First came the rhetorical jawboning, where following announcements by Fitch, European politicians, and finally Germany's finance minister [10], the scene was set to prepare the general public that despite protests to the contrary, a Greek exit from the euro would not really be quite the apocalypse imagined. Now comes the actual quantification part, whereby in addition to adding numbers and determining what the further sunk costs to a Greek bailout will be (hint: much, much greater than anyone can conceive), Germany has finally understood what we have been warning for over a year: that contingent liabilities become very real liabilities when a threshold event forces the transition from "off balance sheet" to on, and the piper has to be paid. According to an analysis released hours ago in Wirtschafts Woche [11], Germany "would only absorb losses of 76.6 billion euros in Germany. This amount results from bilateral aid loans, the liability of Germany's share in credit rescue fund EFSF, Germany's share of losses of the European Central Bank (ECB) and the German share of liability to the credit support of the International Monetary Fund (IMF)."
The quantification continues (google translated [11]):
15.1 billion euros from Germany alone would have been awarded the bilateral loan write off, which was adopted in May 2010 part of the first rescue package are. 20 billion euros stuck to Germany as a liability amount from the second bailout by the IMF and EFSF. Would be added to the percentage loss of 12.1 billion euros of Greek government bonds, Federal Bank, which bought the ECB and these would have to write off a national bankruptcy in Greece. On further € 28.1 billion would amount to the federal share of the losses in the so-called target of the ECB claims against Greece.
A far bigger issue, however, is that once Greece bails, the contagion effect would begin: first by Fitch downgrading all European countries as it warned yesterday, then more and more countries becoming ineligible for EFSF/ESM participation, as we warned last July when we predicted this entire chain of events in "The Fatal Flaw In Europe's Second "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP [12]" when we explained how in a daisy chain collapse of European countries which could only be sustained, paradoxically, by an exponential expansion in the EFSF, could result in Germany easily footing 32% of its GDP (and in reality up to 56%) in "contingent liabilities":
[13]And the biggest concern, one which WiWo only briefly touches upon, is that once the EMU exits begin, and the Eurosystem collapses, all those receivables due to the Bundesbank become null and void, or at best payable in drachma, peseta, escudo, and lira. In other words: completely worthless. As a reminder, at last check [14]the total amount of TARGET2 obligations had soared to a record 25% of German GDP.
So while we appreciate Germany's first attempt at quantifying the cost of the Greek exit, the truth is that the number proposed is woefully inadequate. And the roughly 50% of German GDP already "sunk" will only get bigger and bigger, until finally there is no choice for Germany but to pull the plug.
What, however is most important, is that after months and years of even denying this potential outcome as a possibility, Germany too has finally discovered that when it comes to numbers, no amount of rhetoric can change the final outcome.
That the quantification of costs has finally started is critical. And yes, we are confident that the true final number, one that Zero Hedge predicted with precision last July, will soon be derived even by the most hardened pro-Euro German press.