Over the weekend, we showed why contrary to unfounded speculation that Greece is entirely contained, there are still extensive linkages when it comes to the fallout a Grexit would reap if not directly on private commercial banks which over the years managed to offload their Greek exposure to the Europe’s taxpayers….
… but on the sovereign economies of the Eurozone as well as the ECB, at first via the EFSF, then also via the SMP, the MRO, Target 2 and so on.
Overnight, Barclays took this analysis and also showed the absolute national euro exposure to Greece broken down by bailout program and also as a % of respective host nation’s GDP. What it found is the following:
And here is what it looks like when we redo our prior chart showing just European Grexit exposure via EFSF, to total sovereign exposure as a % of GDP. The total amount in question: €341 billion, or just about 3.4% of the €10 trillion in notional European GDP.
But wait, rules-based Europe has “firewalls” now, all laid out and proper, so there can’t possibly be contagion.
Only that’s not true: for example, two years after introducing the OMT, the ECB still does not even have a regular term sheet laying out the rules of what the purpose of the OMT is aside to be some massive, amorphous “whatever it takes” bazooka. And as for the ECB’s QE, it is all downhill from here as net issuance in Europe trickle to a halt, and the ECB risks crushing an already illiquid bond market by monetizing even more of it. Of course, it could engage in outright stock monetization but that would be the signal that the end of the current system is truly near.
As for “rules-based”, we’ll just leave that to the ECB