The absurdity of the Greek “bailout” setup is in the news once again. The New York Times reports Athens No Longer Sees Most of Its Bailout Aid
In an elaborate payment system that began after the May 6 election that brought down the Greek government, and is meant to ensure that the Greeks do not touch the cash, the big three creditors are now wiring bailout payments to an escrow account in Greece. There the money sits for two or three days — before much of it is sent back to the troika as interest payment on the Greek bonds that Europe accepted under terms of the bailout deal struck in February.
“Greece will not default on the troika because the troika is paying themselves,” said Thomas Mayer, a senior advisor at Deutsche Bank in Frankfurt. “Why are we doing it like this?” Mr. Mayer said. “Because we’re Europe.”
A Greek government advisor who spoke anonymously, for fear of alienating the European lenders, said of the troika: “They made sure that the sum for domestic spending is kept small enough to force Greece to dramatically raise its own revenues.”
On its face, the situation seems absurd. The European authorities are effectively lending Greece money so Greece can repay the money it borrowed from them.
“You send the money, you call it a ‘loan’ — you get it back and call it an ‘interest rate,”’ said Stephane Deo, global head of asset allocation in London for UBS.
Since May 2010, Greece has been sent €141.7 billion in European taxpayer money to keep the country afloat and ward off a bigger meltdown that might threaten the entire currency union. Of that amount, a full two-thirds has gone to pay off bondholders and the troika.
Only a third has been earmarked to finance government operations, with only a tiny sliver spent on stimulus projects for the anemic economy.
Greek bonds are a profitable investment for the E.C.B. as long as Greece continues to make interest payments. The E.C.B. exempted itself from the debt restructuring deal. And Greek bonds were already trading at a big discount when the E.C.B. started buying them. As a result, the central bank is earning an effective interest rate of 10 percent or so.
Non-Interest on Non-Loans
If the money never gets to the borrower, then it’s not a loan. Scam is a more appropriate word. Of the €141.7 billion bailout, only €47.2 can be construed as a loan all of which nearly all went to government operations, none to the average Greek citizen.
As for Mayer’s statement “Greece will not default on the troika” we will see about that. Nearly three-quarters of Greece’s debt, or €182 billion, is now effectively owned by the EU the ECB or the IMF, according to estimates by the investment bank UBS.
If Syriza party leader Alexis Tsipras wins the June 17 election, the Troika is going to take a big hit. The ECB’s share is estimated to be between €35 billion to €55 billion.
Mike “Mish” Shedlock
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