that case let’s make it orderly and save a lot of money!

  2. Pure panicmongering by that lobby organisation of private investors’ interests. Like you rightly noticed, that this “secret” report is all over the internets is telling. It’s propaganda.