The real bailout

According to James Mackintosh of the Financial Times, JP Morgan produced some figures today that showed where the money provided to Greece in its much-publicised bailouts actually went. Here's what James said on twitter:
"JP Morgan estimates only €15bn of €410bn total "aid" to Greece went into economy - rest to creditors. No wonder they are cross"
No wonder indeed. The price they paid for those bailouts has been severe cuts in public spending and five years of deep recession. Their adult unemployment is now about 20% and their youth unemployment over 50%. And there is no relief in sight, only further cuts and deeper recession. The Greek economy is collapsing.

No prizes for guessing who the main creditors are, either. Banks, of course. This fun interactive graphic from Thomson Reuters shows which countries' banks are the most exposed to Greece and therefore, presumably, have benefited the most from the bailouts.

In the most recent bailout, of course, the private sector has taken substantial losses - up to 75% NPV haircut on their holdings of Greek debt. But they had already sold a lot of it. Guess who they sold it to? National central banks and the ECB - none of which took a haircut, though they did forego some interest. So quite a bit of the bailout money has also gone to those institutions. But their purchases of that debt were also effectively a rescue of the banks that were overexposed to Greek debt.

So directly or indirectly, the main beneficiaries of Greek bailout money have been French and German banks. "Aid" to Greece? Anything but. The Greeks can be justifiably angry that their economy has been wrecked in order to fool German taxpayers into believing that they were rescuing a profligate southern state when actually they were bailing out their own banks and protecting France.

The Thomsons Reuters graphic also includes exposures for two other countries that have received "aid" in return for wrenching fiscal austerity. Click on the buttons to see who really benefited from their bailout money. For Portugal, the main beneficiary has been Spanish banks - well, heaven knows they need it (although I suspect most of the exposure is in the largest banks, which are not the ones in trouble). Ireland is interesting, because the banks most exposed are UK banks, though closely followed by German ones. It would seem that despite the UK's steady refusal to participate in Eurozone rescue packages, some of the bailout money is propping up its banks. Nice.

The Spanish bailout acknowledges that the main problem lies with the domestic banks not the sovereign, and therefore imposes "austerity" - of a sort - on the banks, not the people. It is the first sovereign "bailout" to do this. But it won't remain like that for long. Spanish sovereign debt yields are already rising to unsustainable levels. Banks holding that debt will have to mark down the value of those holdings and face substantial losses as a result. At the moment the ECB is not buying the debt, but it is only a matter of time until it does. And eventually Spain will require a sovereign bailout - at which point the screws will be turned on the Spanish people, even though they are already buckling under self-imposed austerity measures and have adult and youth unemployment rates higher than Greece. The Bundesbank's Jens Weidmann is already making noises about higher taxes and deeper spending cuts for Spain. That gives a clue as to which banks are most exposed to Spanish government debt (apart from its own, of course), and the graphic confirms it. German banks, of course. And French.  

Italy has not yet been bailed out, and is introducing a range of increasingly desperate measures to try and reduce their government debt significantly - it currently stands at about 120% of GDP, double the Maastricht limit. But yields on its debt are already rising, affecting the value of banks' holdings as with Spanish debt. Again, a quick look at the graphic shows who is most exposed. French banks, this time. And German.

By now it should be apparent where the bailout money has mainly been going, and - more importantly - where it will go when first Spain and then Italy require sovereign bailout. Yes, the UK and Spanish banks have benefited. But they aren't the main beneficiaries overall. The Thomson Reuters graphic shows that the principal beneficiaries of bailout money are French and German banks.

So Germans, too, should be angry. Not with the Eurozone sovereigns, but with their own banks and the French banks. Because it is the reckless lending of those banks, primarily, that has brought the Eurozone to its knees.  Yes, we can blame the half-baked Euro for the trade imbalances within the Eurozone, and the incompetent ECB for the crippling deflation in the periphery that is now dragging the entire Eurozone into recession. But the debt crisis - that was created by banks. And it is those same banks that are now receiving trillions of euros in bailout money, one way or another. All the hard work that Germans put in to repair their economy after reunification is going to waste as their taxes and their savings are used to bail out banks, whether indirectly via sovereign bailouts or directly through infusions of capital.

Let's end this madness. Stop inflicting pain on the people of Europe in order to prop up banks. And even more, stop lying to them. The banks that have lent so recklessly across borders are bust. If they are to be bailed out, let them be bailed out by their own governments - if their electorates agree. And if their electorates don't agree, LET THEM FAIL. America's FDIC has much to teach us on this, and Europe would do well to create an equivalent institution. Their mantra is - protect depositors, provide emergency access to funds, take over payments systems, then wind up the failed institutions. Europe should do the same.  Let there be no more covert or overt bailouts of banks.


  1. The Oncoming Storm16 June 2012 at 08:57

    Good article, so the PIIGS are being subjected to excessive austerity to save the Germans and French the embarrassment of having to admit how broke their banks really are. And then they lecture everyone else about "solidarity," wonderful ;(

    1. It's more than just embarrassment. The French are leading the drive to expand the ECB's role so that it can recapitalise banks directly. Sarkozy tried this first and was rebuffed by Merkel, but now Hollande is trying it again. The reason is simple. French banks are broke and the French economy is not in good enough shape to afford the cost of bailing them out. Where Spain and Ireland are now, France is heading.

  2. Are you intentionally misreading the Thomsons Reuters graphic? You say:

    For Portugal, the main beneficiary has been Spanish banks [...]. Ireland is interesting, because the banks most exposed are UK banks.

    In every case (except Greece), it's German banks with the largest exposure. You're describing non-banking private investors. That's businesses and individuals making investments in those countries, and those investments far outweigh any investments made by banks.

    1. No, actually it isn't. The graphic shows BANK exposure to various categories of borrowers - public sector, financial sector and non-financial sector. It doesn't show the exposures of non-bank financial investors.

    2. It would be useful to have an option to fix the x-axis scale (I realise it's not your chart Frances). Because what ought to stand out is that French banks are holding over $100bn of Italian government debt.

    3. Paul, yes I agree. That's the scariest figure of all. Though LOLGREECE says that even Grexit would be enough to kill French banks anyway.

  3. Interesting article. It turns upside down the perspective in the sovereign debt problem.

    We thought that the eurozone was helping those countries pay their debt. But since the creditors are also euro-zone banks, this is an indirect help to the banking system.

    I'm from france, and i'm surprised by the need of people to blame others. Reckless spending and reckless lending are botj side of the same coin.

  4. Thanks for the most concise statement of the problem I have heard of to date. I am Greek, living outside Greece and am watching the Greek Elections today with the fascination of watching a crash in slow motion.. ( no matter who wins the options are dire ! ) Your article should be required reading before people vote if only to discredit Papandreou's claim earlier this week in an article published in "the Guardian" that Greeks should vote for a pro-European govt.

  5. They borrowed the money they spent the money they must repay the money or face never getting future loans. No one forced them to avoid paying their taxes & tell lies to the ECB & the EU to fraudulently join the Euro. The Greeks have lied their way to bankruptcy with what was at best ambivalent oversight by the ECB

    1. You've missed the point completely.I am not defending Greece's actions. I'm saying that the banks which lent to them were equally culpable. And let's be clear about this - the money paid to Greece, Ireland, Portugal, Spain DOES NOT "aid" those countries. All it does is prevent foreign creditors - mainly German and French banks - failing due to sovereign debt writedowns and defaults. Continually bailing out banks both directly and indirectly while completely failing to reform them fixes nothing. Wrecking economies in order to maintain payments to creditors forces countries to remain dependent on permanent handouts. This is not a morality tale but a desperately dangerous situation for ALL the people of Europe, including the hardworking Germans. Whatever the "justice" of the situation, bailouts are no solution.

    2. Actually everybody lied to get in the Eu and everybody else accepted. There is nothing Greek in this crisis as there is nothing Spanish or Italian or whatever. They knew from the beginning the wrong design of the euro and they used it to prop up loans to everybody.

      But as always it is easy to blame a scapegoat for the corruption of everybody.

      You know especially in Greece most scandals have been from German and French multinationals ,bribing the politicians to get projects that never materialized properly.

      We are all interconnected and if someone is to blame more is those that control the capital flow.

      So get off the Greek citizens back and reform yourselves first. For it is a big joke talking about immaturity in Greece when more and more people understand today that people in other countries are exempt from the crisis ,because others and especially the Greeks pay for them.

  6. Well, it's most likey true that the German and French banks lent recklessly to the Southern Europeans after the introduction of the Euro. But these same banks OWE all that money to someone else too - I guess not to a small extent to German and French holders of saving accounts and other supposedly safe investments. So letting the banks 'pay' by going bankrupt effectively means that these 'safe' investors lose their money. The collaps of some banks may also lead to a run on all banks.
    In the early twenties very many people lost all their savings in Germany because of hyperinflation, leading to traumatic social upheavels with large-scale impoverishment and profiteering considered deeply immoral. The middle class lost all trust in the authority of the state to protect them from these hardships etc. etc. So price stability and the securty of the savings are absolute priorities in Germany as a result of this experience. And the French savers also don't want to loose their money, I guess.

    So yes, a lot of (Ge and Fr) taxpayer money goes to the holders of savings - in Ge and Fr. That's the emergency measure which the Ge and Fr governments chose so far. Is that really worse than the crash of a bank? There seems to be a consensus that letting Lehman Brothers default was a bad idea, in retrospect.

    If Ge and Fr taxpayers could and should also bail out Greece etc. in the sense that they help them to become productive and competitive (again) is another question. Probably they should, not least because being (net) 'export champions' (Ge) for decades is obviously unsustainable. So a bit of inflation (~5%) by raising (low) sallaries in Germany would help Gr. etc. and have the added benefit of increasing domestic demand in Germany and the income of Ge workers who had to 'tighten their belt' for far too long anyway. But probably German business interests are able to block this.

    1. If the German and French people want their banks bailed out to protect their savings, that's fine. Their governments should do so directly, not indirectly disguised as "aid" to another country.

      German taxpayers are extremely reluctant to provide economic aid to other Eurozone member states, even though this is probably essential if the Euro is to have a long-term future. Nor will they accept higher inflation, which they know all too well erodes their incomes and their savings.

  7. Great piece, Frances. I love the passion and the phrasing.

  8. Don't forget, please, that quite a few of the creditors are Greek banks, pension funds etc.

    So a bailout of creditors doesn't help Greece?
    That's what they say, because they simply can't get enough of my (German) tax-money.

    Plus there's another aspect to it: Helping Greece to pay it's dues (of which a huge chunk has already been forgiven - at the expense of not just banks, but also insurance companies = insurance holders etc.) was supposed to help Greece return to the market one day.

    If Greece has swindled, it has caused a huge problem for the public debt in all South European countries. That was the main reason why the other countries have intervened.

    Now even if you think these considerations were faulty, it still would help and be fair to know about and mention them, instead of blabbering about 'us' (Germans etc) not helping Greece!

  9. Before making statements like "The Greeks can be justifiably angry that their economy has been wrecked"
    it would help to be aware of (and mention) two things:

    - The Greeks have implemented next to none of the reforms that were supposed to free economic activity and attract private capital.

    - If the Greeks, or you, feel that the German taxpayer should cough up more dough for Greece, it is nevertheless grossly inappropriate to accuse us (or anybody else) of "wrecking" the economy because we didn't.

    Or do you feel that you are killing the starving children in the third world, because you don't donate more of your (hard-earned?) money for them?
    (Mutatis mutandis this is very the same type of causation that you have established in your blame-the-herms-blogposting!)

    1. Cangrande,

      I think you only read half the post before you embarked on your rant, or you would have realised that I am not blaming Germans. On the contrary, I commented that the German people could also be justifiably angry. Both Greeks and Germans have reason to be angry with the politicians and financiers that have misused their money, betrayed their trust and systematically lied to them. It would be far better if your anger was turned against the right people.

      Whether you like it or not, the fact is that the money you are donating to "help" Greece is actually keeping afloat German banks, and French banks, and even UK and US banks. Is this how you want your money to be used?

      Nowhere in this post have I suggested that anyone should "cough up more dough for Greece". But I think it is inevitable that you will have to give up yet more of your savings to prop up your banks. You can do this directly by bailing them out or indirectly by lending money to other countries so they can bail them out. At the moment you are doing the second of these. If you don't do this then the European banking system is likely to collapse. You will lose even more of your savings if that happens.

      Personally I'm in favour of addressing the awful state of European banks' balance sheets, winding up those that really have gone too far to be rescued and recapitalising the rest. But that requires agreement from the countries concerned - and yes, that does include Greece. While you continue to throw money at distressed sovereigns instead of sorting out the banking system you will be throwing your savings down a very, very large drain.

      This post is not just about Greece. Did you not bother to read the rest?

  10. Bailout of banks is one aspect; help for Greece is another one. I'm well aware of the fact that most of the bailout money goes to the banks, but speaking of "wreckless lending" when a state has operated with forged data, and when rating agencies fail, is a strange way of putting things.

    The idea behind the (indirect) bank bailouts was to give the financial markets assurance that they would not be let down, in case another one of the PIIGS would fail (and stop buying those loans altogether). While I am personally opposed to bailing out banks (and in particular French banks with German money), I still do realize that there is a market logic behind it.

    "The price they paid for those bailouts has been severe cuts in public spending and five years of deep recession".

    With that statement you are establishing a causal relation that simply doesn't exist. How in your opinion did the bailouts (as such) necessitate spending cuts and led to a recession? Can you name any direct link between a bailout for Greece/the banks and these "consequences".

    Your statement only makes sense if you REALLY intended to say:
    "If all the money that has gone to the banks had gone to Greece, they wouldn't have a recession today."
    This is true, of course. Booming economy at somebody elses expense, and deceased Greeks forever collecting pensions out of my tax money - I just love your argument!

    We (Non-Greek Euro zone members) would have had to bail out (some of) our banks (our savings accounts!)PLUS give to Greece whatever their dead pensioners feel they need?
    Thanks a lot!

    My commentary was not about each and everything in your post.
    I've focused on questioning what point exactly you are trying to make with statements like the one above or
    "their economy has been wrecked in order to fool the German taxpayers" (which logically can only mean that the Greek economy, in your opinion, was wrecked by the bailouts).
    "Stop inflicting pain on the people of Europe in order to prop up banks."
    Which gramatically means that we are inflicting pain on Greece by paying their debt for them.
    Which logically doesn't make sense. But again your hidden message is: "ALL THIS MONEY should have gone to the Greek government!"

    Not surprisingly, your answer has carefully circumnavigated that subject.

    1. Cangrande,

      1) Yes, reckless lending. You are still ignoring the rest of the post, and you don't seem to realise that excessive lending by banks has caused problems ACROSS EUROPE, not just in Greece.

      2) Deep cuts in public expenditure, tax rises and other "structural reforms" were imposed on Greece as a condition for their bailouts. While I would absolutely accept that the Greek public sector DOES need reform, the cuts were heavily frontloaded and far too severe for a fragile economy.

      In your previous comment you suggested that the Greek government had enacted practically no reforms. In fact they have turned a primary deficit of 10% in 2008 into what is close to surplus (they actually ran a primary surplus in Q4 2011). This despite experiencing one of the deepest recessions in European history. That is by any standards a remarkable achievement - I can't think of another country that has managed such a sharp deficit reduction. Please explain how they could have done that if they had done none of what they were asked to do, as you suggest?

      The fact is that the idiot economists in the Troika seem to think that if you only cut deeply enough the deficit and the debt will somehow magically become affordable. It won't - because when you cut as deeply as Greece has while the private sector is saving (capital flight, in this case) and there is a sizeable trade deficit, the INEVITABLE result is recession. This is basic economics. So the reduction of Greece's deficit to near-zero has come at the price of severe recession and high unemployment, as I said.

      3)No. I certainly don't think that all that money should have gone to Greece. That is not my message. There is no solution to this crisis that doesn't involve pain for Greece. But in your focus on Greece you are failing to see that the bailouts don't solve anything. Your money is keeping banks afloat but not reforming them. Greece is heading for third world living standards - the bailouts simply slow down the process but they don't stop it. No-one wins and the Eurozone lurches from crisis to deeper crisis.

  11. "Deep cuts in public expenditure, tax rises and other "structural reforms" were imposed on Greece as a condition for their bailouts."

    "Greece is heading for third world living standards".

    So exactly how much should the European taxpayers haven given to Greece?

    And how should we react to Greek refusal to implement structural reforms?

  12. Cangrande

    I have answered both your questions already. Unfortunately you ignore everything I write that doesn't fit with the pro-Greek agenda that you seem to have decided I am promoting. If you could stop banging on about Greece you might perhaps be able to understand the point of the post.

  13. Jazz has it as " it's over. VaR,the shouting \"

  14. Frances I congratulate you on a great article.

    As much as i hate to say this Gordon Brown's article in the FT yesterday is more than likely to be proven right. Respect!
    However the only true solution to this debacle is for the ECB to become the lender of last resort. The firewall needs to be between 2 - 4 Trillion euro's. All this provarication is simply buying time. They do not want to do it but ultimately and ironically the markets will force their hand. It may take another year I do not know but eventually it will happen to keep the euro in place. The euro will, I believe remain, but sadly we have a parliament in Brussels which is badly run and incapable of making the right decisions to achieve this. I hope the markets actually take it out of their hands. Jon.

  15. I am surprised to how many people appear to have no clue about the real situation. Especially about the benefit of the Greek crisis for the German markets 3-5%: increase on the Deutsche GDP since the so called greek crisis. The press in Germany along side the politicians presenting to wrong figures about the public money given to Greece - the fact that 80-90 100% of that money does not go to the state and its functions but directly to the banks. About the tendency of German & international corporation wanting to get greek resources for "free". The fact that IMF/ECB and german government installed a post wwII government in Greece. It is truly amazing that people in Europe are still completely oblivious to the game that is being played - and are still thinking of escape goats. And please stop with the PIIGS thing

    1. Not to mention falling German borrowing costs as investors move funds to safe havens, falling German unemployment as businesses move to countries with better economic prospects, and improving German exports as the Euro declines in value.

      Would you prefer GIPSI? Although actually more countries are involved now anyway. Belgium, Austria and France all at risk.

    2. Thanks for the article Frances. It was a really good and informative read!
      Well, the term PIIGS was used as an aid to stir public opinion towards the invented scape goat state. This came along the fraudulent statistics about wages, pensions and benefits in Greece. The legistlative, legal, financial and political effect of the bail-in and not out process is exactly the same with what was accomplished to Greece during the WWII occupation - litteraly the same - and the greek constitution is actually prohibiting by law of all the political and economic actions done by the referendum and the deals. Now within all these they invented an escape goat and a name for them and all the potential follow-up countries that induced prejudice and racism. Sociologically and this is already evident from peoples comments on the article this has already induced the picture of the "southerner" dark skinned no-good-siesta-loving-tax-evaders that are not worthy of our donation but we - the fairer northerners are in control and we might provide them with our mercy. Its a clever trick that a lot of EU citizens have seen through. However the majority of the EU public opinion has been manipulated towards social seperatism. So no name is good whether its SGIIP PIIGS or PIGIS!

  16. This comment has been removed by the author.

  17. From another one of your readers in Germany:


    There are a lot of very wrong feelings between Germany and Greece at the moment. And that concerns both countries. The blame game isn't going to help anyone. Let's stick to solutions.


    The Greeks and other troubled countries want to stay in the eurozone. Whether or not that is sensible, it is a fact which we have to respect. I certainly cannot imagine that Germany, out of all places, should suggest that Greece and other troubled countries leave the eurozone against their wish.


    Given they want to stay in the eurozone, we should look at whether and how this is possible. To address the problem of imbalances without lowering the level of competitiveness and productivity in Germany, and without creating what is discussed over here as a transfer union, the aim has to be to give the troubled countries something that they can use to trade with in the medium or long term. There will no doubt remain some imbalances, but if they are not too great, common fiscal policies can be implemented to bridge them.


    It is a bit unfair to correctly point out in Britain that both creditor and debtor are to blame, and then ask the creditor to provide a fiscal stimulus again, thereby provoking the same fateful imbalances loop that is at the heart of the eurozone mess. And to stress the British point, there is a lot of talk about the 1930s. In my humble opinion, just as it took both north and south to get us into this mess, it will take north and south to get us out of it. And that means further integration, involving both common assurances and common control. It is a discussion about the latter that I am missing in Britain. No side should feel that it is held at ransom by the other. And yes, that involves us nasty and unpopular Germans as well...

    Again, thank you for your time.

    With best wishes,
    a German reader

    1. Germans (the German people) are not unpopular. Merkel, Sarkozi the IMF and the rest of the gang are the unpopular ones!
      2 interesting and very informative videos:
      The Greek Crisis, The Fairy Tale of the German Paymaster:
      and the documentary:

  18. This comment has been removed by a blog administrator.


    Dear Ms Coppola,

    just a quick note on bailing out banks rather than Greece - the German government made sure that the banking sector was at least partially included in the partial Greek haircut. The greatest loser was, in fact, Deutsche Bank. The German government had to push these losses for banks through against the considerable resistance of other European countries. The British government was, in fact, the most ferocious in advising against the partial inclusion of banks in the partial Greek haircut. At the time, the British government feared that as a consequence, there may otherwise be another Lehmann moment.

    With regard to Spain, the problem is that Spanish law does as yet not regulate what happens if one of their banks becomes insolvent. This is the reason why Merkel is pushing for a European insolvency for for the banking sector. (Such a law exists in Germany. I have no idea, however, just how good it is.)

    I'm not much of a fan of Merkel, but some of the bashing of Merkel in the British media is poor on facts and simply unfair.

    I would love to see Britain play the role of an unbiased arbitor between the north and south of the eurozone vis-a-vis how shared control as the other side of shared assurances could be achieved without either side feeling all too disadvantaged. Britain, in the EU but not in the eurozone, seems to me predestined for such an important role. Alas, given the sentiment of the British press, I fear this is just wishful thinking...

    Yours sincerely,
    a German reader

    1. I've erased your first comment as you requested.

      I don't represent "Britain" in this and I'm certainly not bashing Merkel. I did point out that the UK's banks have also benefited from the bailouts. Germany was indeed instrumental in ensuring that the private sector took losses in the recent bailout, and if Merkel had got her way in the first place the private sector would have taken much larger losses - by the time of the second bailout they had already got rid of a lot of their holdings of Greek debt.

      One of the biggest reasons why this situation is so difficult to resolve is the fact that national interests trump European ones - and as things worsen, people retreat into their national identities. It is not just the British press that has an unhelpful attitude.

    2. Thank you.

      No, indeed, it is not just the British press. I didn't want to convey the impression that they are chiefly to blame. (Although a lot of the coverage has disappointed me.)

      I suppose all the average guy can do at the moment is hope that market pressure will lead to a solution about the politically most difficult question, namely how to accomodate different national interests on the European level in exchange for shared assurances, given that certainly a fullscale breakup would probably do more harm in the long term than commonly assumed at the moment, imho at least.

    3. With Regards to the "loser" Deutche Bank and who is actually bailing out who:

    4. Thank you for the link, which is very interesting.

      I did not say Deutsche Bank does not get money from Greece via the bailout, but that besides the bailout, there was a partial haircut as well, which did hurt Deutsche Bank, and which in fact would not have happened without Merkel.

      In fact, I never questioned the figures in the comment regarding the bailout. My intention was to add to the discussion by raising related points, as I think the overall picture is grey and not black and white. I probably should have explicitly said that.

      It doesn't really surprise me that the bailout money is used to pay banks in the crediting nations who hold Greek dept, as the bailout was always about avoiding fullscale insolvency by providing Greece with money needed to pay the creditors. It never claimed to be development aid.

      Anyway, with the best wishes to Greece, which I hope will restore its traditional strength as soon as possible, a German blog reader.

  20. P.S.:
    Rochester castle is an amazing Norman monument. Highly recommended to fellow German and other readers as an undeservedly unknown place to visit in the UK.


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