Where Did Greece’s Bailout Money Go?



europileThree years after international bailouts began to keep Greece’s economy from imploding, the government has spent a first rescue package of $152 billion and is working its way through a second of $173 billion but the country’s debt is still 160 percent of Gross Domestic Product and much of the money has gone not to social services but investors.

Reports in the Greek media highlighted that about half the 209 billion euros ($277.5 billion) Greece has received since the start of the bailout in May 2010 has been used to cover interest and debt maturities.

Naftemporiki newspaper reported that 60 billion euros ($79.66 billion) was spent on debt maturities between 2010 and this year, while 40 billion euros ($53.1 billion) went towards covering interest.

As the Eurozone and the International Monetary Fund are expected to release another 5.8 billion euros ($7.7 billion) for Greece this week but with more than 2 billion euros ($2.6 billion) due to return to the country’s lenders in August, several Greek reports have noted that most of the savior money has gone to pay the back the investors and interest, bringing them big profits.

Greece is expecting to receive 4 billion euros ($5.31 billion) from the Eurozone on July 29, with the IMF’s executive board also meeting the same day to decide on the disbursement of another 1.8 billion euros ($2.39 billion).

After the Euro Working Group approved last week the transfer of 2.5 billion euros ($3.31 billion) in fresh loans from the European Financial Stability Facility (EFSF) and the return of 1.5 billion euros ($1.99 billion) in profits made by Eurozone central banks on Greek bonds, only the approval of national authorities, such as the German Parliament, stands in the way of Greece receiving the 4 billion euros ($5.31 billion).

It seemed that the German Bundestag’s budget committee was ready to give approval to the loan. Germany is the biggest contributor to the bailouts but has insisted on pay cuts, tax hikes and slashed pensions in return, as well as the firing of public workers.

The IMF board is also due to be briefed by the head of its Troika representation in Greece, Poul Thomsen. The fund is not expected to release its tranche until July 31.

The funds are due to be paid into a special account at the Bank of Greece but 2.26 billion euros ($3 billion) will be earmarked by the Troika for the payment of existing debt that matures on August 20.

The nominal value of bonds held by the ECB is 1.9 billion euros ($2.52 billion,) while interest is 76 million euros ($100.9 million). Eurozone central banks hold 268 million euros ($355.8 million) worth of Greek paper and another 10.7 million euros ($14.2 million) is due in interest. While the Troika allowed Greece to impose 74 percent losses on private investors, it would not allow restructuring of the bonds it held, and which pay 4 percent interest, paid by Greek taxpayers who’ve had their pay cut, taxes hiked and pensions slashed.

Another 48 billion euros ($63.8 billion) of the bailouts has been used to recapitalize Greek banks. Greek bondholders who took part in the 2012 debt restructuring received 35 billion euros ($46.4 billion) in sweeteners. The bond buyback that was held later in the year required another 11 billion euros ($14.6 billion.) Greece needed 15 billion euros ($19.9 billion) to cover various budgetary needs.


19 COMMENTS

  1. I am sorry but if you didn’t know this then you don’t have a clue of what’s happening.
    Greece was locked out of market funding circa 2009. The great majority of market funding was to replace loans as they matured (a practice called loan rollover). They also covered budget deficits.
    Instead of the closed markets the EU became the lender of last resort at a profit.(for the main purpose of preserving the stability of the European system; not for any love of Greece). Seizing the opportunity, Germany asked for a bunch of terms( call them reforms) in exchange for funding.
    The basic different between then and now:
    1. Germany no longer willing to fund budget deficits, hence we need to achieve primary surplus.
    2. Our interest rates then were circa 4% and today below 2%.
    Anyone who says that 98% of the loan funding goes to service existing loan and expresses amazement at such is basically an economic ignoramus. But of course it does. Where the eff have you been for the last 4 years? Who sold you otherwise?

  2. Exactly so. The profitable world of debt financing. But where were you savvy economists to advise the public and our mentally challenged leaders back when they were lying about our creeping-up debt–and when it might have been manageable? Of course the argument can be made that some dynastic families who were at the helm of Greece and also on the side of the loans have shared handsomely through the profits you write of.

    I am always mystified by people like you, Dean Plassaras, who know so much about the dynamics of a crises in hindsight. Wouldn’t any real economist worth his algorithms, see such disasters coming? I mean if economics is a science–wouldn’t you guys make some pretty accurate predictions the ship is heading for the rocks in time to change course?

    Personally, I believe we need less sophomoric economists right now and more seasoned anthropologists to help us understand how the human animal has coped with disasters in the past.

    I certainly would never think of trading my Liberal Arts education in for an MBA or PhD in economics. How sad to be then pseudo equipped to go around explaining what has already happened, as if it makes any fu–king difference.

  3. Tonto:
    I have been saying this since day one back in 2009-2010. No one was listening.
    The average Greek was more interested in the usual Panathinaikos-Olympiakos style politics and more concerned whether they would be paid on time.
    So, that’s how Germany eats your lunch. Instead of negotiating, Greeks started back on the napkin calculations of how much this “stuff” was going to cost them.

  4. Well obviously then you should be on some advisory board for this new government. I’m not so sure they are any better off than when Alogoscoufis started hiding the stats and prolonging the inevitable. The next regime just played dodge ball with George charging around asking where the money went and then claiming to the world–“we have the money.” Next thing we know–he’s making deals for “the money.”

    And judging by what we know now–he did and does have the money–so does his mom. But these new guys I don’t think have any better grasp of reality. And even if they do–we all have to march to a different drummer now and it’s not under the Greek flag anymore.

    Anyway, Dean, thanks for your lucid explanations–not sure more than a handful of people out there understand them, but it can’t hurt to keep explaining to the public why the sky is falling.

  5. Does every single factoid or release of new Greek or Troika data have to be accompanied by screaming headlines written for numbskulls back in the USA? Even the slightest degree of sophistication in reporting would be appreciated by those who track the crisis.

  6. Very good, Dean. The EU had to keep the contagion from spreading — or so they thought. If Greece fell, Portugal, Ireland, Spain and Italy would have soon followed. That would have been catastrophic to the rest of the world that’s over-exposed to economies that like to cook the books, or have no clue in running one.

    I don’t think there are many of us naive enough to believe that the bailout money received is being put towards stimulating the economy. When the US gave the banks their TARF, they did pay out ridiculous bonuses to upper-level executives. It’s almost ridiculous how much of a back-seat the people have taken with all the policies set.

    Greece can’t overturn the trajectory it’s on. It’s a never-ending vicious cycle and I’m almost afraid of even thinking how they’d need to start auctioning off land to cover the debt they owe, let alone the interest payments made from the loans received. Interestingly enough, a couple of years ago the country repaid a loan received in the late 19th century used to build that national railroad. It will be the end of the world, or the end of Greece before the bailout money is repaid.

    he troika created a social experiment out of the country and pushed the envelop even further with the policies that were forced on Cyprus. Hopefully they both can be resilient and overcome.

    Tonto, don’t give up that liberal arts degree:

    http://www.t4g.com/Newsroom/News-Article/April-2012/That-Arts-Degree-Isn-t-So-Useless-After-All!.aspx

  7. Tonto:
    I think Giorgaki made some serious errors. When he said “there is money” he was counting on European support (for example Greece had a chronic problem absorbing European structural funds which are for free but one has to follow the proper procedure to get them since they are “subject to” money).
    Therefore we had to deal with his naivite about what exactly Europe was. There was no way that a right wing government of Merkel would come to the aid of socialist Papandreou. Only Papandreou believed this or wanted to believe it in his own mind.
    Instead of cooperative partners Greece got the worst of an minimalist, incrementalist and obstructionist Germany.
    A Germany which has made 100 Bil. euros from the crisis and continue to make even more. And all of this complaining all along that the European taxpayers is burdened by Greece when in fact Greece has not cost a penny to any taxpayer so far. These are loans Greece is getting and Europe profits from interest.
    There is plenty of European hypocrisy to go around in the handling of Greece’s trauma.

  8. Sure let’s talk about German trade surplus of 188 Bil. with the world and how to kill it.

    I suggest that if France, U.K., USA and China band together they could erase 2/3rds of German trade surpluses by insisting on trade on a pari passu basis.

    Germany maintains a 1.34 trade advantage with the average EU country (meaning that for every euro Germany imports, she exports back 1.34 euros). With Greece Germany maintains a 3:1 trade advantage even under this severe distress environment for the Greek economy (which is nothing but a German casualty).

    You are complaining about the US but at least the US is supporting Greece via a Greek trade surplus:

    http://www.census.gov/foreign-trade/balance/c4840.html

    On the other hand the German cheapos maintain a 3 Bil. euro trade deficit with Bangladesh and 3 Bil. trade surplus with Greece (on account of the Greek economy being so healthy and such).

    Can’t wait for the Transatlantic trade agreement so that the US puts Germany in its place.

  9. Way before 2009-2010. The seriousness of the freight train derailment started from the Olympics and picked up steam.

  10. *****I am always mystified by people like you, Dean Plassaras, who know so much about the dynamics of a crises in hindsight. Wouldn’t any real economist worth his algorithms, see such disasters coming? I mean if economics is a science–wouldn’t you guys make some pretty accurate predictions the ship is heading for the rocks in time to change course?*****

    It doesn’t matter who see’s what. There is a built in inertia of interest from both the public and politicians.

    Governments are not companies. The CEO and the BOD can decide in a few days to change direction of the company. Politicians can not do squat that the public perceives is their “entitlement” and expect to be re-elected.

  11. I was referring to the lack of negotiation on the memorandum as well as the lack of understanding on the impact of the memorandum terms.

    As far as fiscal derailment, yes. Karamanlis tripled the debt in less than 6 years.

    Click on the upper left corner where its says “2002” and put 2003 instead. Then you will see the line graph for Greek external debt going from 150 Bil. in 2004 to 450 Bil. in 2010.

    http://www.tradingeconomics.com/greece/external-debt

  12. So how do you explain the election of Barack Obama and his ability to push through a National Health Program–never before accomplished in the USA? Those two events were certainly ‘game-changers.’

  13. ” . . . degree of sophistication in reporting. . . ” Now there’s an interesting oxymoron. Surely you are not expecting that from what is being pumped out of Greece right now, are you Alec? The journalist are somewhere in the middle of the food chain here. Don’t expect sophistication, “reporting” and certainly not the ‘truth.’

  14. These don’t include 2012 and half of 2013 which are much worse, meaning Greece has still a 3 Bil. trade deficit despite another substantial plunge of the Greek economy in 2012-13(I guess the message is that even if Greece is dead Germany will still have a 3 Bil. trade surplus with Greece) and Germany is now close to 200 Bil world surplus, looking at 250 Bil. surplus in case the Transatlantic Agreement goes through.
    These figures you show are appetizers; the main dish is now served and it’s going to get bigger and uglier. 100% advantage Germany, all others 0%.

  15. OK Tonto, but I know some of the folks writing for this publication, and I just object to the screaming headlines. Could be the editors???

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