Ifo Institute – Leibniz Institute for Economic Research at the University of Munich
The Exposure Level - Bailout measures for the Eurozone countries and Germany’s exposure
The Eurozone is currently going through a grave balance-of-payments crisis. Various bail-out measures have been introduced to save individual euro countries from insolvency, which are collectively referred to as the “euro bailout package”. These measures include Target credit granted within the Eurosystem as well as credit in the form of government bond purchases by central banks.
Target credit is granted when the central banks of individual countries make payments to national banks of other countries. Such payments are made possible because the respective national central banks of the borrowing countries grant more refinancing credit and create more liquidity than necessary to provide their own country with central bank money. The additionally created central bank money gives domestic economic agents the opportunity to finance balance-of-payments deficits, or in net terms to purchase goods and assets or pay off debts in other Eurozone countries. There is no term for Target credit in principle, and the interest that national central banks charge each other equals the interest rate on main refinancing operations.
An overview of the financial assistance resulting from the bail-out measures for euro countries is offered below. Germany’s share in the potential exposure is defined as the exposure level.
The bail-out measures are presented in five different columns in the figure. The respective figures are rounded up/down to the nearest billion and this also applies to all of the tables linked to this page. The first (left-hand) column shows the net amounts that have already been paid out to the six crisis countries Greece, Ireland, Portugal, Spain, Italy and Cyprus (referred to collectively as the GIPSIC countries), the second column shows all of the bailout funds pledged to date, and the third column shows the total potential lending volume. This represents the guarantees and/or credit volumes provided via the bail-out initiatives and packages of the Eurozone countries (first rescue package for Greece, EFSF and ESM), including contributions from the International Monetary Fund (IMF) to countries of the euro zone, plus EU loans (in the context of EFSM), as well as the sums that the ECB has spent on purchasing government bonds and the Target credits granted to the central banks of GIPSIC countries. Lastly, the claims and/or liabilities against the Eurosystem are taken into consideration arising from individual countries issuing de facto more or fewer banknotes than the amount corresponding to their share in the ECB's capital. For the funds not supplied by the ECB and/or the central banks, the net amounts shown in the first column were calculated by subtracting the bail-out funds received by a country from the contributions to bail-out funds directly paid by it. The crisis-afflicted Italy has not yet received any bail-out funds, but has contributed to them as part of its obligations, so the resulting net amount is negative and is noted on the right adjacent to the column. For the ECB bail-out funds the current actual amount shown in the second and third columns is carried over from the first column. The two compilations on the right document the share of exposure to be borne by Germany. The fourth column refers to the sums already paid out, while the fifth column refers to the entire sum of potential bail-out funds available. This fifth column represents the exposure level. It shows Germany’s share in the exposure in the extreme case of one the crisis-stricken countries declaring insolvency and exiting the Eurozone should the credit line shown in the third column be exhausted, the crisis-afflicted countries be unable to repay any of their debts and the should the euro as survive. In this case scenario the legal relationship between the Eurosystem and the commercial banks in the crisis-stricken countries is terminated. The losses sustained by the central banks of the other euro countries are then independent of the issue of whether these commercial banks repay their refinancing credits and are limited to the central banks’ respective shares of the Target credit owed by the crisis-stricken countries and the share of their government bond purchases. In addition, proportionate losses also arise from inter-government loans, IMF and EU loans. The exposure level shows the potential extent of the total exposure amount in an extreme scenario, and does not represent any calculation of the losses actually to be expected.
ECB contribution and first bail-out package for Greece
Support for the crisis-stricken countries began long before political debate over the bail-out package in autumn 2007 when the central banks of these countries replaced inter-bank loans with Target credit. The red oblongs denote the Target liabilities of the GIPSIC countries. For Greece, Ireland, Portugal and Cyprus the International Monetary Fund (IMF) is used as a data source. For more details of the exact calculation see Sinn and Wollmershäuser. The Target figures for Italy and Spain (and Greece since February 2008; loaded form Datastream) can be taken directly from the balance sheets of their national central banks (NCBs). The Target balances of the Eurozone countries are published on a monthly basis, but with different delays. The most recently published amounts are used to calculate the combined Target liabilities of the crisis-stricken countries.
In May 2010 the ECB and the national central banks of the Eurosystem began buying government bonds in the euro area. These data are published on an ongoing basis in the ECB's consolidated weekly financial statement. The Eurosystem's consolidated financial statement contains the Securities Market Program in the section “Items related to monetary policy operations” under asset items 7.1 (Securities for monetary policy purposes). With these government bond purchases the ECB is taking over the role of granting credit in the euro crisis-affected countries that would previously have been granted by the market players. Since all of the NCBs of the euro countries participate in the purchase of government bonds according to their share in the ECB’s capital, the share of the crisis-stricken countries – 37% – is subtracted from the overall total. The corresponding volumes are represented by the dark blue oblongs in the figure. The purchases made by the NCBs of the crisis countries are not included, since they on their own lead to growth in the local money supply that is similar to refinancing credit and is thus already accounted for as Target credit.
The part of the column (in pink) that goes below the zero line shows that the crisis countries have combined have claims versus the remaining euro countries because they issued a slightly smaller share of banknotes than they were entitled to.
Prior to the decisions taken regarding official bail-out packages, the first bail-out package for Greece was agreed in May 2010 to prevent the country from suffering acute insolvency. The package constituted a joint effort on the part of the Eurozone countries and the IMF. Greece was pledged €80 billion from the Eurozone countries and €30 billion from the IMF. Funds were to be paid out in individual tranches according to the Greek state’s financing requirements. Slovakia objected to these payments from the outset. After the second tranche Ireland ceased its payment, with Portugal following suit after the fourth tranche (by which time Portugal itself was accepting financial assistance). This meant that the first bail-out package financed by the euro countries effectively only totalled €77.3 billion. By the end of 2011 funds totalling €52.9 billion had been paid out to Greece by the euro countries in the framework of this bail-out package. In the context of negotiations over a second bail-out package for Greece (see below), it was established that the remaining funds (€24.4 billion) were no longer to be paid out in the form of bilateral credits, but allocated by the EFSF instead. The second aid donor, namely the IMF, paid out bail-out funds totalling around €20 billion to Greece by the end of 2011.
Financial support mechanisms: the EFSM, EFSF and ESM
In May 2010 the euro countries decided to set up an interim bail-out fund, resulting in the creation of the European Financial Stability Mechanism (EFSM; effective as of May 2010) and the European Financial Stability Facility (EFSF; effective as of June 2010), to make money available to countries in financial difficulties. This bail-out fund is supported by additional financial contributions from the IMF. The EFSM is a EU instrument that is financed via the EU budget. The original EFSF’s guarantee capacity of €440 billion was increased to €780 billion in October 2011 (the so-called boosting of the EFSF), in order to actually make the indicative lending envelope of €440 billion actually available. The funding made available by the IMF to the EFSF and EFSM in parallel to European support totals (at least) €250 billion.
In March 2011 the Council of the European Union agreed to set up a permanent European Stability Mechanism (ESM) that would take over the tasks of the EFSF and EFSM as of July 2013 and should have an effective lending capacity of €500 billion. After the crisis deepened, the finance ministers of the euro countries decided on 23 January 2012 to make the ESM effective as of July 2012 and to let it function parallel to the EFSF until mid-2013. The corresponding treaty was signed by country representatives in Brussels on 2 February 2012. The treaty was to come into effect on the date that instruments of ratification were deposited by so many countries that at least 90% of the subscription amount was achieved. Due to the fact that the ratification process lasted longer than expected, the treaty did not take effect until 27 September 2012 and the ESM did not become operational until 8 October 2012. On 30 March 2012 the finance ministers of the Eurozone countries agreed to erecting a “firewall” totalling €800 billion, of which €500 billion represents the ESM credit facility, €200 billion are EFSF bail-out funds earmarked for Greece, Ireland and Portugal (actual volume of EFSF funds for these three countries: €188 billion), €49 billion in EFSM funds for the programmes in Ireland and Portugal, and finally €53 billion from the first bail-out package for Greece in bilateral credits that have already been paid out. The upper limit of the ESM (€500 billion) was also confirmed, but it was also decided that this maximum amount will not be reduced by the EFSF funds already agreed upon for programmes in Ireland, Portugal and Greece. A condition for access to the ESM is that the granting of relief funds is coupled with the ratification of the Fiscal Treaty by 1 March 2013. In order to secure the lending volume of €500 billion, the ESM was supplied with a capital of €700 billion. This total consisted of €80 billion to be paid in and €620 billion in callable capital. On 1 January 2014 Latvia became the 18th country to join the Eurozone, and has also been a member of the ESM since 13 March 2014. This increased the capital to be paid in to €80.22 billion and the callable capital to €702 billion. The maximum lending volume, by contrast, remains €500 billion.
Five Eurozone countries have already reached agreements regarding financial assistance payments (see the second column in the figure), starting with Ireland in November 2010. The total package agreed upon was worth €85 billion. Ireland itself funded €17.5 billion of this amount by tapping cash reserves and from a pension fund, while non-euro countries, namely the UK (€3.8 billion), Sweden (€0.6 billion) and Denmark (€0.4 billion) granted bilateral credits. The remaining contribution of the EFSM, EFSF and IMF totalled €62.7 billion (green oblong in the second and third column), of which € 22.5 billion was granted by the ESM and IMF respectively, and the remaining €17.7 billion was taken from the EFSF. The last tranche of this bail-out programme was paid out in March 2014. In April 2011 Portugal was next in line. A package worth €78 billion (yellow oblong in the second and third column) was put together for this country, to which the EFSM, EFSF and IMF each contributed €26 billion. After Portugal’s Constitutional Court declared part of the austerity package, which the EU and the IMF had made payment of the bail-out funds conditional to, as illegal, its government decided in June 2014 to forego disbursement of the tranches of funding from the IMF (around €0.9 billion) and the EFSM (€1.7 billion) not yet granted. This means that the total value of the programme effectively amounts to €77 billion euros (yellow oblong in the second and third columns). In the end it emerged that Greece required a second bail-out, which was finalised in July 2011. At the EU Summit of October 2011 this package had been adjusted in line with current events at the time and the agreed total of €130 billion by 2014 was finally confirmed in February 2012. On 14 March 2012 the euro countries finally agreed upon the second bail-out package, worth a total of up to €144.6 billion including the €24.4 billion from the first package that had not yet been spent) available until the end of 2014 from EFSF funds. Finally, the IMF announced on 15 March 2012 that it would make €28 billion available to Greece (including around €10 billion that remained unspent from the first bail-out package) by the first quarter of 2016. A total of over €138 billion in new funds were therefore pledged: €120.2 billion by the euro countries via the EFSF and around €18 billion by the IMF. The differential between this sum and the €130 billion cited above is due to that fact that €8.25 billion in IMF funds will not be paid out until 2015/2016. Together with the first bail-out package, the financial assistance for Greece originally pledged totalled around €246 billion, of which the euro countries contributed €197.5 billion and the IMF around €48 billion. The loan installments that Greece has repaid to the IMF since August 2013 have been subtracted from this amount (light blue oblong in the second and third column). In the first column the respective net contributions made – as described above – are represented by the oblongs coloured light blue (for Greece), green (for Ireland) and yellow (for Portugal).
At the beginning of June 2012 the Spanish government informed its euro partners that it wished to request assistance from the euro countries for the restructuring of its banking sector. Funds totalling up to €100 billion from the EFSF/ESM were being considered. On 25 June 2012 a formal request was submitted by Spain. The programme took effect on 23 July 2012. Provisional calculations indicate a capital requirement of between €51 billion and €62 billion, and including a safety buffer the total requirement remained €100 billion. The programme was finally transferred to the ESM in November 2012. The first tranche was paid out in December. Prior to its official exit from the bail-out programme in December 2013, Spain received credit totalling 41.3 billion euros. This bailout package is represented by the light green oblong in the three left-hand columns, and as the total amount effectively paid out in the second and third column, and with the bail-out funds provided by Spain taken into consideration in the first column. On the 25 June 2012 the government of Cyprus also announced that the country would request bail-out funds. The country is suffering from a banking crisis and from its very close economic ties with Greece, which has had a major impact on its banks. On 25 March 2013 the donors and Cyprus basically agreed to a bail-out package worth €10 billion. The ESM should contribute around €9 billion and the IMF should pay in up to €1 billion. The first tranche of ESM bail-out funds was paid out on 13 May 2013. The IMF finally approved the fund’s share of this package on 15 May 2013. This bail-out programme is represented by the small white area in the three left-hand columns – and is represented like packages for other countries.
The third column of the figure shows the potential credit volumes of all bail-out measures combined. As mentioned the same amount is cited for ECB financial assistance as in the left-hand column. The bail-out packages agreed for Greece, Ireland, Portugal and Spain are shown in the second column. The violet oblong quantifies the remaining IMF funds from the €250 billion made available. After deducing the funds already pledged totalling €67 billion (€22.5 billion for Ireland, €26 billion for Portugal, €18 billion for Greece and €1 billion for Cyprus), the remaining funds currently total €182 billion. The grey oblong at the top of the columns represents the permanent ESM bail-out funds, which still has a capacity to grant circa €450 billion of credit after deduction of the sum awarded to Spain and Cyprus.
A breakdown of German exposure
Both of the right-hand columns of the figure shows Germany’s exposure, which is derived from the effectively paid out and potential bail-out funds. The key underlying calculation of the German share in the exposure is different for the various segments. For the Target liabilities of the crisis-stricken countries Germany’s share of exposure is calculated from the ECB’s capital key as of 1 January 2014, whereby Germany has a share of around 26% of the liabilities of all 18 euro countries. However, should the crisis-stricken countries become insolvent and exit the Eurozone, as assumed here, while the euro itself continues to exist, only the remaining twelve euro countries would be exposed to the Target liabilities. In this scenario Germany would be liable for around 41% of the total exposure. Its current liability is represented by the red oblong on the both right-hand columns.
The dark blue segment of the fourth and fifth column shows government bond purchases by the central banks, as described above. Since the central banks of all euro countries, including those of the crisis-stricken countries themselves, are involved in these purchases, Germany’s share of exposure is calculated based on the general ECB capital key and consequently totals around 26% of the total sum and around 41% of the sum represented in the other column excluding the crisis countries.
The pale blue oblong represents the first two bail-out packages for Greece. Germany has contributed bilateral credit totalling around €15.2 billion. Germany will be liable for around 43% of EFSF funds for the second programme should Greece, Ireland, Portugal, Spain, Italy and Cyprus drop out. This represents Germany’s share expressed as a share of the remaining countries according to the EFSF scale of contributions. Germany’s share in both of the IMF bail-out packages granted at the same time is in line with its contribution to the IMF’s capital and therefore totals 6%.
The EFSF and IMF contributed the same share of bail-out funds for Ireland (green) and Portugal (yellow) as they did to Greece. Germany contributed almost 20% to the funds already made available by the EFSM since this corresponds to Germany’s share of the revenues in the EU budget in the year 2011. Even if the ESM rules do not provide for any specific liability on the part of member countries for concrete financial assistance, the imputed share in the programme to recapitalise Spanish banks and the ESM bail-out programme for Cyprus is entered, which totals slightly over 27%. These programmes are not listed separately in the right-hand column, they are featured in the grey area, which shows Germany's contribution to the ESM's capital (a good 27% of a total of €702 billion). The figure represents the capital to be paid-in (€21.7 billion) and the available capital (€168.3 billion) separately. Germany’s contribution to the IMF’s bail-out funds for Cyprus is also included in the calculations for the sake of completeness and is represented as a white line, even although the volume of around €60 million is rounded down to €0 billion. Germany’s contribution to the IMF funds that have not yet been pledged (violet) once again amounts to 6%.
The broad pink line under the zero line stands for Germany’s claims vis-à-vis the crisis-stricken countries arising from their combined under-proportionate issuance of banknotes. Germany’s liability amounts a share of around 41 percent (calculation basis same as for Target balances).
In an additional table the potential losses for Germany are shown in another scenario. It is supposed that the GIPSIC countries become unable to pay and the euro collapses today. Here it is assumed that Germany loses all of its Target claims, but can set its debts off against the disproportionate issue of banknotes by the GIPSIC countries. Germany's current loss is then the sum of its share of the bail-out funds paid out to date (as explained above) and the current Target balance of the German Bundesbank, minus the German Bundesbank's intra-Eurosystem liabilities arising from the issuance of banknotes.
Text written on 10.07.2012, last revised on 15.09.2014.
 See Sinn, Hans-Werner and Timo Wollmershäuser, “Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility”, International Tax and Public Finance 2012 (Download), first published as CESifo Working Paper No. 3500, 24 June 2011 (Download) and as NBER Working Paper 17626, November 2011 (Download) as well as Sinn, Hans-Werner, “Die Target-Kredite der deutschen Bundesbank”, ifo Schnelldienst 65, special issue, 21 March 2012 (Download).
 Repaid loans have been deducted in the columns shown in the graphic.
 In addition to already repaid loan installments, the bilateral loans that formed part of the first Greece package, individual capital contributions to the ESM, contributions to the EFSM made in line with respective countries’ contributions to the 2011 EU budget (the 2011 budget is used as a benchmark because the majority of EFSM funds were paid out that year. No contribution is credited for EFSF bail-out funds (as the euro countries merely provided guarantees and made no direct payments in this case) or for IMF loans (the contributions of the member states – or so called quotas – were last increased in 2008 or prior to the bail-out measures and the IMF also supports a large number of other countries).
 See Sinn, Hans-Werner and Timo Wollmershäuser, “Target Loans, Current Account Balances and Capital Flows: The ECB's Rescue Facility”, at the place indicated in the annex.
 See press release dated 10 May 2010 and the Eurosystem's consolidated financial statement dated 14 May 2010, both ECB.
 See Federal Ministry of Finance, monthly report for October 2011, p. 36-38.
 The IMF’s bail-out payments are measured in special drawing rights, an artificial currency unit. Based on the exchange rate of the respective disbursement dates, the payments made by the IMF (excluding the planned final instalment) ultimately amounted to slightly more than the €26 billion initially calculated.
 See European Commission, The Second Economic Adjustment Programme for Greece, March 2012, p. 4.
 See European Commission, reference specified above, p. 94 and International Monetary Fund, IMF Country Report No. 12/57, p. 84.
 See European Commission, The Financial Sector Adjustment Programme for Spain, October 2012, p. 30.
 See European Commission, EU budget 2011 – Financial Report, p. 99, PDF. The 2011 budget is taken as a reference amount here because the largest proportion of EFSM funds were paid out during 2011.