Protests are ongoing in Athens, where leaders are trying to come to a deal on a second round of austerity measures, including privatizations and budget cuts.
The longer they take, however, the more public support swells against them, and greater the potential for Central European states to say no to a second bailout.
If no second bailout comes, Greece will likely be unable to pay its bills, and will default on its debt.
Japanese banks hold $500 million in Greek debt
Spanish banks hold $600 million in Greek debt
U.S. banks hold $1.8 billion in Greek debt
Italian banks hold $2.6 billion in Greek debt
UK banks hold $3.2 billion in Greek debt
French banks hold $19.8 billion in Greek debt
German banks hold $26.3 billion in Greek debtSource: Bank for International Settlements
Other Eurozone countries hold $15.7 billion in Greek debtSource: Bank for International Settlements
Banks in Europe have been working to cut their exposures.Source: Bank for International Settlements
Greek banks downgraded by S&PFour of Greece's largest banks have been downgraded by S&P today. From Financial Mirror:
The rating agency said Wednesday that the financial profiles of National Bank of Greece, EFGEurobank, Alpha Bank and Piraeus Bank “are exposed to significantly heightened risks as a result of deterioration in Greece's creditworthiness and Greek depositors' perceptions of a possible government debt restructuring.”
Moody's puts Soc Gen, BNP Paribas, and Credit Agricole on downgrade reviewMoody's has put the three banks on review for a possible downgrade. That's because they are exposed to both the Greek domestic economy, in terms of sovereign debt and/or to the country's banking sector. From Moody's:
Paris, June 15, 2011 -- Moody's Investors Service has today placed the standalone financial strength ratings and long-term debt and deposit ratings of three French banking groups -- Credit Agricole SA (CASA), BNP Paribas SA (BNPP), and Societe Generale SA (SocGen) on review for possible downgrade.
The primary focus of all three reviews will be the banks' credit exposures to Greek government debt and the Greek private sector and the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels. The review of SocGen will also assess the likelihood of future government support since our systemic support assumption is currently higher than the average for the French banking system.
Moody's also noted that exposures to Greece are to be included within the ongoing review for possible downgrade of Dexia Group's core operating banks.
Romania and Bulgaria's banking sectors, and sovereigns, highly exposed to Greek banksRomania and Bulgaria's private sectors, and their public sectors, are exposed to the Greek banking sector. If Greece's banking sector is slammed in a default, the result could be a lack of funding for the Romanian and Bulgarian sovereigns, private enterprises, or worse, according to Nomura (via FT Alphaville). From Nomura:
- A new Vienna Initiative: Despite an event in the Greek banking system those same banks are still required to maintain capital exposure into Emerging Europe. EBRD and EU provide support and other incentives to make this happen. Such a move however would be difficult and impose additional burdens on an already highly stressed Greek banking sector.
- Business slowdown (least bad outcome): Greek banks severely constrain lending in domestic subsidiaries as parent company funding crowds out domestic business. This is anti-growth for Romania and Bulgaria, though arguably it has already started to occur.
- Greek bank consolidation (bad outcome): Greek banks are forced to consolidate, perhaps into some form of good bank/bad bank set-up. Consolidation causes asset sales in Bulgaria and Romania. With limited foreign interest likely, government or domestic money would be needed, meaning net currency outflow. If a sale was not possible capital withdrawal would then be likely.
Capital withdrawal (very bad outcome): Greek banks are forced to draw down capital from subsidiary banks to shore up their own balance sheets. The capital flight causes balance of payments stress (requiring reserve utilisation and in Romania’s case potentially tapping the precautionary SBA).
- Subsidiary default threat (very bad outcome): Removal of parent company support causes domestic banks to default but EBRD and the Romanian/Bulgarian government step in and nationalise or cause consolidation within Romania to absorb the bank.
- Outright parent company default (worst outcome): Parent company support is removed, capital is withdrawn, there is a fire sale of Emerging Europe assets. (Even if Greek banks were nationalised or bailed out would the Greek government really want to support Romanian and Bulgarian subsidiaries?)
Austria banks have significant positions in Eastern EuropeAustria banks, like Erste Bank and Rafeissen, have positions in Eastern Europe which may come under threat if those countries slowdown as a result of a Greek default. From a Fitch comment on May 24 (via Reuters):
"However, their individual ratings also consider Fitch's expectation that impaired loans in some (central and eastern European) markets have yet to peak and -- in the case of Erste and notably RBI -- the banks' only modest capitalisation if the forthcoming repayment of government participation capital and preparations for Basel III are taken into account,"