1. Executive summary
This paper analyzes the flow of money for the different Greek bailout funds and
concentrates on two key questions. First, where did the money come from? Second,
where did the money go to? Finally, the paper discusses the findings in a broader
context and derives policy implications.
http://static.esmt.org/publications/whitepapers/WP-16-02.pdf
Figure 1 presents the main results and exhibits that only €9.7 billion or less than 5%
of the total amount of €215.9 billion being distributed in the 1st and 2nd
programme were not used for debt-related payments and bank recapitalizations
and thus directly contributed to the Greek fiscal budget. In contrast,
€139.2 billion1 or more than 64% were used to repay the existing debt and serve
interest payments. Furthermore, €37.3 billion or 17% were used to recapitalize
Greek banks, while the remaining €29.7 billion or 14% provided incentives for
investors to engage in the Private Sector Involvement (PSI) in March 2012.
2
Figure 1: 1st and 2nd Economic Adjustment Programme uses [€ bn]
Source: European Commission, European Financial Stability Facility, Hellenic
Statistical Authority, IMF.
1 Thereof €9.1 billion were repayments to the IMF.
2 The additional accrued interest payment of €4.9 billion, which was also part of the PSI, is
already accounted for in the general government interest payments.
ESMT White Paper WP–16–02 5
2. Introduction
The question on how to treat Greek government debt has resulted in major
discussions among policy-makers, academics, financial specialists, and the general
public at least since the outbreak of the Greek government debt crisis in early
2010. This holds in particular for the question of where the money flew that was
designated for the Greek bailout. The analysis of this question has resulted in
vastly differing estimates by different individuals and institutions. The reported
values for the share of the funds from the first and second Greek bailout
programmes to go to creditors cover a range from 33% to almost 100%. But what is
the correct value?
A correct answer to this question is of crucial importance in the debate on how to
find the best recipe to fight this crisis as well as to best tackle future government
debt crises. The purpose of this paper is thus to shed light on the exact numbers
and provide transparency in a descriptive way. This study focuses exclusively on
the fiscal rescue packages, as agreed upon by European and international
institutions and parliaments, and ignores other types of intensely discussed
mechanisms including Target 2/ELA. The study extends an open invitation to fellow
researchers and the public to critically check the very detailed figures and thus to
create a sustainable and commonly agreed upon basis for further discussions.
The discussion in this paper is related, but not equivalent to the question of how
the cumulated Greek primary deficit after adjusting for the support to financial
institutions of €16.3 billion was financed in the years 2010-2014.
3 4 This analysis
would include a number of payments not analyzed in this article such as gains from
privatizations, short-term financing via T-Bills and repo operations, payments
caused by the Securities Markets Programme (SMP) and the Agreement on Net
Financial Assets (ANFA) programme of the ECB, contributions to European and
International Monetary Fund (IMF) programmes as well as the management of cash
reserves and arrears. Moreover, the first and second bailout programmes do not
cover the full 2010-2014 period.
3 Cumulated data from the Hellenic Statistical Authority (2014a), Press release and Hellenic
Statistical Authority (2015a), Press release.
4 The primary deficit in other sources may include the support of financial institutions.
Deficit and surplus data from different sources can vary depending on the use of ESA95 or
ESA10 accounting standards and the accounting methods of the IMF.
6 Where did the Greek bailout money go?
3. Where did the money come from?
The Greek bailout funds comprise three economic adjustment programmes. The
first programme started in May 2010 and was planned to run until June 2013. It
ended prematurely in March 2012, when it was succeeded by the second
programme. The second programme was initially planned to be finalized by the end
of 2014, but it was extended until June 2015. The fifth review of the second
programme could not be concluded and thus the programme stopped before all
planned funds could be disbursed.
5 Therefore, the Greek government requested a
new programme in July 2015.
6 The third programme is scheduled to run from
August 2015 until May 2018.7
3.1. The first programme
The first programme had a planned initial volume of €110 billion. Figure 2 shows
that €80 billion were provided by the European Union (EU) in the form of bilateral
loans through the Greek Loan Facility (GLF) and €30 billion were contributed by the
IMF through the Stand-by Arrangement (SBA).8 The overall programme amount was
lowered by €2.7 billion, as Slovakia did not participate and Ireland and Portugal
decided to seek financial assistance themselves, leaving €107.3 billion to be
distributed.9 The disbursed volume amounted to €73.0 billion with €52.9 billion
coming from the EU and €20.1 billion from the IMF.10 This left €34.3 billion of the
first programme undisbursed, which are €24.4 billion from the EU and €9.9 billion
from the IMF.
5 European Commission, Economic and Financial Affairs, Greece. Financial assistance to
Greece.
6 Detail of the request can be found in the official document: European Commission,
Directorate-General for Economic and Financial Affairs (2015). Greece – request for
stability support in the form of an ESM loan.
7 A comprehensive overview is provided on the European Commission webpage.
8 European Commission, Directorate-General for Economic and Financial Affairs (2012). The
Second Economic Adjustment Programme for Greece, Occasional Papers 94, 5.
9 European Commission, Directorate-General for Economic and Financial Affairs (2011). The
Economic Adjustment Programme for Greece, 5th ed., Occasional Papers 87, 5.
10 European Commission, Directorate-General for Economic and Financial Affairs (2014). The
Second Economic Adjustment Programme for Greece, 4th ed., Occasional Papers 192, 69.
ESMT White Paper WP–16–02 7
Figure 2: 1st Economic Adjustment Programme [€ bn]
Source: European Commission.
3.2. The second programme
The second programme comprised a total volume of €172.6 billion. Figure 3
exhibits the composition of the total volume, which is the sum of €34.3 billion
undisbursed fund from the first bailout package, €130.1 billion of new funds and an
additional IMF loan of €8.2 billion to be disbursed after 2014.11 The total bailout
amount of €164.4 billion, representing the bailout package net of the additional
IMF loan, is frequently mentioned in different public sources. The total IMF
contribution of €28.0 billion is made up of €9.9 billion in undisbursed funds,
€9.9 billion of new funds, and the additional loan of €8.2 billion.12 The payments
from the SBA facility were cancelled and all new funds distributed under the IMF’s
Extended Fund Facility (EFF). The EU pledged additional €120.3 billion on top of
the undisbursed €24.4 billion from the first programme, committing to a total of
€144.7 billion.13 The payments of the European countries were made through the
newly created EFSF.14 The disbursed volume amounted to €153.8 billion,
11 (2013) European Financial Stability Facility, 18.
12 The complete planned disbursement schedule is available at: International Monetary Fund
(2014). Greece, IMF country report 14/151, 55.
13 European Commission, Financial assistance to Greece.
14 European Commission, The Second Economic Adjustment Programme for Greece, 5.
8 Where did the Greek bailout money go?
€141.8 billion stemming from the EU and €11.9 billion from the IMF.15 This leaves
€18.8 billion undisbursed compared to the total amount of €172.6 billion initially
planned. Moreover, the Hellenic Financial Stability Fund (HFSF) paid back
€10.9 billion to the EFSF in February 2015, which reduces the total disbursed EU
funds from €141.8 billion to €130.9 billion.16
Figure 3: 2nd Economic Adjustment Programme [€ bn]
Source: European Commission, European Financial Stability Facility.
In combination, the first and second programmes amounted to €226.8 billion in
disbursed funds and €215.9 billion net of the HFSF repayment, €73.0 billion from
the first programme and €153.8 (€142.9 billion net) from the second programme,
leaving a total of €18.8 billion undisbursed.17 In sum, the IMF disbursed €32 billion
and the EU €194.8 billion (€183.9 billion net), as shown by Figure 4.
15 A different rounding in the original documents of the IMF and EU leads to €153.8 billion as
the sum of EU and IMF payments.
16 European Financial Stability Facility, Lending operations, Greece. EFSF programme for
Greece (expired).
17 European Commission, The Second Economic Adjustment Programme for Greece, 69.
ESMT White Paper WP–16–02 9
Figure 4: 1st and 2nd Economic Adjustment Programme [€ bn]
Source: European Commission.
3.3. The third programme
In July 2015, the Greek government officially requested further financial
assistance. Following the approval by national governments, the board of the
European Stability Mechanism (ESM) approved the Memorandum of Understanding
(MoU) in August 2015.18 The third programme comprises a volume of €86 billion, all
of which being pledged by the EU through the ESM, which replaces the EFSF.19 The
payments are subject to milestones outlined in the MoU, which include
deregulation, reform, and privatization measures. Until the end of 2015, the first
tranche amounting to €26 long term government bonds and €9.1 billion was fully
disbursed, of which €10 billion was distributed through ESM notes with an average
maturity of 32.5 years for bank recapitalization/resolution and additional €16
billion through ESM loans with an average maturity of 32.34 years. Of the €10
billion for bank recapitalization, €5.4 billion were used and the remaining ESM
notes were cancelled, reducing the net disbursed amount of the first tranche to
€21.4 billion.20 The programme is subject to the privatization schedule (Asset
18 The European Commission, on behalf of the European Stability Mechanism. Memorandum
of understanding for a three-year ESM programme (2015).
19 Eurogroup (2015). Eurogroup statement on the ESM programme for Greece, 2.
20 European Stability Mechanism, Financial assistance. ESM programme for Greece.
10 Where did the Greek bailout money go?
Development Programme ADP), as set out in the MoU, which is executed through
the privatization entity Hellenic Republic Asset Development Fund (HRADF).21 The
privatizations are expected to generate €6.4 billion through the sale of Greek
government assets, which mainly includes airports, ports and public oil, gas and
water companies.22 23
21 The European Commission, on behalf of the European Stability Mechanism. Memorandum
of understanding for a three-year ESM programme.
22 The European Commission, Memorandum of understanding for a three-year ESM
programme, 27.
23 Full list provided in: The European Commission, on behalf of the European Stability
Mechanism. Memorandum of understanding for a three-year ESM programme.
ESMT White Paper WP–16–02 11
4. Where did the money go?
This paper analyzes how the first and second programmes contribute to the Greek
fiscal budget, net of payments for interest, debt repayments, bank
recapitalizations, and debt restructuring measures. Obviously, there is no one-toone
correspondence between the programme contribution and the accumulated
Greek primary budget deficit, as the latter includes other income streams, which
are described above.
4.1. The first and second programmes combined
As described before, the total volume of disbursed funds amounted to €226.8
billion before and €215.9 billion after the HFSF repayment for the combined first
and second programme over the time period between May 2010 and June 2015.
This compares to the following payments that the Greek government conducted
over the same time period: Figure 5 documents, in order of decreasing importance,
that €86.9 billion24 were used to repay maturing government debt (thereof €77.8
billion in medium and long term government bonds and €9.1 billion25 in IMF
loans),
26 €52.3 billion27 were paid for interest on existing government debt, €37.3
billion28 were paid to the HFSF, and €29.7 billion29 were paid for the PSI. The
maturing debt repayments exclude repayments of €9.1 billion before May 201030
24 This is the cumulated sum of debt payments for 2010-2014 of €96.1 billion, as provided
by: International Monetary Fund, Greece. IMF country report 13/20, 62, International
Monetary Fund, Greece. IMF country report 13/241, 60, International Monetary Fund,
Greece. IMF country report 14/151, 56, less €9.1 billion which were paid in 2010 before
the first bailout (European Commission, The Economic Adjustment Programme for Greece.
Occasional Papers 77, 75.) and €0.1 billion paid in 2014 after the second bailout package
(European Commission, The Second Economic Adjustment Programme for Greece.
Occasional Papers 192, 71).
25 Possible positive effects on the household during the time before repayment are not
analyzed as part of this paper.
26 The €9.1 billion in IMF loans are projections from the latest IMF review of the Second
Economic Adjustment Programme (IMF country report No. 14/151, 56). The €77.8 billion
also include €15.6 billion in projected repayments (IMF country report No. 14/151, 56).
Both numbers can be subject to adjustments.
27 Hellenic Statistical Authority (2014b), Press release 1 and Hellenic Statistical Authority
(2015b) 1.
28 European Financial Stability Facility, Lending operations.
29 European Financial Stability Facility, Lending operations.
30 European Commission, The Economic Adjustment Programme for Greece. Occasional
Papers 77, 75.
12 Where did the Greek bailout money go?
and €0.1 billion in the last quarter of 2014.31 The interest payments include, due to
data availability, full years and €4.9 billion of accrued interest as part of the PSI
programme. It is important to note that the debt repayments also include the
mentioned €9.1 billion debt repayments to the IMF.
While the repayment of maturing debt and the interest service to existing debt are
straightforward, the HFSF and the PSI payments require a more detailed
explanation. First, the HFSH was created in July 2010 as a private legal entity to
stabilize the Greek banking sector. It received a total committed volume of €48.2
billion as part of the second bailout package, out of which €10.9 billion were
repaid, resulting in a total amount of €37.3 billion. Second, the PSI payments were
originally planned to amount to €30.0 billion for the sweetener plus €5.5 billion for
accrued interest, while the actual payments resulted in €29.7 billion for the
sweetener and €4.9 billion for accrued interest, leaving a combined total of €34.6
billion.32 The purpose of the PSI payments was to allow and provide appropriate
incentives for the Greek government debt restructuring in March 2012.
Figure 5: 1st and 2nd Economic Adjustment Programme sources and uses [€ bn]
Source: European Commission, European Financial Stability Facility, Hellenic
Statistical Authority, IMF.
31 European Commission, The Second Economic Adjustment Programme for Greece.
Occasional Papers 192, 71.
32 European Financial Stability Facility. Lending operations.
ESMT White Paper WP–16–02 13
4.2. The March 2012 government debt restructuring
Before the debt restructuring, the Greek government had €205.6 billion in
outstanding government bonds owed to private investors, which were eligible for
debt restructuring.33 Figure 6 shows that €199.2 billion took part in the debt
restructuring.34 The bondholders agreed to receive the accrued interest and
exchange the bonds for a combination of PSI bonds and Greek government bonds.
The relief comprised two parts.
Figure 6: Debt restructuring in 2012 [€ bn]
Source: European Financial Stability Facility, Hellenic Republic Ministry of Finance,
Zettelmeyer et. al. The Greek debt restructuring.
For each €100 of eligible bonds for which their holders accepted the debt swap
conditions, €15 were paid as EFSF notes as part of the second economic adjustment
programme, the so-called PSI sweetener, i.e. two bonds that mature on March 12,
2013 and March 12, 2014 with a fixed rate of 0.4% and 1.0%, respectively. Another
€31.5 were provided as a series of 20 bonds issued by the Greek government with
equal nominal value to mature between 2013 and 2042 and with interest rates of
2.0% between 2012 and 2015, 3.0% between 2016 and 2020, 3.65% for 2021, and
33 Zettelmeyer, J., C. Trebesch, and M. Gulani (2013). The Greek debt restructuring: An
autopsy, Peterson Institute for International Economics Working Paper No. 13-8, 34.
34 For a detailed analysis of the eligible bonds and hold-outs please view: Zettelmeyer et.
al. The Greek debt restructuring, 34.
14 Where did the Greek bailout money go?
4.3% thereafter.35 This resulted in payments of €29.7 billion for the PSI Bonds and
€62.4 billion for the government bonds.36 Hence the government debt for
respective bonds was reduced from €199.2 billion to €92.1 billion, constituting a
debt relief of €107.1 billion or 53.7%. Additionally €4.9 billion were paid for the
accrued interest of the exchanged bonds. The restructuring was followed by a
€11.3 billion debt buyback financed through the second bailout programme, in
which a nominal value of €31.9 billion of the newly issued Greek government bonds
were bought back, reducing the face value of Greeks government debt by further
€20.6 billion.
37 Figure 7 exhibits that, as a result, with the new bailout loans from
the IMF and the EU, the overall Greek government debt decreased from €356.0
billion in 2011 to €304.7 billion in 2012. Put differently, the nominal gross debt
relief resulting from the €107.1 billion haircut and from the €20.6 billion bond
buyback programme was significantly reduced by the need to finance the HFSF and
PSI payments of €37.3 billion and €34.6 billion, respectively. The overall debt
burden only decreased €51.3 billion from 2011 to 2012.38
Figure 7: Greece total debt (ESA10) 2011 vs 2012 [€ bn]
Source: Eurostat Database.
35 Hellenic Republic, Ministry of Finance (2012). Athens, Greece, March 9, 2.
36 The numbers deviate from the official 15% and 31.5% of the €199.2 billion total bond
value taking part in the restructuring. Zettelmeyer explains the difference due to the
treatment of a 2057 English-law CPI indexed bond, which was only partly exchanged.
37 Zettelmeyer et. al. The Greek debt restructuring, 30.
38 Eurostat Database, Government deficit/surplus debt and associated data.
ESMT White Paper WP–16–02 15
4.3. Planned uses of the third programme
The future financing needs for the time of August 2015 until July 2018 include
€35.9 billion for debt amortization, €17.8 billion in for interest payments, €7.0
billion for clearance of arrears, and €25 billion for bank recapitalization and
resolution costs of the financial sector, as shown by Figure 8.39 While the exact
outcome of the third programme remains to be seen, the upfront structure is very
clear. The major part of the programme serves again to cover the debt repayment
and interest payment to existing creditors, this time mainly the European Central
Bank (ECB) and the IMF.
Figure 8: 3rd Economic Adjustment Programme (2015-2018) [€ bn]
Source: European Commission.
39 European Commission, Greece - request for stability support in the form of an ESM loan,
11.
16 Where did the Greek bailout money go?
5. Broader context and implications
This paper analyzes where the Greek bailout funds came from and where they
went. It shows that less than 5% of the overall funds went to the Greek fiscal
budget, with the overwhelming rest going to existing creditors in the form of debt
repayments and interest payments. Further funds were needed to provide
incentives to holders of Greek government bonds to engage in the PSI and to
recapitalize the Greek banks which incurred direct losses from the consequences of
the PSI.
This part will discuss the findings in a broader context and derive five policy
implications. First, the root cause of the crisis is the inability of the Greek state to
properly manage its public budget, most dramatically evidenced by a primary
budget deficit of 10.2% in 2009, following many years of keeping to failing its own
yearly budget projections. Strong inefficiencies in the public sector including
overemployment, tax evasion, lack of registries for real estate, and resulting
uncertainty for investors have led to Greece being correctly viewed as a failed
state according to many dimensions. The level of private debt and the state of the
Greek banking sector were not in such a detrimental condition with total private
sector debt amounting to 128.7% of GDP in 2009. This figure represents a
significantly lower level of private debt than that in many other European
countries, including not only other programme countries, but also Germany and
France.
40 This means constitutional, organizational, and political measures in
Greece have to be in force so that such a grand mismanagement of public funds
cannot and will not happen again.
Second, Greek primary budget deficits were reduced significantly between 2009
and 2012 and turned into primary surpluses in 2013, not considering
recapitalization payments to the banking sector. However, structural (and thus
non-fiscal) reforms significantly lag behind. Some prominent examples comprise a)
the still unresolved lack of public registries for land and real estate, b) the only
slowly developing process of privatizations, and c) an inefficient bankruptcy law
that prevents banks from cleaning their balance sheets from non-performing loans
and moving on. In sum, real structural reforms are needed. They are more difficult
to achieve and require more time than for example increases in tax rates, but their
long-term potential is significant and they cannot easily be reverted by future
governments.
40 OECD Database, http://stats.oecd.org/index.aspx?queryid=34814#.
ESMT White Paper WP–16–02 17
Third, one may wonder why investors were willing to finance absurdly high primary
budget deficits over many years and to help accumulate a public debt level of €330
billion or 146% of GDP by 2010.41 Obviously, as reflected by the rather low risk
spreads on Greek government bonds before 2010, the fear of a sovereign
bankruptcy was rather mild. Financial institutions were helped in their investments
by the fact that the regulation on investing in (Greek) sovereign debt was mild or
non-existing. In particular, European banks did (and mostly still do) not have to
provide equity for investments in European sovereign debt nor, even more
importantly, do they face any maximum thresholds of how much they can invest in
these securities. This leads to the outcome that Greek banks had a combined
exposure of €54.4 billion towards its government.
42 These figures imply that
banking regulation needs to quickly and comprehensively adjust the standards for
lending to governments to those for lending to other institutions, in particular
private companies. Removing regulatory privileges for government debt is
important to loosen the widely cited nexus between banks and states and make the
financial system more resilient.
Fourth, there were reasonable and unreasonable arguments to not conduct a
haircut in Greek government debt in April 2010. The lack of an immediate
significant restructuring of Greek government debt was (correctly) anticipated by
investors in the years before 2010 and was mirrored in the relatively low risk
premia charged by these investors. The reasonable arguments comprise in
particular the fear of contagion just 19 months after the bankruptcy of Lehman
Brothers and the looming risk of another financial crisis. The unreasonable
arguments deal with the fear of major losses in particular in German and French
banks as major investors in Greek government debt, and the resulting necessity of
a recapitalization in these banks. It is reasonable to assume that the public debate
would have taken a different direction if losses had been borne by Germany and
France right away, making it more difficult in public sentiment to seek the
responsibility in Greece alone. In sum, the lack of a haircut and the subsequent
bailout packages led to the transfer of risk from private to public creditors. In
general, early creditor losses are important to achieve a significant reduction of
government debt, before any fresh funds should be put at risk.
Fifth, the question of debt sustainability is currently subject to major debates
between the Greek government, the IMF, and the European partner countries. The
41 Public Debt Management Agency, Economic indicators. The figures might vary between
IMF, OECD, PDMA and different sources due to different accounting details.
42 European Banking Authority (2011), EU-wide stress test results.
18 Where did the Greek bailout money go?
Greek government, probably correctly so, points out that the current sovereign
debt level, in particular after the political and economic turmoil in 2015, is
unsustainable and concludes that another debt restructuring would be necessary
already at this point of time. The other side argues that a significant restructuring
of existing debt has already taken place in the form of a lengthening of debt
maturities and a reduction of interest rates. More importantly and less openly
argued in public, Greek partners have lost trust in the Greek government to not
start the same accumulation of sovereign debt again once another debt
restructuring will have taken place (first implication). Second, while they
acknowledge the Greek progress in closing the primary budget deficit, significant
progress in structural reform still needs to take place (second implication).
Furthermore, banks are not constrained by regulation in their general ability to
finance the Greek state again by investing significant amounts of funds into Greek
government debts (third implication). These aspects together suggest that there is
good reason to delay the discussion on another debt restructuring in Greece to the
time when the Greek government will have built trust again to maintain a balanced
budget, when it will have finally implemented important structural reforms, and
when banking regulation has accepted the necessity to remove the regulatory
privileges for bank investments in government debt.
ESMT White Paper WP–16–02 19
6. Conclusion
This paper provides a descriptive analysis of where the Greek bailout money went
since 2010 and finds that, contrary to widely held beliefs, less than €10 billion or a
fraction of less than 5% of the overall programme went to the Greek fiscal budget.
In contrast, the vast majority of the money went to existing creditors in the form
of debt repayments and interest payments. The resulting risk transfer from the
private to the public sector and the subsequent risk transfer within the public
sector from international organizations such as the ECB and the IMF to European
rescue mechanisms such as the ESM still constitute the most important challenge
for the goal to achieve a sustainable fiscal situation in Greece.
This study offers an open invitation to other researchers to critically check the
detailed figures presented in this paper and to further the analysis of the primary
deficit financing and broader implications such as the distribution effects of bailout
programmes on the Greek economy and other EU member states.
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