Bailing out Greece: A great business deal!!

This note was posted as a comment on the FT, Brussels Blog at http://blogs.ft.com/brusselsblog/2010/05/mother-of-all-rescue-plans-buys-europe-time-but-can-it-work/#comments:

"Germany is all “abuzzing” about the costs of bailing out “lazy” Greeks. But how much did it cost Germany to bail out Greece? Well apparently letting Greece scare the markets and then bailing it out is a good business model. As it turns out, Germany made at least a €8.6Bn profit off it. May be even as much as €25.4Bn. How? Let’s see:

The cost of bailing out Greece was €22.4 Bn over 3 years, according to Der Spiegel. (http://www.spiegel.de/international/europe/0,1518,693579,00.html)

However this saved German banks from a balance sheet hole of as much as €33Bn, due to their exposure to Greek sovereign debt. (http://www.spiegel.de/international/europe/0,1518,693579,00.html)

It also turns out that a weak Euro, caused by Greek fiscal profligacy probably helped German exports. It is hard to say by how much, but given that exports had grown by 1% on average over the last year or so, and that they grew by 21% in March, I have generously considered that 14.81Bn out of the total 85.6Bn of German Export may have been caused by the low value of the Euro. (http://www.ft.com/cms/s/0/f6e35528-5c1f-11df-95f9-00144feab49a.html ) Finally it seems that the DAXX regained all the losses it incurred last week. (http://markets.ft.com/ft/tearsheets/performance.asp?s=569857&ss=WSODIssue)

So I propose two estimates of the German economic profit from rescuing Greece:

If you think that my estimated effect of the low Euro is exaggerated, which it probably is, then at worse, the bail out saved German banks from incurring those losses. As such Germany made an economic profit of as much as €8.6Bn from saving Greece.

None the less the low value of the Euro must have had some impact on Germany’s. Although the effect might not have been as high as to account for a whole €14.8 Bn worth of added exports, I guess one could establish that as a decent ceiling of how good the devalued Euro might have been for Germany. If that’s so, then we have to accept that Germany might have made a total of up to €25.4Bn from rescuing Greece.

Not such a bad deal after all… "