Earlier today, Yanis Varoufakis reiterated his core thesis driving the entire Greek approach from day 1 of its negotiations with the Eurogroup: “Europe [stands] to lose as much as Athens if the country is forced from the euro after a referendum on Sunday on bailout terms.”
This is merely a recap of what we said 4 years ago when in July of 2011 we explained “How Euro Bailout #2 Could Cost Up To 56% Of German GDP“, recall:
the bottom line is that for an enlarged EFSF (which is what its blank check expansion today provided) to be effective, it will need to cover Italy and Belgium. As AB says, “its firepower would have to rise to €1.45trn backed by a total of €1.7trn guarantees.” And here is where the whole premise breaks down, if not from a financial standpoint, then certainly from a political one: “As the guarantees of the periphery including Italy are worthless, the Guarantee Germany would have to provide rises to €790bn or 32% of GDP.” That’s right: by not monetizing European debt on its books, the ECB has effectively left Germany holding the bag to the entire European bailout via the blank check SPV. The cost if things go wrong: a third of the country economic output, and the worst case scenario: a depression the likes of which Germany has not seen since the 1920-30s. Oh, and if France gets downgraded, Germany’s pro rata share of funding the EFSF jumps to a mindboggling €1.385 trillion, or 56% of German GDP!
Several years later, in anticipation of precisely the predicament Europe finds itself today, the ECB did begin to monetize European debt, which has since become the biggest European risk-shock absorber of all, and the one which the ECB is literally betting the bank on: just count
Originally appeared at: http://davidstockmanscontracorner.com/why-the-eurocrats-are-petrified-what-the-falling-dominoes-of-grexit-look-like/
Why The Eurocrats Are Petrified——What The Falling Dominoes of ‘Grexit’ Look Like is a story from: BitcoinWarrior.net