by Michael Roberts
The announcement by the European Central Bank that it has so far
made €7.8bn in profits from its holdings in Greek government debt
reveals the true nature of the so-called bailouts of Greek government
finances that the EU leaders organised in return for massive austerity
measures from 2012 onwards.
Back in March 2012, five years ago, a so-called private sector
involvement (PSI) deal was agreed under which French, German and Greek
banks who held the bulk of Greek government bonds agreed to take a
‘haircut’ on the value of their bond holdings. Under the PSI, they
received in return new Greek government bonds with 30-year lives, paying
about 3-4% a year in interest and guaranteed by the Eurozone financing
operation, the EFSF. And they also got some cash upfront for turning in
their old bonds. The Euro leaders and the IMF provided around €130bn
in new money plus €34bn left over from the previous Greek package to
fund the interest to be paid on the new Greek government bonds,
repayments to the IMF, money to recapitalise the Greek banks and money
for the cash on the PSI deal.
As part of the PSI, the ECB bought up some of these bonds, for which
they were guaranteed repayment as they matured by the Greek government,
as part of the bailout packages that ensued. In total, the ECB and
national central banks bought €56.2 billion of Greek debt, according to
analysis by a University of Munich academic. Of this, €29 billion has been repaid, with €27 billion still outstanding. The ECB bought bonds to be repaid up until 2028.
Well, not only have these bond purchases been repaid over the ensuing
years as the Greek people took the pain of wage and pension cuts, a
collapse in public services and the privatisation of public assets, but
the ECB has made nearly €8bn in profits. The ECB said holdings of Greek
sovereign bonds acquired under its Securities and Markets bond-buying
programme (SMP) had resulted in €7.8bn of net income interest between
2012-2016. These profits are not being returned to the Greeks but
distributed among the 19-country central banks in the eurozone.
Another cruel irony is that, having purchased these bonds from the
French and German banks so the banks’ losses were minimised, the ECB has
since refused to buy Greek government bonds as part of its quantitative
easing programme to help the Greeks. Why? Because the Greek government
debt is not sustainable!
And that is certainly true. When imposing the PSI on Greece, the
Troika (ECB, EU, and IMF) aimed for Greece to get its public debt burden
down from 166% of GDP before the debt default to 120% of GDP by the end
of the decade through the austerity measures. But it would not do this
by writing off any Greek debt but only by squeezing the Greek people
dry to pay back the ECB and the IMF for their ‘bailout’ loans. Of the
total €164bn funding in 2012, only €23bn went towards financing the
Greek government’s budget.
So one hand gaveth and the other took it away.
Because the Greek economy imploded, Greek government debt, far from
falling under the three bailout programmes, just rocketed further up to a
peak of 180% of GDP. Austerity did not work and still is not working
to reduce the debt and stop the unending interest payments to private
bondholders as well as the ECB.
It’s probable that the IMF and the ECB have made more profits from
the ‘bailout’ loans. An analysis from the Jubilee Debt Campaign in 2015
estimated the IMF had made €2.5bn in profits from its loans by
then. And the IMF and the ECB will make even more profits from the
‘bailout’ loans. The JDC reckons
that, based on the difference between the average effective interest
rate the ECB has received on the debt of around 10%, the maturity of the
debt, and the normal negligible cost of borrowing from the ECB, the
accrued profit could be €22 billion in 2022, ten years since the PSI.
The IMF reckons that, without debt relief,
Greece’s public sector debt to GDP ratio will not fall even with
further austerity. Indeed, it would rise from around 180% now to nearly
300% by 2060 – in a ‘snowball’ effect where debt is repaid with more
debt and interest payments keep rising on top.
And there is no sign of any such ‘relief’.