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London - A disorderly default in Greece would probably leave
Italy and Spain needing outside help to stop risks spreading, and cause more
than €1 trillion damage to the eurozone, the Institute of International Finance
said.
“There are some very important and damaging ramifications
that would result from a disorderly default on Greek government debt,” the IIF
said in a document obtained by Reuters.
“It is difficult to add all these contingent liabilities up
with any degree of precision, although it is hard to see how they would not
exceed €1 trillion.”
The document, obtained from a market source, was dated February
18 and marked IIF Staff Note: Confidential.
The IIF wants bondholders to sign up by a Thursday deadline
for a bond swap deal aimed at saving Greece more than €100bn and putting the
country on a more stable footing.
If it fails to win support, the European Central Bank would likely suffer
substantial losses, the document said, estimating the bank’s exposure
to Greece of €177bn was over 200% of its capital base.
Both Ireland and Portugal would need more outside help to
insulate them from Greece, which could cost €380bn over five years, the IIF
estimated.
A disorderly Greek default would also probably require
“substantial support to Spain and Italy to stem contagion there”, which could
cost another €350bn, it said.
The IIF, which helped negotiate the bond swap deal on behalf of creditors, said there would be more massive bank recapitalisation costs, which could easily hit €160bn.
