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Bloomberg: Germany Got A Bailout Too, Financed by European Taxpayers

Did you know that European tax-payers provided Germany with financail support? A …bailout? No? You didn’t? Well, now, you know…. thank to Bloomberg’s report and a KTG-reader who forwarded the link to us. But beware. The news is a secret, so do not let others, especially Europeans, know about it…

 Hey, Germany: You Got a Bailout Too

In the millions of words written about Europe’s debt crisis, Germany is typically cast as the responsible adult and Greece as the profligate child. Prudent Germany, the narrative goes, is loath to bail out freeloading Greece, which borrowed more than it could afford and now must suffer the consequences.

Would it surprise you to know that Europe’s taxpayers have provided as much financial support to Germany as they have to Greece? An examination of European money flows and central-bank balance sheets suggests this is so.

Let’s begin with the observation that irresponsible borrowers can’t exist without irresponsible lenders. Germany’s banks were Greece’s enablers. Thanks partly to lax regulation, German banks built up precarious exposures to Europe’s peripheral countries in the years before the crisis. By December 2009, according to the Bank for International Settlements, German banks had amassed claims of $704 billion on Greece, Ireland, Italy, Portugal and Spain, much more than the German banks’ aggregate capital. In other words, they lent more than they could afford.

When the European Union and the European Central Bank stepped in to bail out the struggling countries, they made it possible for German banks to bring their money home. As a result, they bailed out Germany’s banks as well as the taxpayers who might otherwise have had to support those banks if the loans weren’t repaid. Unlike much of the aid provided to Greece, the support to Germany’s banks happened automatically, as a function of the currency union’s structure.

How It Worked

Here’s how it worked. When German banks pulled money out of Greece, the other national central banks of the euro area collectively offset the outflow with loans to the Greek central bank. These loans appeared on the balance sheet of the Bundesbank, Germany’s central bank, as claims on the rest of the euro area. This mechanism, designed to keep the currency area’s accounts in balance, made it easier for the German banks to exit their positions.

Now for the tricky part: As opposed to the claims of the private banks, the Bundesbank’s claims were only partly the responsibility of Germany. If Greece reneged on its debt, the losses would be shared among all euro-area countries, according to their shareholding in the ECB. Germany’s stake would be about 28 percent. In short, over the last couple of years, much of the risk sitting on German banks’ balance sheets. (Further Reading Bloomberg)

“If bank runs and market turmoil forced Portugal, Spain, Italy and others out of the euro area as well, the losses could wipe out much of the capital of German banks” stresses Bloomberg and underlines that Germany  “is indebted to the euro system as much as Greece is.”

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10 comments

  1. Germany ”is indebted to the euro system as much as Greece is.”

    Yes. That’s why it is so nonsensical to keep on complaining about foreign intervention in local politics. In the euro-system there is no such thing anymore as local politics. Decisions here in Greece have great consequences on citizens lives in other EZ countries and vice versa. So it is logical for people to try to influence decisions in other countries of the EZ-zone.
    That is why all Greek politicians, from Samaras to Tsipras, are spending more time abroad at the moment then here in Greece during the election campaign. Their stated goal is to inform and influence the other Europeans. And Tsipras even goes so far as to claim that the Greeks are fighting the battle for all of the other Europeans. But I don’t think he bothered to ask if they want him to do so…

  2. Just yesterday on German TV, a speaker for Syriza repeated Tsipras’ point that he has the interests of German tax payers in mind. Didn’t look as if the audience was buying that. After all, the logic behind that arguument is “gimme more money now in order to enable me to pay my debts later”. Very obviously, the big flaw in this is that Greece never managed to seriously reduce its debts without a default, not even under much better circumstances. And the nation has run a current account deficit since forever, so it has no record at all of being economically successful enough to fulfill Tsipras’ promise. But still, German taxpayers shall believe that this guy will prevail where all other governments before him failed? Well, many Greeks may buy that, but most Germans are too sceptically minded for this, imho. For them, this sounds like an encouragement to throw more money into the bottomless pit. That’s hardly an encouraging outlook.

  3. Btw, “Germany ”is indebted to the euro system as much as Greece is.”
    Well, let’s not forget that Germany is much bigger, in population numbers and especially in economical power. And that our debt level is WAY below that of Greece, with a much lower budget deficit, too. So, we’re comparing an elephant with a mouse here. And the same fat (debt) cat doesn’t represent the same level of danger for those very different animals.

  4. keeptalkinggreece

    German taxpayers? thank God, they don’t vote for Greek elections. Tsipras has mutated to the big Greek boogeyman with global impact even though he got just 17% at May-6 elections. And watch this out: “where all other governments before him failed” these governments want to govern again. Have German taxpayers more confidence to them?
    Anyway Greeks want change for a …change and that’s the main point. For many , lives came upside down in the last 2 years, and go through a Scottish shower every once is a while.

  5. Reality is not comfortable in Greece, the land of mythology. The myth of Greece being able to stay in the Eurozone with Alexi Tsipras at the helm is being written as we speak.

  6. Germany can produce things, Greece are better on consuming.

  7. Kt, come on, you know damn well that most Germans want Greece out of the Eurozone. Probably even Merkel now, despite her diplomatic statements pretending otherwise. Nobody here has any confidence in a Greek government, no matter who’s in it. That clown Samaras is just as untrustworthy as the wannabe revolutionary Tsipras. Some difference.

    If Greeks want change (I’m not convinced of that, many want no changes that affect them), then that has to include a change of currency. And that’s more likely to come with Tsipras, indeed. He’s smart, he sure knows that his campaign promises are empty words with a snowball’s chance in hell to become reality.

  8. keeptalkinggreece

    another Drachma fan here? Drachma-trolls ar eincreasing in KTG lol

  9. Well, when a situation becomes so dire that not even die hard optimists can ignore reality, reason will finally prevail, kt!
    😛
    Just look back at the experience of the last years. What progress has Greece achieved in creating a sustainable economic sytem that is independent from foreign money? Hardly any. With that speed, it will take decades, if not a century, to bring the country up to a level where it can realistically exist within the conditions of the Eurozone. Sorry, but outside of Greece, the political will to pay for artificial life support for Athens simply isn’t there. The project “Greece as an Eurozone member” has evidently failed. It’s high time for Plan B.

  10. That’s the perfect argument of Greece becoming the 17th Bundesland. LOL 😆