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Friday, April 05, 2013

Cyprus bailout: What are individual EU member states on the hook for?

Now remember, contributions via the European Stability Mechanism (ESM) are loan guarantees, not upfront cash. But here's the break-down of how much each EU country is on the hook for in the Cyprus bailout:

Update 05/04/2013 12.10: 
By popular request, we've been asked to put together a quick explainer/refresher of how this money will be provided. ESM loans do not require direct cash from countries but are based off loan guarantees which the eurozone countries give to the ESM. The ESM then issues debt on the market to raise the actual cash to provide the bailout loans. So, not extra cash contribution on the back of this bailout. That said, the ESM does require paid-in capital (€80bn), the payouts of which should have been factored into eurozone government budgets and certainly has been included in the bailed out countries. Also due to a eurostat ruling, each eurozone member's share of ESM bailouts will not count towards its national debt. As for the IMF, the funds usually come from the IMF's general reserve fund which countries will have already contributed their subscription (see here for more details). Again, in a sense, no new cash.


Rollo said...

The joke is that the 1 billion down to Spain, the 1.6 billion down to Italy and the 2 billion down to France are expected to be paid by countries with no funds who have to borrow it. Where from? Cyprus? Yeah, that makes sense.

Unknown said...

You only pay 28% on the amount over that taxbrackets2013.com, so if it's only a few hundred or thousands, it should not have a big impact.

Anonymous said...

I make it E32 per German skull, E32 per Dutch, and interestingly E33 per Irish

Rollo said...

Rik: What would happen is that they would issue money at some rate to the Euro. It would instantly devalue by a large percentage. Their economy would become competitive, they could 'export' what they are good at: holidays, retirement homes etc; they would have to stop buying Geramn cars which would no longer be affordable. The country would start to recover,. This devaluation has already happened, just like the Argentine Peso. But the whole Eurozone is in denial.

Rik said...

The problem is after they have taken all the political and legal hurdles to start with an own cuurrency the GDP will drop with say 50%. Will be something around that.
And this is a country that imports an awful lot. And look at Greece/Spain prices still have to drop there. So assume overall something like income drops 50% and cost of living may be only 20%.
A much bigger drop and for much more people than what is happening now with the internal devaluation.

The would become competitive with agricultural stuff if they can remain in the EU which is a big if. The rest of the EU is basically forcing Cameron to go in with 2 stretched legs, which will imho likely mean no easy treatychange for an EZ exit. So it can only leave the Euro quickly by simply leaving the EU. Which would mean hardly competitive with agriculture.
They would be competitive with tourism.
But not with other sectors as they have hardly anything else to compete with they have to build that up. And that would take a few years.

It takes a few years before they can start again.

Same goes for the PIIGS. If they have to leave the EU to get out of the EZ their economy will tank, next to the drop they get already from a revaluation. Italy makes stuff itself people want, might be an exception. Spain makes stuff for the EU for a large part. Ireland even more. So both will be faced with importduties and tradeflows changed. Greece and Portugal have no real economy for a developed country.

Basically all outside the EU have no future unless they restore competitiveness as well. Not only being able to make it cheap but first to be able to make it at all.
Laborcosts outsde the EU are way too high. Basically they would be competing with China and Co at 300 Euro a month and that is costs wages would be lower.

In that respect I donot fully understand what the EU and also Merkel is doing. If voters want out somewhere it becomes a huge mess, if not all 27 go for a friendly solution. Which is already very doubtful and timeconsuming. While furthermore they are pushing eg Cameron in a very difficult situation. That increase considerably the chance the UK leaving the EU and increases the problems with a treaty change when necessary even more.
Do the EU really think if a country would fall apart because of the mess when it leaves the Euro that they will get away with that without huge political problems like if there would be any popular platform left for the EU/Euro?
If they oversee the thing they are basically going all in this way. Imho a horrible bet with almost 10 countries in problems probably for a decade or more facing austerity. While history shows that it takes usually aound 2-3 years before austerity-fatigue hits in. Too long and for too many countries to go well.