Malta’s real financial exposure

Despite a detailed study prepared for the European Central Bank that Malta has the highest exposure to Greek Government debt, Minister Tonio Fenech has criticized the report and has said that it is ‘completely wrong and speculative’.

The study, on which European policymakers are trying to make a last ditch effort to keep Greece in the Eurozone, has reviewed the exposure of central banks in the Eurozone. Of all the EU states Malta has the highest exposure as a percentage of its GDP. Whereas the average exposure for the EU 17 is 3.2%, Malta’s exposure is 4.3% of GDP. Luxembourg is the least effected with 1.8%.

According to the report, one of the options being discussed is the writing down of Greek Government bonds by the European Central Bank and the national central banks. Effectively this would be a write-off of 30% of the value held in the bonds. In a different report Nomura’s Jens Nordvig and Dimitris Drakopoulos believe that several central banks would have to be recapitalized. Reuters news agency a few days ago referred to a European Central Bank Report stating that the  French, Maltese and Cypriot central banks which were most exposed to Greek government debt, would probably need a capital injection.

Total outstanding official-sector credits to Greece, which also includes bilateral loans extended to Greece by euro zone governments, is about 220-230 billion euro. A 30 percent write down would therefore amount to slightly more than 70 billion euro, one official said. Another put the figure at between 70 and 100 billion euro, depending on how the process is carried out.

Politically it may be easier for policymakers to get the ECB and national central banks to take a hit on their bond holdings, rather than euro zone governments which would mean that taxpayers suffered direct losses. In Malta such a direct loss by the Central Bank would still have serious repercussions for the Government.

GonziPN’s finance guru believes that this will not happen. So far, whenever a negative statistic was presented, Tonio Fenech has always come up with lame excuses to try and justify his government’s actions and to claim that all other experts are wrong. Hopefully it will not be another of his predictions and general estimates. His evaluation of the financial situation, including the debt-to-GDP ratio, the cost of living increases, the uncontrolled rise in our deficit and his interpretation of the recession Malta is in, has proved the Minister wrong, every time. However, the country hopes that this time, Tonio Fenech is correct, so that Malta would avert another serious mess that GonziPN would have got us into.

The unfortunate thing is that the Minister for Finance plays down the gravity of the situation. In pure GonziPN fashion he says that in a worst case scenario, Malta’s exposure is minimal and can be absorbed by the Central Bank’s profits in one year. Even if this were so, can Malta readily afford a loss of around thirty-three million euro, being 30% of the total exposure of 56,000,000 euro in loans and another 56,000,000 in guarantees?

The people, the country and future governments are keeping their fingers crossed that Tonio Fenech might not be always wrong!