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German ESMT Study: 5% of bailout money went to Greece’s state & people, 95% went to European banks

We have been knowing this and there have been reports in the past: that the majority of bailout money went  -and still goes- to banks and the lenders and not to the Greek state or people. The bailouts were supposed to get Greece back on its feet – only that Greece was forced to stand on lenders’ feet who claimed the money who gave to Greece right away and thus with juicy interest rates. What was obvious to anyone adding together the bailout tranche of the first now bailout loans, is now confirmed by a detailed study conducted by the Berlin-based European School of Management and Technology.

According to German economic news daily Handelsblatt that has obtained a copy of the study exclusively:

The aid programs were badly designed by Greece’s lenders, the European Central Bank, the Europe Union and the International Monetary Fund. Their priority, the report says, was to save not the Greek people, but its banks and private creditors.

After six years of ongoing bailouts amounting to more than €220 billion, or $253 billion in loans, Greece just cannot get out of crisis mode.

This accusation has been around for a long time. But now, for the first time, the Berlin-based ESMT has compiled a detailed calculation over 24 pages. Their economists looked at every individual loan instalment and examined where the money from the first two aid packages, amounting to €215.9 billion, actually went. Researchers found that only €9.7 billion, or less than 5 percent of the total, ended up in the Greek state budget, where it could benefit citizens directly. The rest was used to service old debts and interest payments.

The report comes as the European Union and the Greek government prepare to hold negotiations about further debt relief. E.U. Economics Commissioner Pierre Moscovici said he hoped all sides could reach an agreement at a special meeting of the Eurogroup of euro-zone finance ministers next Monday. Extensions of credit repayment periods, deferments and freezing interest rates are all being discussed. This “debt relief light” would not affect private investors – just the loans from Europeans.

At the moment, German Chancellor Angela Merkel and her colleagues are not inclined to listen to the Greek prime minister, Alexis Tsipras, as he asks for a new multi-billion euro aid package. It is easy to understand why. The chancellor must feel she has seen it all before. She has experienced many near state bankruptcies since early 2010 when she put together the first bailout for Greece. (Handelsblatt)

“With these aid packages, especially the European banks were rescued, ” ESMT President Jörg Rocholl told Handelsblatt. Rocholl belongs also to the Scientific Advisory Board at the Federal Ministry of Finance. “With €86.9 billion euros old debts were paid, €52.3 billion were spent on interest payments and €37.3 billion euros were used for the recapitalization of Greek banks.”

Greece had also benefit form the bailout program, but according to ESMT calculations, the study raises doubts on whether the aid programs were constructed correctly: With the bailout loans debt was serviced although Greece is de facto bankrupt since of 2010. “European taxpayers have paid off the private investors,” Rocholl stressed.

Above all, the rescue of Greek banks has proved to be a catastrophic business for taxpayers. According to ESMT calculations, €37.3 billion from the first two bailouts were poured into the Greek financial institutions. But these bank aids have now been almost completely destroyed.  Since their recapitalization on 2013, the banks have lost around 98% of their stock market value.

A “haircut” for Greece at the beginning of the credit programs in 2010 would have been probably more meaningful. Although the German government would then possibly have to support the German banks with state aid. “But it would have been at least clear where the money is going,” Rocholl said. Much controversy between the governments in Athens and Berlin would have been avoided – and it would have been cheaper for the German taxpayers too, the study have found.

Greek bailout

Right now, Greece and lenders try to conclude the Review of the third bailout program of €86 billion and ask Greeks to find in their private gardens and balcony flowerpots measures worth of  €5.4bn + €3.6bn = 9 billion euro for 2016, 2017 and 2018.

The Study in German is here to download however behind a Paywall.

PS and before Schaeuble admits his fatal failure in managing the Greek crisis and the bailouts, and that he cannot add 1+1+1, he’d rather keep his bitter-sour and rigorous position. It needs guts to admit mistakes and change the route. But, not Schaeuble. Not. That’s why he started to make plans for Grexit already in summer 2011, a year after the first bailout of 2010. He knew the program would not work, not matter what the Greeks did or did not.

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  1. Your comment on that study ignores two very important facts of course:

    First, the immediate reaction of both Merkel and Schäuble to Greece s financial troubles was: “No Bailouts”, as that is what the Maastrict treaty demanded. This would ve meant a restructuring of Greece debts, all Greece banks (biggest holders of Greek debt overall) go bust, people with money in those banks loose all their savings as the bancrupt Greek state could not guarantee even the first 100000€ of each account. German bank losses (with engagement in Greek debt actually being smaller than Frances) would ve been managable with the Rescue package for German banks the Bundestag had legislated.
    Only when it became clear that a total collapse of Greece would shake up the whole European finance system and other states could not afford to bail out their banks (France, Ireland, Spain, Italy) were Merkel and Schäuble pressured into the bailout.
    Second, most of the money went to banks, but a good deal of that money went to Greek banks, if it hadnt, see above.

    • Giaourti Giaourtaki

      But they’ve to pay back all the money of recapitalization, paid already back, didn’t use 10.5 billion – Varoufakis gave back to EU – were in 2015 recapitalized with 20 billion less than announced and sold for cheap to greedy bastards, not to mention that Greece paid already more than 45 billion back and pays until 2030 of 200 billion 150 billion interest.

    • Sorry, but this is a very biased account of what happened. The French and Germans were terrified about the solvency of their leading banks. They were not in the slightest interested in Greek banks (other than the impact on the rest of the eurozone) and least of all in the Greek people and Greek economy. The arrangements ultimately concluded meant that the bailout of German and French banks was done in a very underhand way, to avoid political criticism from their own electorates, and there was in effect no haircut of the debt other than for Greek state institutions owed money by the Greek state.
      What this means is that the Germans have paid nothing to Greece — as the report claims — and merely supported the banks of Germany and France. The solvency of Greek banks is a more complex issue — not least because the main problem has been the outflow since 2010 of most of their deposits to German banks and elsewhere. This left Greece having to institute capital controls, since the ECB refused to support the Greek banks adequately, with the now catastophic situation that no economy can recover or do well with capital controls.
      What should have happened is that the German and French banks lost their investment in Greek bonds, that many Greek banks would have gone bankrupt, and Greek investors compensated up to the limit of 100,000 euros for their losses. That compensation should have come from the ECB, whcih should be the lender of last resort as it took all eurozone central banks assets to itself. It is not the lender of last resort, because the Germans will not allow that.
      As for the results of the two different strategies? In the first case, the rich would lose a lot, while the poor would be protected. Also, Germany would doubtless have ended up paying something towards the Greeks. In the second case, the actuality, the rich lost very little and the poor have become unemployed and near-destitute in Greece. More importantly for the Germans, they have had to spend very little money on Greece, and most of their money (which is actually interest-free borrowing) has gone to protect German and French banks. Of courss, in the actual scenario the Greek economy is destroyed: but why would the Germans care about that? As far as they are concerned, this is all the Greeks’ fault and Germans should not have to pay anything to help.
      So, don;t give us this fake account of what happened. Do you Germans really think that the rest of the world is stupid? The US Treasury made similar comments to mine in 2010, and were told by the German government to go fuck themselves. This is the German mentality to a T.

    • “First, the immediate reaction of both Merkel and Schäuble to Greece s financial troubles was: “No Bailouts”, as that is what the Maastrict treaty demanded.”

      Yes, that was before they realized the parlous state of Deutsche Bank :)))

      • Yes, the germans are very good at stating the sanctity of law for everyone else, then quietly ignoring it for their own convenience. The hypocrisy and duplicity are stunning.

  2. A British NGO already said something similar some time ago. According to them it was only 10% that reached Greek society. The rest was to bail out banks. Tax payers bailing out banks that made bad investments is bad capitalism. In fact, it isn’t according to capitalistic principles at all. When you loan money you take a risk for which you get rewarded. The bigger the risk, the bigger the reward you get but the risk should be totally yours, not the tax payers’. After all, banks don’t share their profits with tax payers.
    Any excuse of “oh, these banks are TBTF” or “if we don’t bail out banks we will all die!!1!!” are no excuses. Politicians in the pockets of bankers allowed these banks to get “TBTF”. After Lehmann the world had the chance to correct a historical wrong but instead they allowed the same situation to grow even worse.

  3. What a surprise!!! As if we didn’t already know that all this fuss is just to give money to the banks. They are using the Greeks as scapegoats so they can do their dirty jobs. People should never accept any of this crap.

  4. And people are still sure that EUSSR is wonderful. Could anybody explain how Greece and all others can get rid from the tremendeous and unpayable debt? Btw all money is printed by the central bank and they don,t give. They only borrow. How we can get rid from debt when all money is borrowed ????

    • Giaourti Giaourtaki

      Cyprus will occupy Greece and integrate it into Great Cyprus: No Greece, no debts.
      Also the question is not if EU is wonderful but if people will decide to abandon their cities and be farmers again or not.

    • That’s the idea Juri behind Fiat money, Central Banks, IMF, World Bank….right back to the Marshall Plan. All this Bretton Woods structure was to control the world through phony debt.

      Interestingly enough under ALL law, international law and UN, a country that can’t pay overwhelming debt can simply repudiate it. And countries used to do that. But not anymore.
      Because our lenders have morphed into a militarized mafia.

  5. Sebastian Jordan

    Funny how it was noted by one of the comments that Germans wouldn’t be expected to care a jot for the longsuffering Greeks. But wait a minute! Aren’t they both members of both the European UNION, plus NATO, to boot? With unity like that, who needs disintegration…

    • Giaourti Giaourtaki

      Why is the German public keen on scandalizing 400 air-space violations by Russia in the whole NATO-area while it is ignoring 1.500 Turkish violation in the Aegean? 30.000 jobs for dirty pro-killers who call themselves weapons-producers and thus under a Green government?

    • Good point.

      However we in Greece have had 8 years to learn this EU propaganda is nonsense. Worse, if you object you are denigrated as lazy, corrupt, shifty, dishonest, cheating, immoral and that corruption is in your DNA! (Yes, according to BILD there is a corruption gene, clever!)

      Coming next across the West (underway in Austria now, Cyprus before) are the bank bail ins which G20 signed up to in Nov 2014 in Australia. Yes, your life savings are the TBTF banks life-saver fall-back. And if there is a massive derivatives crash your life savings are wiped out. And in case you thought you could hide some cash at home, why no, TBTF will switch to electronic money.

      • Indeed, they already started with propaganda about how electronic money is more legal. The latest nonsense has been to remove the highest denomination note of every currency — on the grounds that organised crime and mafia use these notes. This is in determined defiance of the recorded facts concerning offshore bank holdings owned by almost all senior politicians in western democracies — and the clear fact that almost all of these are hidden from taxation and are actually criminal activity.
        One of the benefits of global communication is that corruption and large-scale crime — mostly by politicians and their banker friends — has become visible. Prior to the internet, newspapers and tv controlled all information and were effectively controlled by corrupt politicians across the globe.