What if Greeks Decide They Don’t Want to be Rescued?
The situation in Greece is deteriorating this morning, with eurozone leadership unable to come to a decision on a second bailout, which has now been pushed back to July.
Protests are ongoing in Athens, where leaders are trying to come to a deal on a second round of austerity measures, including privatizations and budget cuts.
The longer they take, however, the more public support swells against them, and greater the potential for Central European states to say no to a second bailout.
If no second bailout comes, Greece will likely be unable to pay its bills, and will default on its debt.
Japanese banks hold $500 million in Greek debt
Spanish banks hold $600 million in Greek debt
U.S. banks hold $1.8 billion in Greek debt
Italian banks hold $2.6 billion in Greek debt
UK banks hold $3.2 billion in Greek debt
French banks hold $19.8 billion in Greek debt
German banks hold $26.3 billion in Greek debt
Other Eurozone countries hold $15.7 billion in Greek debt
Banks in Europe have been working to cut their exposures.
Greek banks downgraded by S&P
Four of Greece’s largest banks have been downgraded by S&P today. From Financial Mirror:
Eurobank, Alpha Bank and Piraeus Bank “are exposed to significantly heightened risks as a result of deterioration in Greece’s creditworthiness and Greek depositors’ perceptions of a possible government debt restructuring.”
Moody’s puts Soc Gen, BNP Paribas, and Credit Agricole on downgrade review
Moody’s has put the three banks on review for a possible downgrade. That’s because they are exposed to both the Greek domestic economy, in terms of sovereign debt and/or to the country’s banking sector. From Moody’s:
Romania and Bulgaria’s banking sectors, and sovereigns, highly exposed to Greek banks
Romania and Bulgaria’s private sectors, and their public sectors, are exposed to the Greek banking sector. If Greece’s banking sector is slammed in a default, the result could be a lack of funding for the Romanian and Bulgarian sovereigns, private enterprises, or worse, according to Nomura (via FT Alphaville). From Nomura:
Austria banks have significant positions in Eastern Europe
Austria banks, like Erste Bank and Rafeissen, have positions in Eastern Europe which may come under threat if those countries slowdown as a result of a Greek default. From a Fitch comment on May 24 (via Reuters):
The ECB holds a significant amount of Greek debt
The ECB is exposed to Greek debt, which it holds significant amount of on its balance sheet. In the event of a Greek default, that debt may become worthless, and the ECB may be forced to recapitalize through taxpayer funds, from the rest of the eurozone.
If a restructuring does occur, the risk trade will be clobbered.
JP Morgan: There will be a flight to US treasuries and yields will fall there as a result of renewed risk aversion. This will widen spreads on high grade corporate bonds as a result.
Other countries will have a much harder time entering the Euro.
Morgan Stanley: The Greek crisis will make the EMU much more concerned about who they let into the Euro zone in the future. They will start to check more economic criteria, such as external imbalances and budget positions.
ECB: Rate hike cycle may be stalled
The ECB’s current round of rate hike, intended to curb inflationary pressures on the eurozone, may have to be halted if a Greek restructuring damages the continent’s banking system.