Greece: Who is being 'bailed out?'


Greek leaders thought they had fulfilled their side of the bargain, yesterday, hammering out 3bn euros in extra budget cuts to qualify for their next round of international loans.

But at the meeting of eurozone finance ministers on Thursday, frustration at Greek foot-dragging seems to have won the day.

Those same politicians have now been told they have three days to come up with a bit more budget pain. And they have to all promise (in blood?) that they will stick with the programme, no matter what the voters might say in April.

International bailouts - and the debt crises leading up to them - are always pretty painful to watch.

You wouldn't look very dignified either, jumping through hoops for your bank manager, with your back firmly against the wall (mixed metaphor intended).

This unedifying sight, George Osborne would say, is why you never want to borrow more than you can afford to repay - or lose the confidence of international investors. Leaders of countries who have been through it would all agree.

But the subjugation of the Greeks is starting to look extreme, even by these standards.

As Evan Davis put it, baldly, on the Today programme this morning, we focus on whether Greece can do what it takes to qualify for the 130bn-euro rescue, but the "real question" is whether they should be trying to qualify at all.

The shrinking economy certainly doesn't make the package any easier to sell. Nor do the public statements of their "rescuers" - notably Germany.

As I mentioned on Wednesday, Germany is so frustrated with the way the Greeks are handling their rescue funds, it wants to cut out the middle man.

When and if the next tranche of official cash is released, it wants all or most of it to go to a special account marked "for use only for international bondholders. Make available to Greek government only under advisement".

I paraphrase - but that is the basic idea. It all raises a question you hear a lot in Athens these days.

Its called the Greek "bailout" or the "Greek rescue package". But, who, exactly, is now being rescued?

Is it the Greeks? Or is it international investors - and the euro?

This, too, is a familiar theme in international financial crises. In a traditional IMF "bailout", a lot of the money lent to the country in trouble will almost inevitably flow right out again.

In a sense, that is what the rescue money is for: the country needs the IMF because it has a load of international obligations that, for one reason or another, it finds itself unable to meet.

The IMF steps in to help bridge the gap, while the country sorts out how to re-win the confidence of lenders, and live within its means.

So, it's always unpleasant for the country being rescued. And the "rescue" money often goes to bond investors rather than widows and orphans. The citizens of the country are still probably better off, than if they had been cut off from the global economy overnight.

But, again, in the Greek crisis it's all a lot more extreme - and the pros and cons, for the Greeks, are getting more complicated by the day.

German and French banks will lose from the proposed "voluntary" write-down of a large part of their Greek bond holdings. But they would lose even more from a disorderly default.

Likewise, eurozone ministers may be tempted to think that life would be easier for the area with a Greek default.

The way they see it, holding the Greek deal together is an almighty pain in the neck. That is perhaps the feeling reflected in last night's meeting.

But many wise heads in the financial markets would tell the Europeans to think long and hard about the potential fall-out from a default before they push Greece out the door.

Maybe all hell would not break loose if Greek defaulted now, as it might have done, for example, a couple of years ago. But given the amounts involved, from the European standpoint it's surely easier - and cheaper - to keep Greece onside.

Many would see the balance of arguments for Greece now shifting the other way. (For more on this see my blog: "Tables are turning on Greek debt deal".)

Sure, Greece would have a terrible time after a messy default. But then, the life they are signing up to under the terms of the deal is going to be pretty terrible too.

And if eurozone ministers get their way, it's a life that Greek voters are not going to be allowed to reject.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 20.

    I can understand why the Greeks are so angry. Imagine your life being controlled by the IMF and EU for generations to come.Defaulting and leaving the euro and EU would be better for them in the long run.This bailout deal is being forced on these people by a government who are not even elected but were selected by the EU.This euro project is not worth enslaving people for the rest of their lives.

  • rate this

    Comment number 19.

    Greece should default now on everything. All these 'rescues' and 'loans' were not approved by the Greek people and therefore they are not valid. To our European 'partners', ask your money back from Merkozy who made Greece a protectorate and denied a referendum (in which Greeks would have said no to any new loans since it is certain that it will be impossible to pay back).

  • rate this

    Comment number 18.

    Like stepping back in time.

    During Keynes' time European countries were in favour of having a strict deficit limit (balanced budget at all times), which Keynes argued would cause mass unemployment. Others said that the budget only needed to be balanced over the cycle.

    However, Keynes argued that the the budget MIGHT only be balanced over the cycle if that was consistant with full employment.

  • rate this

    Comment number 17.

    Good article Stef'.

    Greece should default. For many reasons, but mostly to put some legitimacy into the EU & EZ rules.

  • rate this

    Comment number 16.

    Ultimately, the only solution is a complete writedown of debt, all these baillouts do is delay the inevitable. This should have happened two years ago. The longer it gets delayed the worse the pain will be.

  • rate this

    Comment number 15.

    It is middle men and the politicians to gain from Bailout. For Greeks it is more penalty being Greeks tangled in austerity taxes and job cuts

  • rate this

    Comment number 14.

    It's in the interest of everyone to see Greece back to recovery as it is for all other EU member states.
    the danger of having a double standard of living in the EU is greater than breaking the currency union.

  • rate this

    Comment number 13.

    this is really nothing but populist journalism. of course its about more than Greece, if it takes continental banks down they will also take other economies down. all those advocating default completely ignore all the non-Greeks who would suffer a lot because of it, and certainly not solve any of the problems Greece has now, because then it would have no money at all, and that for quite a while.

  • rate this

    Comment number 12.

    France & Germany clearly want the Greeks to Default. They do not want continual bailouts and discussions on bailouts for the next ten years. They are looking for a divorce and will make life so intolerable for the Greeks that they will have no option but to walk away from the marriage no matter how much they may love the protection of the Euro.

  • rate this

    Comment number 11.

    It is outrageous what the Greek people are being made to do.... 30% wage cuts (with more to come), 30% reduction in pensions, nearly 20% unemployment with more jub cuts to come and no prospect of paying back the debts. The country is uncompetitive in the Euro. LET GREECE LEAVE THE EURO TO DEVALUE ITS CURRENCY AND REGAIN ITS COMPETITIVENESS. THE PEOPLE WILL THEN HAVE SOMETHING OF A FUTURE.

  • rate this

    Comment number 10.

    Reprehensible. Utterly reprehensible.

  • rate this

    Comment number 9.

    You would think a rescue would be along the lines of amputating a foot with gangrene in order to save the body. But the Greek rescue is more like amputating the one good leg, so it can be used in a transplant, while leaving the crippled person to rot to death.

  • rate this

    Comment number 8.

    People knew where the money was going to go right from day one. Compare the pain of Iceland to the pain of Greece. Iceland was told you will never get another loan for a century if you default but they can raise money now - has it been a century already?

  • rate this

    Comment number 7.

    Damned if they do and damned if they don't. If I was Greek PM I would prefer to be master of my own destiny and tell them to shove their bailout.

  • rate this

    Comment number 6.

    "it's a life that Greek voters are not going to be allowed to reject"

    Have a look at the streets of Athens. And the real pain of the next phase of austerity hasn't even begun. Unless we are prepared to see draconian authoritarian government within the EU then voters using their feet rather than the ballot box seem likley to "win" this one.

    Greece will leave the Euro before the April elections!

  • rate this

    Comment number 5.

    "This unedifying sight, George Osborne would say, is why you never want to borrow more than you can afford to repay - or lose the confidence of international investors."

    + and the Greeks can't even use QE - but the QE effect on the UK at £325BN is exactly the kind of risk that you say will 'lose the confidence of international investors' (In the UK and or Greece?)

  • rate this

    Comment number 4.

    I began to think a while back that it would be best for Greeks for them to default (even though that will involve pain for my own countries (British) banks).

    Now I am sure of it.

  • rate this

    Comment number 3.

    The Greeks would be signing up to a never ending refresh of austerity until they are on their knees and Athens is turned into the Grozny of Europe. They have performed a service to us all showing that austerity not only does not work but it makes things worse. Do they want to be a part of 'Union' seemingly hell bent in returning their economy to many decades back into the last century.

  • rate this

    Comment number 2.

    If the international community really wanted to help Greece, they would GIVE them the money, not loan it at extortionate rates with loads of strings attached.

  • rate this

    Comment number 1.

    The Greek bailout is not a bailout of Greece, it's a bailout of foreign banks, mostly German and French.

    A picture worth a thousand words:


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