Spinelli's chicken

Before it is too late.

The risk of a Greek default is growing. There is no time to lose. The default will hit Greece hard but also Italy will be affected. It is not easy to estimate immediate losses from a Greek default for Italy.

If we make a comparison with France, we can have an idea on how much money Italy will lose if Greece defaults. The French Ministry for Economics announced on 15 may that the Greek exit from the eurozone will cost to Paris more than 50 billion dollars. For our economy the losses could be similar as Italy is the third most exposed country to Greece after Germany and France. The Greek default will impact on Italy through two channels: first, Italy will lose the money lent to Greece on the first bailout and should pay the guarantees given under the second bail-out, second, Italy should recapitalize the IMF and ECB should they suffer a material loss caused by the Greek default.

With regard to the first channel (direct losses), Italy will lose 10 billion euros lent to Greece under the first bailout and 22 billion euros of guarantees given under the second bail-out. To these 32 billion euros, we should add the money Italy should pay to recapitalize the losses suffered by the IMF and the ECB in case of a Greek default. Italy is a shareholder of both these two financial institutions. Finally, total losses add up between 40 and 50 billion euros.

In addition, a Greek exit will impact on the yields of the Italian bonds by deepening the spread between Italy and the German Bonds. Moreover, a Greek default would point out the lack of credibility of European leaders who would be unable to avoid a Grexit despite their public commitments on the subject.

As a result, it is likely that the financial speculation will attack the more vulnerable countries whose assets would be sold out. It will be the start of the end.

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