German 55.5 bln euro Error to be Explored

It appears that an accounting error at FMS Wertmanagement, the bad bank for Hypo Real Estate, may have overstated the debt by 55.5 bln euros (~$77.7 bln). FMS. FMS has reportedly corrected its figures, to lower the debt by 24.5 bln in 2010 and by 31 bln euros for this year. The accounting adjustment will reduce Germany's debt/GDP by a couple of percentage points (to 81.1% from 83.7%), but before coming up with new ways to spend the money, such as increase the contribution to EFSF or other international aid packages, recall what we are discussing here is a smaller loss.

The borrowing figure for FMS stands at a whopping 161 bln euros. The source of the error appears to be derived from the fact that the collateral for derivatives was not netted between the asset and liability side. Rather than subtract funds apparently they should have added. FMS will account for 161 bln euros of Germany's debt down from 216.5 bln euros last year.

While there will be an investigation into the accounting error with talks scheduled for Wed, the political fallout might be greater than the economic consequences. The local press seems to be playing this story up even if the international press hasn't.
German 55.5 bln euro Error to be Explored German 55.5 bln euro Error to be Explored Reviewed by Marc Chandler on October 31, 2011 Rating: 5
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