A Pain in the Athens
Why Greece Isn't to Blame for the Crisis
despite endless lazy moralizing commentary to the contrary, Greece has very little to do with the crisis that bears its name. To see why, it is best to follow the money—and those who bank it. ....... The roots of the crisis lie far away from Greece; they lie in the architecture of European banking. When the euro came into existence in 1999, not only did the Greeks get to borrow like the Germans, everyone’s banks got to borrow and lend in what was effectively a cheap foreign currency. And with super-low rates, countries clamoring to get into the euro, and a continent-wide credit boom underway, it made sense for national banks to expand private lending as far as the euro could reach. ....... So European banks’ asset footprints (loans and other assets) expanded massively throughout the first decade of the euro, especially into the European periphery. Indeed, according the Bank of International Settlements, by 2010 when the crisis hit, French banks held the equivalent of nearly 465 billion euros in so-called impaired periphery assets, while German banks had 493 billion on their books. Only a small part of those impaired assets were Greek, and here’s the rub: Greece made up two percent of the eurozone in 2010, and Greece’s revised budget deficit that year was 15 percent of the country’s GDP—that’s 0.3 percent of the eurozone’s economy. In other words,

the Greek deficit was a rounding error, not a reason to panic

. ........ In such an over-levered world, if Greece defaulted, those banks would need to sell other similar sovereign assets to cover the losses. But all those sell contracts hitting the market at once would trigger a bank run throughout the bond markets of the eurozone that could wipe out core European banks. .....

something had to be done to stop the rot, and that something was the troika program for Greece, which succeeded in stopping the bond market bank run—keeping the Greeks in and the yields down—at the cost of making a quarter of Greeks unemployed and destroying nearly a third of the country’s GDP

. ...... how has such a small economy managed to generate such a mortal threat to the euro? ...... what the European elites buried deep within their supposed bailouts for Greece. Namely, the bailouts weren’t for Greece at all. They were bailouts-on-the-quiet for Europe’s big banks, and taxpayers in core countries are now being stuck with the bill since the Greeks have refused to pay. .......... The final figure “loaned” to Greece was around 230 billion euro. ...... They raised bonds to bail Greece’s creditors—the banks of France and Germany mainly—via loans to Greece. ..... Of the roughly 230 billion euro disbursed to Greece, it is estimated that only 27 billion went toward keeping the Greek state running. Indeed, by 2013 Greece was running a surplus and did not need such financing. Accordingly, 65 percent of the loans to Greece went straight through Greece to core banks for interest payments, maturing debt, and for domestic bank recapitalization demanded by the lenders. By another accounting, 90 percent of the “loans to Greece” bypassed Greece entirely. ...... bondholders, who got to sell their now LTRO-boosted bonds back to the governments that had just bailed them out .........

the whole shebang “was about protecting German banks, but especially the French banks, from debt write-offs.”

....... If 230 billion euro had been given to Greece, it would have amounted to just under 21,000 euros per person. Given such largess, it would have been impossible to generate a 25 percent unemployment rate among adults, over 50 percent unemployment among youth, a sharp increase in elderly poverty, and a near collapse of the banking system—even with the troika’s austerity package in place. ....... someone in core Europe is going to have to own up to all of the above and admit that their money wasn’t given to lazy Greeks but to already-bailed bankers who, despite a face-value haircut, ended up making a profit on the deal. ....... Germany being a serial defaulter that received debt relief four times in the twentieth century ....... We’ve never understood Greece because we have refused to see the crisis for what it was—a continuation of a series of bailouts for the financial sector that started in 2008 and that rumbles on today.

It’s so much easier to blame the Greeks and then be surprised when they refuse to play along with the script.


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