Here is the issue for Europe: The amount of money needed for Greece going to be more than the Eurozone leaders think, or at least are willing to admit. When Eurozone politicians worry about "contagion," they are thinking in terms that several countries (Ireland, Spain and Italy) will be wanting the debt relief that other countries (Greece and Portugal) get. And now we are talking BIG money.
The money that Europe needs will overwhelm the €440 billion European System of Financial Supervisors (the “ESFS”) fund. Some people think it will take at least €2 trillion. The Boston Consulting Group put out a report that suggests the total number will need to be over €6 trillion. I always tend to go with the largest number – and even then I’m not sure that will be sufficient.
Whatever the figure, it is staggering. And one the Eurozone is not willing to pay, at this moment. What’s becoming dangerous right now is that if the Eurozone leaders don’t pre-emptively address the crisis sooner rather than later, their hands will be forced and options get reduced. Will a crisis hit? I don’t know. I’m just trying to manage risk right now. There is talk of leveraging the ESFS up to €2 trillion, which is just talk at this point, albeit in the right direction. But in order to increase the fund, it seems that one would need to have additional equity – or that’s the way it usually works.
The ESFS is debt created by promises to pay by the member governments. Are we now at the point where we need to leverage our leverage? This is getting ridiculous. How are the financial markets going to start pricing in all of these different possibilities and uncertainties? Sadly, the markets hate pricing in uncertainty. The markets can price in good news and they can price in bad news, but they seem to almost go into free-fall when they try to price in uncertainty. Nobody wants uncertainty and there is no amount of money that investors can receive to make them want that risk of uncertainty.