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The Troika’s Policy in Greece: Rob the Greek people and give the money to private banks, the ECB, the IMF and the dominant States of the Eurozone

On 20 August 2018, the Greek government of Alexis Tsipras, the IMF and the European leaders celebrated the end of the Third Memorandum.

On this occasion, the major media and those in power spread the following message: Greece has regained its freedom, its economy is improving, unemployment is on the decline, Europe has lent Greece 300 billion and the Greeks will have to start repaying that debt in 2022 or in 2032.

The main claims are completely unfounded as Greece remains under the control of its creditors. In compliance with the accords that the Alexis Tsipras government signed, the country must imperatively achieve a primary budgetary surplus of 3.5% which will force it to continue brutal policies of reduction of public spending in the social sector and in investment. Contrary to the dominant message that Greece will not begin to repay its debt until some time in the future, it should be clearly understood that Greece has been repaying considerable amounts constantly all along to the ECB, the IMF and to private creditors, and this prevents it from responding to the needs of its population.

by Eric Toussaint

Part 10 - The public authorities take on private creditors’ losses by socializing them

Beginning in May 2010, foreign public lenders took the place of foreign private lenders; the Memorandum of Understanding provided the Greek public authorities with the means of repaying private lenders, bailing out the Greek banks to keep them from causing a new episode in the international banking crisis that had been underway since 2007.

It’s difficult to imagine a payment default by Greece’s private banks causing a major international crisis. Nevertheless, the French and German banks were already so deeply mired in the crisis elsewhere that an incident in Greece could have worsened the situation. Who knows? But what we do know for certain is that the French and German banks pressured their governments to set up the Troika and a programme aimed at protecting their interests (which are no more the interests of the populations of France and Germany than they are of Greece’s, even though it was the Greek people who directly suffered the consequences).

The MoU imposed on Greece in May 2010 called for granting €110 billion in new loans.

At the same time, finally, despite the doubts that arose in September-October 2009, the ECB maintained its line of credit to private Greek banks. This was a central part of the mechanism put in place by the Troika and a powerful lever for blackmailing the Greek authorities into submissiveness. Bonds issued by Greek banks to the ECB are guaranteed by the Greek State. This means that if the Greek banks are unable to come up with the funds to repay the ECB, the Greek State has to pay. How? Why, by borrowing from the Troika. Because the foreign private banks were unwilling to lend money to Greece at reasonable rates.

And indeed, starting in May 2010, the Greek State ceased issuing government bonds to raise funds on the international financial markets. It took out short-term loans from Greek banks (which was very advantageous for the banks, since beginning with 2010 the interest rate was very high and there was no risk). In addition, the Greek State borrowed abroad from public lenders or the entities representing them. It borrowed €53 billion from 14 countries in the Eurozone at 5% or above – a very high rate. These 14 countries borrowed that amount from private banks, who in turn borrowed from the ECB at a very low rate. This enabled both the banks and the states who were Greece’s creditors to reap profits.

After borrowing from the 14 lender states, Greece also obtained financing from the EFSF (European Financial Stability Facility), which took over from them. The EFSF is a private entity based in Luxembourg City, created in 2010 by the member states of the Eurozone to raise funds that were then lent to Greece and to other states such as Ireland, which beginning in November 2010 was also caught in the machinery of the Memoranda. As may be evident to some, the EFSF borrowed from private banks at a higher rate than what those banks themselves paid when borrowing from the ECB…

Greece also borrowed from the IMF, which is financed by its member States. The IMF made €5 billion in net profits on loans to Greece between May 2010 and May 2018 (€5 billion or approximately 4 billion Special Drawing Rights, the IMF’s unit of account). See International Monetary Fund, “Greece: Transactions with the Fund from May 1984 to May 2018”.

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