Chart of the day, Euro bailout edition

By Felix Salmon
October 27, 2011


This, ladies and gentlemen, is how the sausage gets made — it’s yesterday’s eurozone rescue plan, as presented by an unidentified adviser to one of the European Union governments involved in the negotiations.

Frankly, there’s lots of it I don’t understand. (Although the little map of the PIIGS in the top-left-hand corner is clear, and quite adorable.) At the top you have the €440 billion EFSF, with €150 billion already having been spent on those PIIGS. The remaining €250 billion (let’s not worry about these numbers not adding up precisely) gets leveraged, somehow, into €1 trillion — with a special-purpose vehicle in there somewhere for private sector investors to put money into. (The private sector, I’m pretty sure, is represented by that big “PS” box.) The leveraged EFSF then spends its money on the PIIGS as well, with some of that money going to recapitalize banks in those countries.

Meanwhile, the IMF and the Eurozone are also helping out the PIIGS. And Europe’s banks are being recapitalized by June 30, 2012, which will cost €106 billion; it seems that some of that money is coming from the private sector and some of it is coming from the leveraged EFSF. The IMF and the Eurozone are also helping to partially guarantee the new Greek bonds which will go to the banks tendering their old Greek bonds. (I think the tender of the old bonds is that “Greek bonds 100%” line, but I’m unclear on that.)

At the bottom of the sheet we have the sequencing. First comes Greece, which gets its debt written down by the banks, and gets a new loan from the IMF and the Eurozone. Then comes the bank recapitalization, which has to be done by June. Third up are the non-Greek PIIGS. And finally there’s that wonderful question mark at the end.

The main thing which worries me about this plan is the sequencing: it seems that everything else is contingent on Greece getting its writedown first. And I’m highly skeptical that a 50% writedown from the banks is practicable or likely any time soon. I know the IIF has agreed in principle, but that doesn’t mean the banks are actually going to tender their bonds in practice. And if they don’t, does that mean the whole deal falls apart? We need a lot more details on this, I think. Or, maybe, we don’t. Trying to extract details could mean forcing players to confront the fact that they all think they’ve agreed to something slightly different. And that might not be a good idea right now.


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Other than the Irish, there are no native English speakers involved. How do we explain that? If it were the Germans, it would be in German and so on. I detect a fake.

Posted by therealADMP | Report as abusive

I think the way this works is everyone puts up a quarter. They sell that four times.

Posted by KraftPaper | Report as abusive

As someone who works for the European commission, I can assure that almost all European-level discussions are in English and almost everyone (maybe not the French) write notes in English since it’s the language of discussion. It seems completely plausible that this would be done in English

Posted by Virgule82 | Report as abusive

Wwho cares. It’s great and tells the world about the realities of Euro style dealing. I also like the outsourcing of the financing to China etc. The eurozone is broke, Wonderful. Didn’t we see this in a Senate hearing, has the title Abacus or Timberwolf been hidden? I think Goldman Sachs should be able to package the whole thing and then sell CDS and short the eurozone as a whole, with the Chinese providing chump money? Where’s John Faulson when you really need him?

Posted by AussieRed | Report as abusive

I think I get it.

Underpants Banker: What’s step 4?
Other Underpants Banker: Step 5 is profit! Get it?
European taxpayers: We don’t get it.

Posted by AndrewBurton | Report as abusive

What I don’t get is how the CDS don’t get triggered by a 50% haircut.

If the swap is voluntary than NO ONE is signing up for a 50% haircut… that’s just stupid on it’s.

If the swap is involutary than it’s a default by ANY measure… I mean if a 50% haircut isn’t a credit event than soverign CDS are a joke and that market just evaporated overnight.

Posted by y2kurtus | Report as abusive

1) Write down 50% of bank-held Greece Debt
2) ?????????????
3) Problem Solved!

Posted by scotta | Report as abusive