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Thursday, 23 June 2011

Dutch exposure to Greece and the other PIIGS countries: it is time to end the bailout madness.

Yesterday, the Dutch Finance Minister Jan Kees de Jager sent a letter to the 2nd Chamber of Dutch Parliament. In a written answer to questions from the 2nd Chamber, Dutch finance minister Jan Kees de Jager stated, that the Dutch banks have an exposure of €109 bln to sovereign debt from the PIIGS-countries (Portugal, Ireland, Italy, Greece and Spain).

Here are the main topics of De Jager’s letter (link in Dutch):

·    Dutch Banks have a total exposure to Greece of €3.7bln
o   Including Greek state, local governments, banks and private sector
·    Dutch Insurers and pension funds have an exposure of ‘a few billions’ (no more specific info available - EL)
·   The Dutch banks have an exposure to:
o   Ireland           €12.5bln
o   Portugal            €4.9bln
o   Spain              €57.6 bln
o   Italy               €33.9 bln
·    Dutch Insurers and pension funds have an exposure to these countries of ‘a few dozen billions’
·    There is no insight in the exposure of Dutch banks on CDS (Credit Default Swaps)
o    Reports on CDS exposure should be reported from January 1, 2013
·    The ECB has an exposure to sovereigns of €74.9 (Securities Market Programme) per 6-10-2011
·    The ECB in April handed out €86.9 bln in loans to the Greek banks.
o   It is unknown what kind of collateral is handed over for these loans, as this is commonly unknown.
o   However, the collateral can be expected to be (in majority) Greek sovereigns
·    The Greek banks own €53 of Greek sovereigns and lent the Greek government an additional €21.6
·    If these collaterals could not be exchanged for cash anymore at the ECB, the Greek banks would suffer acute liquidity problems and would face immediate bankruptcy.
·    Restructuring of Greek debt would have grave consequences for the Greek banks and subsequently could lead to losses on Greek bank / private sector exposure.
·    A disorderly Greek default would lead to considerable losses for the ECB and (through DNB) for a €4 bln loss to The Netherlands.
Phew. Now I feel much more comforted, after being so afraid that it would cost me money!

But seriously, everything is interconnected here: the exposure of the ECB and the Greek banks to the Greek state can make, that when Greece defaults:
·    The Greek banks lose money and will probably be bankrupted.
·    The Greek private sector will suddenly be without money and will probably also be bankrupted for a considerable part (due to acute liquidity problems)
·    The ECB loses serious money on its exposure to the Greek state and the Greek banks, which should be settled by the European taxpayer.
·    The Dutch banks, insurers and pension funds lose money on their still existing exposure to the Greek state, the Greek private sector and the Greek banks, which should be settled by the Dutch taxpayer.

And the good thing is: the exposure to Greece is just the least of our problems.

The current exposure of the Dutch banks, insurers and pension funds to the other PIIGS-countries is so enormous that a 50% default of Spain alone would easily wipe-out the major part of the equity capital of the main Dutch banks, insurers and pension funds.

It makes me think: what were these guys thinking, anyway, when they were exposing themselves so heavily to the sovereign bonds of these countries?!

And do the Dutch and European taxpayers have to save these banks again… and again?!

My reaction is: let us not go on growing the cancer (thank you, Toddo ( larger and larger in our desperite attempts to avoid the car crash:
·    Let Greece take the pain of a default now. It hurts for a while, but they can start to rebuild Greece with fresh energy and reduced debt. Because: if Greece has to go, it has to go and there is no way that Europe can prevent this without causing massive pain in Greece and the rest of the Euro zone. So please let us stop trying.
·    The same goes for Portugal and Spain: their unsustainable (youth) unemployment and educational problems should be cured, before these countries can return to growth. It is not to Europe to keep for them all the balls in the air, like a juggler. Not, because I don’t like these countries, but simply because it’s impossible to do. And the financial markets know that.
·    For Italy and Ireland, I have not so many worries: Italy is still an industrial leader with worldclass products and Ireland seems to have some light at the end of the tunnel.
·    And as far as the Dutch banks are concerned: if they need state support again, then it is time to remove the current management layers and put a new generation of managers with more awareness in. And please let’s then get rid of the bonus boys.
o   Also the shareholders and bondholders of the Dutch banks should in this case foot the bill for the adventures of the banks on the international investment markets.

But please let’s stop with this bailout madness, as this not solves the situation in the PIIGS-countries, but only makes it worse. In these countries as well as in our own national financial markets.

1 comment:

  1. Hi,

    The Spanish problem has nothing to do with education, the big youth unemployment in Spain is mostly between people with an university degree.

    In Spain they call it 'titulitis' it is like a kind of a disease of the society that makes everybody to study a degree in the university even if they have a dark future in the job market.

    The problem there is more related to the poor industry, and specially the lack of a diversity in the economic model. They are based on the turism and, during the housing bubble, real state market.

    Now, real state market is depressed, and there is no alternative in the production model to fill the gap.

    Fortunatelly, banks in Spain still looks quite solid. Even though, we know that any bank in the world could bankrupt as a result of a bank run.

    The problem in Spain is the lack of quality of their politicians and the election system who promotes that only two parties shares the power alternating in the government every 8 years.

    And they rule for a very short term (8 years) without any responsibility to make the country more solid.

    That's why people is on the streets in a peacefull riot.

    thanks for this great blog.