Everyone's problem

By A.M. | LONDON

SO IT'S official (or Barclays Capital estimates that it is). Public institutions now hold more than half of Greek sovereign debt. This table comes from Barclays Capital's updated estimate of exposure to Greek debt, published today.

Between the ECB's bond-buying programme and bail-out loans the European governments, the IMF, the ECB and euro-zone national central banks now hold more than 50% of Greece's public debt.

Barclays Capital points out this should make voluntary rollover of debt more feasible. Since Greek banks have a natural interest in holding up the sovereign, they are likely to participate. That leaves only two banks, one German and one French, with exposures of more than €5 billion ($7.2 billion).

What it also means is that, if we accept that Greece is insolvent and will never pay off its accumulated debt in full, the burden of the inevitable debt relief will fall overwhelmingly on taxpayers. And once we strip out the IMF, which has preferred-creditor status, that means European taxpayers, who stand behind European bail-out loans, the ECB and national central banks. A fiscal transfer is not only inevitable, its getting larger by the day.

For all the talk of private-sector participation in a restructuring, private bond holdings are now a minority of total debt. Even if the ECB doesn't buy any more Greek bonds, the concentration of Greek debt in public hands will steadily increase as privately held bonds mature. The Greek government can only redeem those bonds as the IMF and European governments disburse more bail-out loans. Some €100 billion of Greek bonds are set to mature by 2014. Greece hopes to raise up to €50 billion from a privatisation programme but so far it hasn't raised a cent. If redemption is funded one for one by bail-out loans that would take public exposure beyond 70% of the total debt.

Even were private bondholders to share in debt relief, much of the cost would fall on European taxpayers. The Greek government would be in no position to recapitalise Greek banks were they to take a haircut on their bonds. Only €10 billion of the existing bail-out funds are earmarked for bank recapitalisation. The six most exposed Greek banks hold €30 billion of Greek debt between them.