I am attempting to figure out just how deep in the hole Greek pension plans are. I have not had any luck finding plans or asset holdings but there are a few things we know and some assumptions we can make.

One of the things we do know is that Greek pension plans are one of the largest holders of Greek bonds.

For the sake of argument, let’s assume a 60% haircut on the value of those bonds although I believe that haircut will increase over time. The critical question is what percentage the pension plans hold Greek bonds, other sovereign bonds, Greek equities, and other equities.

Here is a look at the stock markets of Greece, Germany, and France from the site Trading Economics. Click on any chart for sharper image.

Greece Stock Market

German Stock Market

French Stock Market

Here are a few scenarios assuming the Greek pension plans are primarily weighted in Greek bonds. These scenarios may or may not be realistic.

60% Greek Bonds and 40% Greek Equities

Down 60% on 60% and down 85% on 40%.
Current value is 40% of 60% + 15% of 40%
Current value is 24% + 6% = 30%
Plan value is down 70% since 2008

60% Greek Bonds and 40% European Equities (weighted 50% Greece, 25% Germany, 25% France)
Down 60% on 60%, Down 85% on 20%, Down 41% on 10%, Down 25% on 10%
Current value is 40% of 60% + 15% of 25% + 59% of 10% + 75% of 10%
Current value is 24% + 3.75% + 5.9% + 7.5% = 41.15%
Plan value is down 58.85% since 2008

There are more than one Greek pension plan programs, but no matter what they are invested in, all of them have horrendous losses in the last few years. Moreover, the more the plans are invested in the Greek equities markets and Greek bonds vs. other European bonds and other European equities, the worse off those pension plans are.

If the plans are primarily in German and French bonds as opposed to Greek bonds, the plans are in much better shape than presented in the above examples. If the plans are primarily in Greek equities they are far worse.

To know just how badly underfunded the plans are, we need to look at individual plans, as well as pension plan assumptions. Greek citizens need to be told the truth regarding those pension plans, no matter how bad the situation is.

Because of the holdings of Greek bonds, one thing I am sure of is the already crippled finances of Greek citizens are about to take another hit. I do not believe there is any conceivable way the promises will be kept even with agreed upon pension cutbacks.

The answer to headline question “Can Spain and Portugal be Far Behind?” is no. It will become apparent as soon as there are haircuts on Spanish and Portuguese bonds (assuming it is not apparent already).


Please consider Funds, banks exposed to any Greek restructuring

Greek banks are estimated to hold close to 20 percent of the country’s estimated 327 billion euro sovereign debt, or nearly 60 billion euros. National Bank has the biggest share at 12.8 billion euros; the second biggest bank, EFG Eurobank, has about 7.4 billion euros, according to sources at the banks.

Greek social security funds hold slightly over 8 billion euros, according to the Finance Ministry. But their relative exposure is huge, as their liquid assets total 11.68 billion euros. IKA, the biggest fund, has almost two thirds of its liquid assets in Greek bonds and Treasury bills.

If they are unable to pay health and pension benefits, the state will be forced to help, which would further hurt its fiscal position as the government defies public opposition to impose waves of tough austerity measures.

Some analysts therefore think the Greek politicians who are urging debt rescheduling may not fully understand what it would entail.

Two-thirds in Greek bonds and US Treasuries, OK – Split how?

Mike “Mish” Shedlock
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