A variation of the old English idiom might spring to mind when reading details of the eurozone’s loan to Greece, as announced on the weekend.
The rescue package consists of a €30bn “non-concessional” loan from euro-area members, plus an IMF contribution, should the Hellenic Republic ever need it. Greece, we should note, still says it doesn’t require any bail-out funds — so the actual triggering of the loan is still uncertain.
But if it is ever requested, all eurozone members will be on the hook for that €30bn.
JP Morgan economist David Mackie brought the contributions point up on Friday, as speculation of an imminent Greek rescue package swirled. Here’s what he said then — before the loan was announced:
In our view, the activation of the support mechanism will achieve its first objective: giving Greece some breathing room to achieve the necessary fiscal consolidation away from the pressure of the financial markets. Clearly, the region has the fiscal capacity to provide support to Greece: indeed, of the major economies around the world, the Euro area as a whole has by far the strongest fiscal position. There is some uncertainty about whether the activation of the support mechanism will eliminate all contagion risk. One problem is that other fiscally stressed countries will be contributing to the funding, although the amounts are very small . . .
Small indeed, but not without irony given that countries such as Portugal and Spain (not to mention Ireland — another porcine acronymic member) are often perceived by the markets to be next at risk of some sort of debt crisis, given the size of their budget deficits and amount of short-term debt issuance.
In any case, based on the terms of the loan, eurozone contributions to the Greek bailout fund, if it is ever used, would break down as shown in the chart below. The IMF’s contribution, not shown below, would be about €10-11bn :
Goldman’s take on the Greek bailout – Zero Hedge
Spain: A legacy in limbo – FT Analysis
The Greek tragedy, recapped – FT Alphaville
The kindness of (bond market) strangers – FT Alphaville