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Europe: Are There Rabbits Left In The Hat?

  • Written by Syndicated Publisher No Comments Comments
    June 15, 2012

    Inquiring minds are poring over the ESM Treaty to see how it is supposed to work in theory, assuming it will be ratified by counties with the required 90% of EMU voting rights.

    Given that Spain is supposed to get €100 billion from the ESM, some might be surprised to learn ESM Still Not Ratified by Germany, Austria, Belgium, Estonia, Slovakia, NetherlandsFinland is missing from the above group. Finland has signed but not yet ratified the treaty and May Ask for Collateral for Spanish Banking BailoutPolitical football is holding up treaty ratification in Germany, with the opposition demanding a Financial Transaction Tax in return for passage.

    Assuming the treaty passes, please turn your attention to Article 41.

    ARTICLE 41 … payment of paid-in shares of the amount initially subscribed by each ESM Member shall be made in five annual instalments of 20 % each of the total amount. The first instalment shall be paid by each ESM Member within fifteen days of the date of entry into force of this Treaty. The remaining four instalments shall each be payable on the first, second, third and fourth anniversary of the payment date of the first instalment. 

    Reader Brett who pointed out that provision writes …

     The ESM total budget for 5 years is 700 billion euros. That means for 2012 the ESM will be able to contribute 140 billion euros. I have shown the breakdown by country (listed in Annex II) and amended another column to show their first contribution.

    Spain is clearly in no position to assist their own banks so we can forget about their contribution. We can also forget about contributions from Greece for obvious reasons, and Portugal whose sovereign debt is rated as junk status by S&P.

    Capital Contribution Analysis

    ESM Member Capital subscription (EUR) 2012 Contribution (20%)
    Kingdom of Belgium € 24,339,700,000.00 € 4,867,940,000
    Federal Republic of Germany € 190,024,800,000.00 € 38,004,960,000
    Republic of Estonia € 1,302,000,000.00 € 260,400,000
    Ireland € 11,145,400,000.00 € 2,229,080,000
    Hellenic Republic € 19,716,900,000.00 € 3,943,380,000
    Kingdom of Spain € 83,325,900,000.00 € 16,665,180,000
    French Republic € 142,701,300,000.00 € 28,540,260,000
    Italian Republic € 125,395,900,000.00 € 25,079,180,000
    Republic of Cyprus € 1,373,400,000.00 € 274,680,000
    Grand Duchy of Luxembourg € 1,752,800,000.00 € 350,560,000
    Malta € 511,700,000.00 € 102,340,000
    Kingdom of the Netherlands € 40,019,000,000.00 € 8,003,800,000
    Republic of Austria € 19,483,800,000.00 € 3,896,760,000
    Portuguese Republic € 17,564,400,000.00 € 3,512,880,000
    Republic of Slovenia € 2,993,200,000.00 € 598,640,000
    Slovak Republic € 5,768,000,000.00 € 1,153,600,000
    Republic of Finland € 12,581,800,000.00 € 2,516,360,000
    Total € 700,000,000,000.00 € 140,000,000,000
    Less Spain -16,665,180,000
    Total Less Spain € 123,334,820,000
    Less Greece -3,943,380,000
    Total Less Spain + Greece € 119,391,440,000
    Less Portugal -3,512,880,000
    Total Less Spain + Greece + Portugal € 115,878,560,000

     

    Subtract Italy crippled with a 120% debt to GDP ratio and Borrowing money at 4-5% to Lend to Spain at 3% and you are under the €100 billion mark.

    Even including Italy, the fund for 2012 is nearly all spent.

    What happens if Spain needs €350 billion as per analysis from JPMorgan?
    What Happens if Italy needs a bailout?

    Are there any rabbits left in the hat?

    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com
    Click Here To Scroll Thru My Recent Post List

    Images: Flickr (licence attribution)

    About The Author

    Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.  Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

    You are currently viewing my global economics blog which typically has commentary every day of the week. I am also a contributing “professor” on Minyanville, a community site focused on economic and financial education.  Every Thursday I do a podcast on HoweStreet and on an ad hoc basis contribute to many other sites.

    When not writing about stocks or the economy I spend a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com.
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