While Banks Walk Away, German Taxpayers Get Slammed In A Greek Debt Restructuring

Angela Merkel

Germany’s banks, insurance firms, and pension funds have little to fear from a Greek debt restructuring, according to Der Spiegel.

The country’s banking sector would not be in need of another bailout, with Deutsche Bank, Commerzbank, and DZ Bank having enough cash on hand to handle their losses. Germany’s insurance sector looks solid too, with companies aggressively cutting back their exposures, which will limit losses in any haircut scenario. Even the country’s pension fund sector is secure.

But what about the taxpayer?

From Der Spiegel:

But the situation looks different for the German government and the federal states. At the very least, the large exposure of KfW and the bad banks of Hypo Real Estate and WestLB could end up being expensive. Taxpayers might need to step in, as might the savings banks that are owned by municipalities.

In addition, the European Central Bank (ECB) has bought up tens of billions of euros of Greek sovereign bonds. Because the Bundesbank, Germany’s central bank, holds more than a quarter of the ECB’s capital, it would have to take its share of losses accordingly.

The taxpayer ends up footing the bill again. And a real fear remains that a Greek debt restructuring would lead to an Irish, Portuguese, or Spanish debt restructuring. Or, that contagion from collapse within Greece spreads throughout the continent’s banking system through previously unforeseen means.

So costs might appear minimal now, but they could pile up rather quickly.

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