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Guggenheim’s Scott Minerd, speaking at the big morning panel discussion which kicked off this year’s Milken conference, laid out a simple case for how the next crisis could arise:

When you look at Greek assets, about 55% of bank capital in Portugal is exposed to Greece. And 83% of bank capital in Ireland is exposed to Greece. So it’s pretty clear that if we restructure Greece, we will severely damage the banking systems of Ireland and Portugal. And the big exposure to Ireland and Portugal is in Spain. Ireland represents 138% of the capital of the Spanish banking system, and Portugal represents 133%. And if we take out Spain, Spain represents 94% of the capital of the German banking system. And I’m not adding these numbers up. You see how it’s very easy to get a scenario going in Europe where the dominoes start to fall and it causes a crisis.

Greece is going to restructure, and when that happens (not if), creditors are going to take some kind of haircut. The buffer in Minerd’s scenario is Ireland: since the banks have all been nationalized anyway, their debt won’t necessarily get downgraded just because their capital is wiped out.

I’m also not convinced that Iberian exposure to Irish banks is as large as Minerd says it is. Here’s Michael Lewis, in his epic article on Ireland:

One of the most closely watched numbers in Europe has been the amount the E.C.B. has loaned to the Irish banks. In late 2007, when the markets were still suspending disbelief, the banks borrowed 6.5 billion euros. By December of 2008 the number had jumped to 45 billion. As Burton spoke to me, the number was still rising from a new high of 86 billion. That is, the Irish banks have borrowed 86 billion euros from the European Central Bank to repay private creditors. In September 2010 the last big chunk of money the Irish banks owed the bondholders, 26 billion euros, came due. Once the bondholders were paid off in full, a window of opportunity for the Irish government closed. A default of the banks now would be a default not to private investors but a bill presented directly to European governments.

Still, Minerd’s main point remains: insofar as the losses from a Greek restructuring aren’t socialized, they have the potential to cause a serious crisis. As a result, they probably will be socialized. And if you’re going to socialize those losses anyway, you might as well do it directly, rather than doing it by bailing out affected banks. Which means that Greek debt could go the way of Irish bank debt, and simply disappear into the ECB, which can afford to take a haircut on it.

That will take time — which is one reason why the people here at Milken predicting a Greek default in 2011 might well turn out to be wrong. Right now, the ECB has about €40 billion in Greek debt. That’s due to rise to €80 billion in 2013, at which point the ECB will own about half of all Greece’s outstanding bonds. If the number starts rising more quickly than that, it could be a sign that a restructuring is nigh.