Briefing Influence

  • Correctly predicted that by 2015, over 75% of Greek debt would be held by the official sector.
  • Assessed that the restructuring and bailout in Greece, would not reduce its debt significantly but transfer it from the private sector to the public sector.
  • Highlighted that money from the bailout would not go to the Greek people or to its economy but to the banking sector and to pay off deficit debtors.
  • Forecast that the second Greek bailout would significantly increase the exposure of other Eurozone taxpayers.
  • Concluded that all the above would mean that future debt reduction could well be needed, and that it would be politically explosive, given the huge exposure of Eurozone taxpayers.

1 March 2012

Greek debt in 2011 (Total €355bn)

ECB €55bn
Eurozone €53bn
IMF €22bn
Greek banks €55bn
Greek non-banks €27bn
Other European banks €35bn
Non-European banks €28bn
Non-Greek non-banks €80bn
Source: Open Europe calculations

Greek debt in in 2012 post bailout (Total €351bn)

ECB €55bn
Eurozone €130bn
IMF €31bn
Greek banks €29bn
Greek non-banks €13bn
Other European banks €19bn
Non-European banks €15bn
Non-Greek non-banks €59bn
Source: Open Europe calculations

A bad deal for Greece

  • Of the total amount (€282.2bn) that is entailed in the various measures now on the table as part of the second Greek bailout – through the bailouts and the ECB – only €159.5bn, or 57% will actually go to Greece itself. The rest will go to banks and other bondholders.
  • Under recent proposals, the total level of budget cuts Greece is expected to undergo stands at a massive 20% of GDP by 2013. Historically, no country has ever gone through such a large level of fiscal consolidation – successful or otherwise – especially without the option of currency devaluation. For example, the extensive fiscal consolidation seen in Ireland during the 1980s and 1990s totalled ‘only’ 10.6%.
  • The debt write-down offered to Greece is far too small to allow Greece any chance of recovery. Immediately following the restructuring, Greece’s debt to GDP will still be 161%, a reduction of only 2% compared to where it is now. The country is highly unlikely to meet its debt targets by 2020. This means that combined with the poor growth prospects due to continuous austerity, Greece will almost inevitably need either another bailout in three years’ time, or be forced to default on its outstanding debt.

Projected shares of Greek debt in 2015 (Total €316bn)

ECB €29bn
Eurozone €197bn
IMF €43bn
Greek banks €15bn
Greek non-banks €7bn
Other European banks €10bn
Non-European banks €8bn
Non-Greek non-banks €7bn
Source: Open Europe

A bad deal for Eurozone taxpayers

  • At the start of this year, 36% of Greece’s debt was held by taxpayer-backed institutions (ECB, IMF, EFSF). By 2015, following the voluntary restructuring and the second bailout, the share could increase to as much as 85%, meaning that Greece’s debt will be overwhelmingly owned by Eurozone taxpayers.
  • This means that in the event of a likely default, a huge chunk of the losses will fall on European taxpayers, potentially leading to significant political fallout in countries such as Finland, the Netherlands and Germany.
  • Given the sizeable debt relief needed in Greece, a fuller coercive restructuring would have been a simpler and more effective option from the start. Even at this late stage it still presents a viable option and is the only hope of putting Greece on a sustainable path while still keeping it in the Eurozone – although even that may not be enough.

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