Greek public debt by creditors in 2015 - Chapter 3
Key findings from the Truth Committee on the Greek Public Debt
The loans were portrayed as if used to assist Greece in paying wages and pensions. Indicative of this portrayal is Eurogroup president Juncker’s statement that disbursements are used to recapitalise banks, pay wages, pensions and government suppliers. This is however misleading. The bilateral loans were used primarily for debt repayment: between May 2010 and September 2011 86% of the loans were used solely for debt repayment. The remainder was not even used in its entirety for budget support, but rather to pay for the setting up of the Hellenic Financial Stability Fund.
The EFSF, based in Luxembourg, was created in 2010 to preserve financial stability in Europe. Nonetheless, by creating additional debts for individual member states, the scheme deteriorated the economic situation for Europe as a whole and especially for Greece.
Only a small share of the loans contributed to the government’s regular expenditure. The bailout was disbursed mainly in EFSF securities: notes worth €34.6 billion subsidized the PSI, €11.3 billion notes were used in the ‘Debt buy back’ and €37.3 billion has been currently borrowed for the Greek banks.
The majority of the EFSF bailout was disbursed ‘in kind’, not in euros. Cashless operations constitute 65.4% of total EFSF loans. As elaborated in Chapter 4, the EFSF facilitates an exchange of obligations, meaning that the loans are, on the whole, not designed to enter Greece, but rather be used directly, inter alia, for the repayment of debts.
The European Parliament and the IMF acknowledge that the IMF programme results were “uneven” and contained “notable failures”. This is a gross underestimation of the extent of the deceit towards the Greek people.
The IMF knew from the outset that there was no historical precedent for such a scale of fiscal adjustment, stating in March 2010 that the programme would result in “sharp contraction of demand, and an attendant deep recession, severely stretching the social fabric”. As such, several members of the Board pointed to the programme’s “immense” risks.
The systematic bias and lack of transparency in the IMF’s methodology for forecasting is evidenced by the IMF’s Internal Evaluation Office, particularly in high profile cases and lending under exceptional access.
The ECB bought Greek debt on the secondary market in order to serve the interests of European private banks. The ECB has used this mechanism at its discretion for undemocratic purposes interfering in the political sovereignty of european member states and acting against their Constitutions between May 2010 and July 2012, when it was substituted by the Outright Monetary Policy Program. This decision served the interests of the private financial sector, allowing the French and German banks to reduce exposure on their holdings of Greek bonds. The IMF is very clear about that: “A delayed debt restructuring also provided a window for private creditors to reduce exposures and shift debt into official hands”. Moreover, the purchase by the ECB of significant quantities of bonds on the secondary market increased the price of these financial instruments. This allowed the bond-holders to reduce their losses the moment they sold them. We should also note that between May 2010 and September 2012, the ECB decided to freeze the SMP several times, which created market stress and had an influence on different political decisions, such as the increase in the EFSF lending capacity to €440 billion. Such political influence clearly falls beyond the mandate given to the ECB and it represents a questionable breach of its function.
The ECB purchased Greek bonds under the SMP cheaper than their nominal value on the secondary market but asked for full reimbursement (nominal value and interest payment). One estimation cites that the ECB spent €40 billion to acquire the estimated face value of €55 billion, which if held to maturity, the ECB would reap the full difference between the price paid and the repayment plus interest. The ECB has already received hefty interest from Greece, as the rates on the Greek bonds it holds are high. Although the ECB holds far less Greek debt than it does from Italy or Spain, Greece pays much more in-terest to the ECB. Over the course of 2014, the Greek Government paid €298 in interest on ECB loans, which represents 40% percent of the €728 million income that the ECB received from the total interest paid by the five countries in the SMP program. This is despite the fact that the Greek debt with the ECB represents only 12% of the total.
After the public revelation that the ECB and the Na-tional Central Banks (NCBs) made profits on the SMP program, the Euro-area governments agreed in November 2012 to transfer an amount equal to any profit on SMP holdings of the country’s debt as long as it complies with the conditions of its surveillance program. The ECB owes Greece almost €2 billion from the profits the ECB has made.
In February 2012 the restructuring of Greek debt involved a reduction of 53.5% of Greek sovereign securities held by private creditors. However the ECB refused to participate in the debt restructuring, whether through canceling part of the debt stock, postponing its maturity or reducing the interest rates. This was justified under the premise of “independence from any government”.
The strictly confidential document detailing the IMF Board meeting of Greece’s SBA mentions that “Dutch, French and German chairs conveyed to the Board the commitments of their commercial banks to support Greece and broadly maintain their exposures”. Instead, the foreign banks disrespected their commitment, and as detailed in Chapter 4 of this report, the bailout mechanisms facilitated the transfer of debt ownership from private banks to the official sector. The European Parliament reaffirms that the bailouts shielded the “banking sector from losses by transferring large amounts of programme country sovereign debt from the balance-sheet of the private sector to that of the public sector”.
The Troika’s bailout loans, far from being utilized to help pay for wages and pensions are instead used to reward the holdouts, many of which are known vulture funds, by repaying them in full. From May 15, 2012 until the end 2015, €3.615 billion has been repaid at an average of 4.3% interest.