The Bill Germany Faces Billions in Losses If Greece Goes Bust

Vast amounts of German money are at stake if Greece goes bankrupt -- with liabilities as high as €84 billion. Even though that figure is a large one, it would be paid over years and dangers to the Berlin budget are limited.

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Is Germany on the verge of losing billions of euros because of loan guarantees it offered to Greece as part of its bailout?
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Is Germany on the verge of losing billions of euros because of loan guarantees it offered to Greece as part of its bailout?


"So far, Germany hasn't had to spend a single euro from the federal budget on Greece." It's a line one has heard dozens of times on German talk shows in recent years. Soon, though, the claim may no longer hold true. A Greek insolvency is now within the realm of possibility and if the country does go bust, it could directly burden the German federal budget.

But how many billions of euros in German money are actually at stake? It may seem like a simple question, but there are no easy answers, because Germany's actual liability for Greek debt depends on a number of factors.

For a simple answer, just scroll to the last graphic in this article, where you will find the maximum burden for the German budget in a worst case scenario. If you're looking for a more nuanced answer, then please continue reading.

In order to determine the maximum possible liability for Germany as of the end of June 2015, you have to consider several factors, including whether …

  • Greece becomes insolvent but remains in the euro zone. Then Germany would be held liable for up to €61.5 billion ($68.6 billion) in Greek loans. But these liabilities would be for payments that are planned as far into the future as 2054.

Or whether …

  • Greece also withdraws from the euro zone. In the event of a Grexit, Germany's total liabilities would increase to around €84.5 billion.

But how do these numbers fit together?

The important thing here is that these figures represent the maximum conceivable damage to the German budget. They would be incurred if Greece didn't pay a single cent back on its debts over the next four decades -- an extremely unlikely scenario. It's far more likely that Greece would service certain debts, but not others.

In other words, there are varying probabilities of default for Greek loans that Germany has backed.

A First Bailout Package with High Risks

In May 2010, Athens' partners in the euro zone and the International Monetary Fund (IMF) assembled the first bailout package for Greece. In recent weeks, the confrontation has primarily escalated between Greece and its euro-zone partners, creating a high likelihood that Athens will either not service, or insufficiently service, the loans for which those countries have provided guarantees.

Germany itself provided €15.17 billion in guarantees in the first bailout package, meaning that Germany is liable for that amount of the loans that were extended to Greece. If the government in Athens stops servicing the loans, then Germany will have to pay for them when they come due.

But none of these loans are due until 2020, with repayment continuing until 2041. Germany would never be liable for more than €758.5 million in any given year.

In total, Greece was wired €73 billion as part of the first bailout package, including €52.9 billion from its euro-zone partners and €20.1 billion from the IMF.

A Second Bailout with High Risks

The same scenario applies to the second bailout package provided to Greece in March 2012: It is most likely that Athens would not service the loans for which its European partners have provided guarantees.

In contrast to the first aid package, the individual euro-zone states were not direct stakeholders this time around. Instead the guarantees were provided by the EFSF, which was set up and funded by the euro-zone members. Germany was liable for 29.13 percent of any guarantees provided by EFSF as of June 2015.

If Greece didn't pay back a single cent of loans received as part of the second bailout package, Germany would be liable for a total of €38.16 billion.

In this case, the loans aren't due until 2023, with repayment extending to 2054. Thus, Germany would not be required to pay more than €2.95 billion in any given year.

In total, Greece received a sum of €142.8 billion in the second bailout package, with €131 billion coming from its euro-zone partners via the EFSF and €11.8 billion originating from the IMF.

Government Bonds Held by the ECB -- A High Risk of Default, but Low Damage Risk for Germany

Relations are also poor at the moment between the Greek government and the European Central Bank. The ECB is currently holding just under €20 billion in Greek government bonds that it bought from private creditors in the scope of the debt haircut. Other national central banks within the euro zone are holding additional Greek sovereign bonds with a value of around €7 billion -- bonds the ECB will have to back in the event of default.

Germany is liable for 25.57 percent of the ECB's losses -- at least in theory. But it is anything but certain that the member states would actually have to recapitalize the ECB, because the central bank's statutes stipulate that losses up to a certain amount must first be offset by the ECB's reserves and profits.

Still, even if a worst case scenario did emerge, Germany would be required to pay for maximum losses of €6.9 billion that would be due if the Greek state didn't service the government bonds currently held by the ECB.

Low Risk IMF Loans to Greece

Although the tone used by Athens in speaking of the IMF in recent weeks has been harsh, at the moment there are signs of reconciliation. The IMF is an institution whose expertise could be useful to Greece in the future, and the Greek government seems to be aware of this. Also, if Greece were to default on its IMF loans, states like China and the United States would also be partly liable, countries with which Athens is unlikely to want to risk spoiling relations. On top of that, Greece's debt with the IMF is comparably low.

As such, it's likely that Greece will honor its payment obligations to the IMF as it has done so far. The possibility of payment delays is also unlikely to change anything fundamentally.

Germany itself is liable for 6.12 percent of the IMF's losses. If Greece were to refuse to service its IMF loans in their entirety, Germany would be hit with €1.29 billion in liabilities.

In the scope of the first and second bailout packages, the IMF contributed a total of €31.9 billion in loans to Greece. The country has €21.1 billion in payments still due on the loans.

Total Risk for Germany -- If Greece Remains in Euro

The graphic shows the cumulative risks for Germany as of June 2015.

Even though the total figure of €61.53 billion is quite large, its actual impact on the German budget would be less dramatic because the losses would be spread out over a long period of time extending to 2054. The annual losses occurred would never exceed €3 billion, with most yearly figures running between €1 billion and €2 billion. Those sums certainly aren't peanuts, but a country as big as Germany should be able to absorb them. Just to offer a comparison, the city-state of Berlin received €3.5 billion in transfer payments from other German states last year. One also shouldn't forget the effect of inflation: The just under €3 billion in debt default Germany would have to cover in 2043, the year with the highest risk for the country, would likely be a considerably lighter blow then than it would be now.

Total Risk for Germany in the Event of a Grexit

If Greece were to exit the euro zone altogether, additional liabilities would ensue through the Greek central bank's departure from the European Central Bank.

The majority of these liabilities relate to emergency aid provided to Greek banks, the so-called Emergency Liquidity Assistance (ELA). This sum currently totals around €90 million. As the ECB's biggest shareholder, Germany would be responsible for about €23 billion of that sum. In the event of a Grexit, this would bring Germany's total exposure up to about €84.5 billion.

Still, it is highly unlikely that these ELA loans would have to be written off in their entirety. They are collateralized -- even if the securities they are backed by are Greek government bonds and corporate credits. Besides, as previously stated, it is uncertain whether ECB losses would have to be immediately compensated for at their full value.

Additional reporting by Nicola Naber and the SPIEGEL Research Department.

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geoklenk 06/30/2015
1. The Greek economy
The EC needs an organism to alleviate, aid and back up economies in turmoil, and to stabilize, and write off debts if necessary, difficult financial situations that arise in the economies of member countries. Only in this way we can avoid moving from one crisis to another.
simeon.arseniyadis 07/01/2015
2. Sick and tired of Germans “paying Europe’s bills”.
Greece is a tiny country, and yet many are afraid of Grexit… No need to write a thesis. A few lines are often sufficient. EE is a bank-leaded organization. Bankers are not wealth creators for the people. World economy is debt based. People around the world is devoid of basic understanding of economics, and suffer of financial illiteracy. Like France, USA and certainly others, Germany is benefiting widely and fabulously from the actual Greek crisis just as did during and after the WWII. One could imagine that German government officials (Europe’s big boss) could be a bit less aggressive against Greek people; instead not only they are not, but they further managed to convince a large part of the average German (and may be far beyond) that Greek people is lazy, making his living thanks to hard working Germans. Who could be astonished to see that German people buys this version? After all, the Germans did trust Adolf, why they shouldn’t trust Wolfgang? Probably the Greek people still think that problems could be solved by those who created them (Papandreou-Karamanlis-Samaras-Venizelos and their descendant’s, now pushing for the “Yes” in Sunday’s referendum). Then, they will get what they deserve. Hope not to appear “aggressive” to anyone, for aggressiveness is considered a weakness, since weakness, not strength, often leads to aggression. PS: To refresh the memory of the “well behaving”, “ethic lesson provider” charmy Germans: "The US, Canada, Britain, France, Greece, and other signatories at the London Debt Agreement of 1953 granted Chancellor Konrad Adenauer a 50% haircut on all German debt, worth 70% in relief with stretched maturities The so-called Economic Miracle (in Germany) was also made possible by the fact that the question of reparations was put aside in the London Debt Agreement, explicitly so that Germany could prosper." Not surprisingly, only very few mention the huge German debt to Greece (WWII reparations and the forced Greek central bank loan of 1942), still fewer the fact that Germans went bankrupt twice in the first half of the 20th century, in 1923 (WWI) and in 1945 (WWII) through bloodshed and barbarism, while saved by the contribution of wealthy as well as needy European countries. But that’s another movie.
nsmith 07/01/2015
3.
84 Billion Euros. Really? Was anybody awake while all of this was happening?--How is it possible to continue to pour money into a void and think you'll ever see it again? At this stage of the game, a referendum is nothing more than a face-saving trick. And the buck will stop with Christine Lagarde & the IMF, NOT the Greek Prime Minister.
rollo1066 07/01/2015
4.
Germany's behavior in this crisis is very wrong. Your Chancellor's party is called the CDU. it should change its name. Its leaders certainly don't seem to favor following the teachings of Jesus. Your country is behaving like the rich man in the parable who was forgiven a huge amount by a king but refused to forgive a poor man who owed him a small amount.
pbbrown8 07/01/2015
5.
'if Greece goes bust"....Greece is bust
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