Germany pushing for Greece to default raises question of who is holding losses

In a Telegraph article by Bruno Waterfield, he discusses how Germany is pushing for Greece to default.  This of course raises the interesting question of who is holding onto the losses on the Greek debt and related CDS (credit default swaps).

The answer to who is holding the losses is that nobody knows.

By pushing for Greece to default, Germany is betting on market participants having adjusted their exposure to Greece bonds and CDS over the last two years to what they can afford to lose.

The fact that nobody knows if market participants did adjust their exposure means that pushing for Greece to default is gambling with financial stability.  There is some chance that some unexpected market participant is over exposed and this could trigger systemic problems.

Regular readers know that if there were ultra transparency, all market participants would know who was holding the losses.  As a result, there would be less chance of an unexpected surprise from a Greek default.

The German finance ministry is actively pushing for Greece to declare itself bankrupt and to agree a "haircut" on the bulk of its debts held by banks, a move that would be classed as a default by financial markets. 

Eurozone finance ministers meet on Monday to approve the next tranche of loans from the EU and the International Monetary Fund, designed to stave off national bankruptcy while the new Greek government puts the country's finances in order. 

But the severe austerity measures being demanded have caused such fury in Greece, and the cuts required are so deep, that Wolfgang Schäuble, the German finance minister, does not believe that any government would be able to implement them.... 

"He just thinks the Greeks cannot do what needs to be done. And even if by some miracle they did what has been promised, he - and a growing group - are convinced it will not pull Greece out the hole," said a eurozone official. 

"The idea instead is that the Greek government should officially declare itself bankrupt and begin negotiating an even bigger cut with its creditors. For Schäuble, it is more a question of when, not if." ...

With Greek morale at rock bottom, the national mood darkened yet further after armed thieves looted a museum on Friday in Olympia, birthplace of the Olympic Games, and stole bronze and pottery artefacts - just weeks after the country's National Gallery was burgled. 

One Greek newspaper suggested the state could no longer properly look after the nation's immense cultural heritage. "The Greek state has gone bankrupt, let's face it," the conservative daily Kathimerini said in an editorial. 

"If the state cannot guard the country's great cultural heritage for financial or other reasons it must find other ways to do it."...

Mr Schäuble's pessimism .... is not yet fully shared by Angela Merkel, who is said still to be determined to prevent Greece's financial collapse. "She thinks Greece going bust could cause a shock wave that buries other countries - with Spain and Italy among them. It could break apart the entire monetary union," said an official. 

But it has support from Austria and Finland - holding the prospect that a eurozone meeting tomorrow will fail to agree the next set of EU-IMF payments for Greece.... 

Rumours are already circulating in Wall Street that banks are preparing for a "credit event" - a technical term used by credit agencies to mean a default - in the days immediately following March 20, as Greece looks likely to be unable to meet its debts....

Mr Schäuble maintains that since Greece is already regarded by the financial world as bankrupt, a formal bankruptcy would have no negative consequences for other euro members.