The Eurozone is currently going through a grave crisis. The so-called periphery countries, and especially Greece, are finding it difficult to finance their national budgets. Various bail-out measures have been introduced to save individual Eurozone countries from insolvency, which are collectively referred to as the “euro bail-out package”. In addition to this funding, however, Target credits are being granted to countries weakened by the crisis and the European Central Bank (ECB) has intervened by making targeted purchases of sovereign bonds. Target credits are ECB refinancing credits granted to a given country’s banks that exceed that country’s normal supply of liquidity and serve to finance a net purchase of goods and/or assets from other Eurozone countries. The resulting Target liabilities can be equated with national balance-of-payments deficits. The total exposure of the Eurozone countries resulting from the bail-outs and other measures is compiled in the overview offered below, showing both the recipient countries and the various financial support measures. Germany’s share in the overall exposure is defined as its exposure level.
Figure 1:
Austria´s exposure
Figure 1 presents three different breakdowns of total exposure. The middle column shows the total potential exposure. This represents the guarantees and/or credit volumes provided via the bail-out initiatives and packages of the Eurozone countries, including contributions from the International Monetary Fund (IMF), as well as the sums that the ECB has spent on purchasing sovereign bonds and the Target credits granted to the central banks of Greece, Ireland, Portugal, Spain (referred to collectively as the GIPS countries) and Italy. The column on the left shows the amounts that have already been paid out and/or firmly pledged to each recipient country, and which could potentially have to be written off should the recipient country become insolvent and any potentially available collateral be lost. The column on the right shows Germany’s share in the exposure depicted in the middle column and is based on the assumption that the GIPS countries and Italy drop out as warrantors.
Support for the crisis-stricken countries began long before political debate over the bail-out package was conducted or any decisions in that regard were made, and it took the form of Target[1] credits granted within the Eurosystem. The red oblongs denote the Target liabilities of the GIPS countries, as well as those of Italy. The Target figures for Italy and Spain can be taken directly from the statistics of their respective national central banks (NCBs).[2] The Target balances of the Eurozone countries are published on a monthly basis, but with different delays. The German share of liabilities can be calculated from the ECB’s capital shares as of 1 January 2011. If the entire Eurozone (17 countries) is assumed to equal 100%, Germany’s share is around 27%. In calculating the risk, it is assumed that the GIPS crisis countries and Italy are to be excluded and that only 12 Eurozone countries would potentially bear the losses resulting from Target credits. In this scenario Germany would account for around 43% of exposure. The current amount is presented in Figure 1 (right column, red oblong).
In May 2010 the ECB and the national central banks of the Eurosystem began buying sovereign bonds in the euro area to ease tensions in the market that were impairing the monetary policy transmission mechanism.[3]These measures are represented by the blue sections (Figure 1). Data are published by the ECB on a weekly basis.[4] The Securities Markets Programme can be found in the consolidated financial statement of the Eurosystem in the section “Items related to monetary operations” under the assets item 7.1 (Securities for monetary policy purposes). With these purchases of sovereign bonds the ECB is granting the crisis countries a form of credit that would not be repaid in the case of a default. Since all euro countries are involved in these purchases, the German share in the exposure resulting from them is calculated according to the ECB’s general capital key. Germany’s share accordingly totals around 27%. The current amount is represented in Figure 1 (right column, blue oblong).
The light-blue and green oblongs represent the first bail-out package for Greece, which was agreed in May 2010 to prevent Greece from suffering acute insolvency. The package constitutes 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. Credits should 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 means that the first bailout package financed by the euro countries effectively only totalled EUR 77.3 bn. Germany’s share of the euro countries’ package was calculated based on its share in the ECB’s capital as of that time (status: 2010, without Greece). This was established in the agreements on the first bail-out package. It meants that Germany was to contribute €22.3 billion in bilateral credits if the payments were continued as planned. By the end of 2011 credits worth a total of €52.9 billion had been paid out to Greece (of which €15.2 billion was paid by Germany) in the framework of this bail-out package financed by the euro countries. In the context of negotiations over a second bail-out package for Greece, it was established that the remaining funds (€24.4 billion) should no longer be paid out in the form of bilateral credits, but allocated by the EFSF instead.[5] Germany’s participation in the IMF bail-out package is in line with the IMF’s capital base. Germany’s contribution to the IMF’s bailout initiatives totals 6%.
In May 2010 the Eurozone countries decided to set up an interim bail-out fund, resulting in the creation of the European Financial Stabilisation Mechanism (EFSM; effective as of May 2010[6]) and the European Financial Stability Facility (EFSF; effective as of June 2010[7]), which provide funding for countries in financial difficulties. This bail-out package is supported by additional financial contributions from the IMF.
The middle column in figure 1 depicts the total funds that can potentially be provided by the bail-out package; the right column shows Germany’s exposure. The yellow oblong represents the pledges made by Eurozone countries in the EFSF. After an original bail-out package totalling €440 billion, the guaranteed amount was increased to €780 billion in October 2011 (with the so-called ‘boosting of the EFSF’s firepower’)[8]. According to the stipulation of the EFSF framework agreement, the German share of the guarantee amount is 27.064%, which corresponds to €211.0459 billion.[9] German law states that this amount can be exceeded by up to a maximum of 20% (§1, paragraph 5, StabMechG)[10], or total up to €253.255 billion. The grey oblong represents the EFSM. Since EFSM assistance is provided from the EU budget, Germany’s contribution is calculated at 20.0%, in line with the share of its contribution to the EU budget.[11] The pale-green oblong quantifies the bail-out amounts that have also been made available by the IMF parallel to European financial assistance within the framework of the EFSF and EFSM. Germany’s contribution to this amount is calculated once again according to the 6% share that it contributes to the IMF’s capital.
The column on the left of Figure 1 illustrates the bail-out sums that have already been pledged. In November 2010 Ireland became the first country to apply for support. The overall package had a volume of €85 bn. However, because Ireland itself bears €17.5 bn through its liquidation of cash reserves and from a pension fund and was granted bilateral support from Great Britain (€3.8 bn), Sweden (€0.6 bn) and Denmark (€0.4 bn), EFSM, EFSF and IMF contributions total €62.7 bn (lilac oblong).[12] In April 2011 Portugal also applied for financial assistance from the bail-out package[13], with a package totalling €78 bn (pink oblong) being agreed for the country.[14] The second bail-out package for Greece, agreed upon in July 2011[15], rounds off this overview of financial assistance. At the EU Summit in October 2011 the latter package was adjusted in line with the current situation[16] and the amount of €130 billion to be released by the end of 2014 was confirmed in February 2012.[17] On 14 March 2012 the euro countries finally decided on pay out the second bailout package worth a total of up to €144.7 billion (including the €24.4 billion from the first bail-out package that has not yet been released) for the time period up until the end of 2014. On 15 March 2012 the IMF finally announced that €28 billion (including the €10 million left over from the first bail-out package) would be made available to Greece in total by the first quarter of 2016. [18] An overall total of €138.3 billion in fresh financial relief (€120.3 billion from the euro countries and €18 billion from the IMF) was thereby granted. The differential between the €130 billion cited above is due to the fact that €8.25 billion in IMF funding will not be paid out until 2015/2016.[19]
Figure 2 shows the bail-out measures adopted by the ECB. It presents the ECB’s purchase of government bonds and the Target liabilities of the euro crisis-stricken countries under consideration (at the end of the month respectively[20]). Target liabilities have risen steadily since 2008. Initially, the corresponding data for the GIPS countries are represented by the red curve, being joined by Italy as of July 2011. The blue curve shows the stock of crisis-stricken countries’ sovereign bonds on the ECB’s balance sheet. The red curve changes to the orange curve in May 2010, at which point the purchases of sovereign bonds are added to Target liabilities.
Figure 3 illustrates the bail-out measures in aggregate. The various bail-out packages are stacked in coloured areas. The ECB’s sovereign bond purchases are added to the total sum of the bail-out packages. Finally, Target liabilities are added to this sum. The end point of the cumulative Target curve (continued by the broken line) represents the overall exposure as shown in Figure 1 (middle column).
Figure 2:
Figure 3:
Text first published on 17 January 2012 and updated on 02 May 2012.
The figures are regularly updated and were last modified on the date shown in the graphics.
[1] Trans-European Automated Real-time Gross settlement Express Transfer system.
[2] Sinn, Hans-Werner and Timo Wollmershäuser, “Target Loans, Current Account Balances and Capital Flows: The ECB's Rescue Facility”, NBER Working Paper No. 17626, November 2011.
[3] Cf. Press release dated 10 May 2010 and Consolidated Statement of the Eurosystem of 14 May 2010, both ECB.
[4] These can be consulted via the following web page http://www.ecb.int/press/pr/wfs.
[5] See German Parliament Document No. 17/8730, http://dipbt.bundestag.de/dip21/btd/17/087/1708730.pdf.
[6] See Council Regulation (EU), No. 407/2010, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:118:0001:0001:EN:PDF.
[7] See EFSF framework treaty, http://www.efsf.europa.eu/attachments/20111019_efsf_framework_agreement_en.pdf.
[8] See German Federal Ministry of Finance, monthly report October 2011, p. 36-38.
[9] See http://www.bundesfinanzministerium.de (Anlage 2).
[10] See Law op stabilization mechanism, http://www.gesetze-im-internet.de/bundesrecht/stabmechg/gesamt.pdf.
[11] See http://ec.europa.eu/budget/library/biblio/publications/2010/fin_report/fin_report_10_en.pdf (p. 73).
[12] See Statement by the Eurogroup and ECOFIN Ministers, 28 November 2010 (http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/118051.pdf).
[13] See http://www.bundesregierung.de/Content/DE/Artikel/2011/04/2011-04-08-portugal-hilfen.html.
[14] See Council of the European Union, Council approves aid to Portugal, sets out conditions, 17 May 2011, http://europa.eu/rapid/pressReleasesAction.do?reference=PRES/11/132&type=HTML.
[15] See Council of the European Union, Statement by the Heads of State or Government of the euro area and EU institution, 21 July 2011.
[16] See The Council of the European Union, Declaration of the Euro Summit, of 8 November 2011.
[17] See Declaration by the Eurogroup of 21 February 2012, http://www.bundesfinanzministerium.de/nn_97140/DE/Wirtschaft__und__Verwaltung/Europa/Der__Euro/Stabilitaet/Stabilisierung-des-Euro/22-02-2012-Paket2-anl2,templateId=raw,property=publicationFile.pdf.
[18] See European Commission, The Second Economic Adjustment Programme for Greece, March 2012, p. 4.
[19] See European Commission, loc. cit., p.84 and International Monetary Fund, IMF Country Report No. 12/57, p. 84.
[20] The status of purchases of government sovereigns is presented as per the last Friday of the month, and in the current month the data is taken from the most recently published weekly statement.
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