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article image$1.3tn cost of Greek disorderly default

By Marlene de Wilde     Mar 6, 2012 in Politics
The International Institute of Finance has warned the bondholders it represents that the cost of a disorderly default in Greece would be about $1.3 trillion.
A disorderly default and exit from the euro would greatly impact the European Central Bank and the weaker European states of Italy, Portugal, Spain and Ireland would probably need outside help. Altogether, the IIF estimates that damage to the eurozone would exceed 1 trillion euros.
The IIF represents a number of the private sector bond holders who have until Thursday to accept their part in a bond swap which could result in them losing up to 75% of the value of their bonds. (Reuters)
Should less than 75% of the creditors agree, then the latest bailout deal could be cancelled as this is one of the stipulations laid down by the Eurogroup. However, the government has warned that any creditors failing to accept the terms, will be subject to collective action clauses, or CACs, which would result in enforced losses.
The IIF calculated that the ECB would face losses of 177 billion euros and stopping the contagion from spreading to vulnerable countries would amount to about 700 billion euros over 5 years. Direct losses to private and public holders of Greek debt would amount to 73 billion euros.
In a report in CNBC, Gary Jenkins, an analyst at Swordfish Research, said, ""Obviously the report is written on a worst case basis to try and encourage participation in the exchange".
More about greek debt crisis, Greek default, disorderly default