Thursday, May 02, 2013

The Greek Bailout Balance Sheet (2010—2012)

It has been almost three years since the Greek government signed up to receive €110 billion from the Europeans and the IMF. This post is about the flow of funds in that period—how much money has flowed from what source and to what end (see also this post).

To examine the finances of the bailout, one has to look at the government’s budget and its broader financing needs (such are repaying debt, recapitalizing banks, etc). Let us begin with the first item (data from ELSTAT, here, p. 23).

The first line of the chart says that the Greek government received €265.3 billion in the period from 2010 to 2012. Of that, social contributions made up the largest portion, 31.6%, followed by taxes on production and imports (including VAT), which amounted to 29.5%. Taxes on income and property added less than 21%. The rest came from capital transfers (such as EU funding) and other sources.

In that same period, Greece spent €328.7 billion, of which €290.8 billion was for actual expenses, excluding interest on debt. This is an important observation. It means that even if Greece had completely repudiated its debt on January 1, 2010, it would still have been short by €25.5 billion (€290.8 minus €265.3). Together with the €37.9 billion in interest payment, the total deficit is €63.4 billion. This is the amount of money that the Greek state needed in order to cover its expenses and pay interest on debt.

Looking at spending more specifically, all the taxes on production and imports just barely covered the bill for public sector employees (wages). Social contributions, at €83.7 billion on revenue side, covered just 60% of the total “social benefits” bill (pensions, health care, etc.). If one added all the taxes on income and property (€83.7 billion + €55.2 billion), the state could cover social benefits in full (€139.3 billion). In other words, all the taxes and social contributions that the state collected went exclusively to pay for the wages of the public sector and for social benefits—nothing more (such as buying goods and services, investing, etc.)

Goods and services (€32.7 billion) was more or less balanced by “other” revenues (€33.5 billion), while capital revenues (such as revenues from public investment and from EU funding) covered only half of capital expenditures. Collectively, all the other pieces were short €26.5 billion—this excludes taxes and social contributions on the revenue side, and wages and social benefits on the expenditure side.

This is one part of the equation. The second part is the enlarged financing needs of the state which are:

Total financing needs =
+ Covering that overall deficit of €63.4 billion
+ repaying debt that was maturing in 2010—2012 (before the restructuring)
+ other expenses such as recapitalizing banks, buying back debt as part of the PSI

(The data for this analysis comes from the IMF, here, p. 62.)

The Greek government needed €247 billion in the period from 2010—2012. Of that, a mere 7.7% went to finance the government’s deficit—the rest went for other purposes. Around 15.4% went to pay interest on debt—this money went to both domestic and foreign investors. Another 12.3% went to repay Greek investors who held government bonds that were expiring in that period. A full 24.3%, the largest item, went to repay foreign holders of Greek government bonds—in sum, almost €60 billion. Around 18% went to recapitalize banks, 14% went to support the PSI (such as buying back debt) and 8.6% went for other operations.

In other words, more than 50% of the money that Greece needed in that period was to deal with the country’s excessive debt burden (interest on debt and repaying residents and non-residents). Given that the bank recapitalization and PSI were both, ultimately, linked to the country’s debt, almost 84%, or €206 billion, was ultimately devoted to Greece’s debt—which, at year-end 2009, was €299 billion. Importantly, however, a large sum (€60 billion) went to bailout foreign banks and other investors. So this operation was minimally about covering the current profligacy of the Greek state—it was mostly about covering its pass excesses.

Where did Greece find that €247 billion (the totals do not add up due to rounding, so this number shows up as €247.1 billion)? Domestic residents (chiefly banks, insurance companies and the like) provided 54.1 billion (21.9%) of that funding. Privatization receipts covered another 0.4% and borrowing from foreign (private) investors contributed 1.2%. In sum, The Greek state was thus able to borrow money from either its own residents or from foreign investors to cover 23.6% of its financing needs—which would have sufficed to cover the government’s budget deficit and repay residents who held Greek debt (in effect, banks lent money to the government so that the government could repay its debts—so banks were rolling over the debt of the government). In fairness, however, some of this bank lending was only made possible because Greek banks could, in turn, borrow from the European Central Bank.

The rest of the funding came from the Europeans (65.3%) and the IMF (8.8%). It is interesting here to note how disproportionate the funding has been between the two sources—much as the troika is often equated with the IMF, the IMF has been a very marginal contributor to this whole package money wise. It is also interesting to note the connection between foreign the inflow of funds versus outflow of funds. Foreign creditors received back €59.9 billion in maturing debt and they received a (likely) majority of the €37.9 billion spent on interest. In all, therefore, almost half the funds provided by the European government governments went back to pay foreign (largely European) investors.

In sum, all the taxes and social contributions that the state collected merely sufficed to cover the state’s wages and social benefits. The rest of the balance left a deficit of about €26 billion. More or less, this is what Greece needed to keep running. However, the Greek state borrowed a cumulative €247 billion instead—most of this went to deal with the country’s past excesses and exorbitant debt. Of that flow of funds, the largest recipients were foreign investors, who received about half the money that (usually) their own governments lent to Greece.


  1. For a long time have I been looking for an overall statement of sources/applications of funds. Thank you for presenting one. It drives home a point which I have made since the beginning of the crisis.

    Had EU-elites listened to people who had experience with countries confronting external payment crises, they would have learned, back in 2010, that a rescheduling of sovereign debt has been the most natural thing in the world for decades. What would that have meant in the case of Greece?

    Tax payers in lending countries would have seen that Greece required only a fraction of the total amount eventually disbursed to stay afloat. It’s one thing to hear that Greece needs 200-300 BEUR; quite another if that figure is 25,5 BEUR, a little more or even less.

    Tax payers might still have had to come up with the rest of the money but then they could not have been fooled that it was ‘help for Greece’. Instead, they would have seen that is for the bail-out of their banks. And for that bail-out, they would have gotten something in return; equity in those banks, that is.

    I don’t think I have ever seen a major restructuring in my 40 years of banking (and that includes 2 sovereign debt restructurings) which did not involve a rescheduling of debt. The maturities of principal and interest are moved into the future; interest is divided into a cash portion and a portion for capitalization to ease the borrower’s cash requirements. There would have been various ways of doing that (terming-out; new bonds to repay maturing debt, etc.). There wouldn’t have been a PSI so quickly.

    Incidentally, why do you (and ELSTAT) show an accumulated primary deficit of 25,5 BEUR when the IMF shows the government deficit as 19,0 BEUR?

    For Greece it wouldn’t have made all that difference because Greece needed Fresh Money and Fresh Money only comes with terms. But the overall perception that Greece is a bottomless pit requiring hundreds of billions would have been put into perspective.

    There would have been a tremendous benefit for the Eurozone overall. The Greek solution would have served as a template for all other countries. The Eurogroup could have justifiably said: “We’ve got the template; who wants to be next?” That, perhaps, would have motivated banks to make more of an effort to find solutions among themselves without any EU-template.

    1. Thanks Klaus--I agree with your point and, I too, was a bit surprised to see how little of the overall amount was needed to kept the government afloat. Of course, the money would have still been needed--for German and French and other (including) banks. But it would have played differently in the public.

      Re the difference on the deficit -- I should have been clearer on that. I am not 100% sure why the difference between ELSTAT and the IMF. One explanation could be that the IMF published its report in January, while the ELSTAT data is current. More generally, I think the delta is some 6 BEUR in capital transfers, presumably for bank recapitalization. Overall, this is a gap between the MOF which reports a headline deficit of some 6.6% of GDP versus the overall deficit of 10% (which includes that 6 BEUR).

    2. Nikos & Kleingut,

      Thanks for those enlightening comment and figures.

      Eventually I think they will restructure the loans. Its almost a certainty if they keep going in this trajectory.

      Overall the disturbing fact seems to be that even if Greece manages to produce a primary surplus....this surplus must be over 10billion Euros per year(minimum) and maintained for decades to even stay where they are.

      Seriously you think this is a realistic and attainable goal for Greece? No European country since the formation of the EuRO has maintained such a state. Greece must be the first to enter a new paradigm.....government operations producing cash surpluses year after year and eventually paying huge dividends.

    3. I do think a restructuring is inevitable--the good thing is that most of Greece's debt is now held by European governments -- they just need to show that Greece has kept up enough of its promises to justify to their own peoples a write-down. That's the goal of the Greek government too -- do enough to be able to claim it and get it.

    4. You seem to have come close in describing a rentier state?

      The refinancing was in effect a restructuring since greece could not have done otherwise without the help of EU governments. Perhaps one of the reason they had to do it like that was to prevent default swaps from being triggered by stating out of the legal terms.

      I might be a pessimist but no other European government has operated with a consistent budget suplus over the last 15 years. Of course the next 20 years might be different.

      Given other more disciplined European governments do not produce consistent budget surpluses....Do you think it is realistic to expect or force Greece to consistently produce surplus for decades and pay down its debt?

  2. Thanks for the figures. Yes, they put it in perspective.

    One thing that leaps out at me. €90bn for repaying residents/non-residents. I assume that is paying off sovereign bonds as they mature?

    That's an incredibly high ratio, I assume because the bonds were weighted heavily to short-terms?

    1. Yes. In part, the government only issued ST debt in this period, so it had repay this debt quickly. More generally, however, the maturity of debt is usually less than a decade, so it's no surprise that, in a three year period, about a third of the debt came due. See the graph on page 4 of this document for the maturity of Greek debt as of March 2010 (before the bailout):

  3. One other thing struck me, when reading these statistics-heavy recent posts here.

    Reliable statistics! Vital, but not something Greece should take for granted.

    In the light of the case against ELSTAT Head Georgiou:

    Some recent ELSTAT press releases are of interest:

    Letter of Royal Statistical Society to the President of Greece (just look at who is on cc!)

    And away from the current argument over national deficit figures, there's plenty of other places where an independent ELSTAT will tread on various important people's toes.


    Just in case that looks innocuous:

    "Though Greece shows a mathematically impossible volume of petroleum exports to neighboring countries, the bills of laden do not add up, with oil tankers departing for their expressed destinations but then turning around and rerouting the ships back home for illegal sale on the domestic market."

    "According to one local newspaper, “Greece’s major energy companies still systematically engage in fictitious exports of fuels and illegal re-importations, providing huge profits on which no taxes are paid.” "

    1. As far as reliability of stats I think you have to have your fingers crossed. I think by now most everyone knows a GDP number from one country to another or even from one year to another contains so much errors, estimates and changes it is almost nonsense figure to base a policy on. But unfortunately that is all they have to paint a broad picture.

      As for Greece you can paint a broad picture. You can see the whole expansion of the state into this trajectory started at the time Andreas Papandreou first came in power.

      Also what the figures do not include is how much they paid the investment banking operations of the banks (Some of which own their debt). If Goldmansachs recently earned $500million for arranging 6.5billion for Malaysia.

      Of course for Greece, the fees could have been lower as they were just shuffling paper around from bailed out banks to other government or ECB owned paper companies. I would suspect it required less of a sales job to arrange those 200billion plus over the last few years. But, although I do not have figures to back it up, the fees were not 10s of millions. Probably in the 100s of millions & even possibly in even as close as a billion.

      No wonder some of these bond operations of banks are having a bonanza.

  4. I don't get the way that "capital transfers" can be both a revenue and an expense. I can understand EU bailout money as a (temporary) source of revenue, but the expense? Who is Greece sending capital to? And why?

    You list "other expenses such as recapitalizing banks" so is this where the money was transferred to? Greece was just held hostage by the banks... is that what you are saying?

    1. Capital transfers also includes the government investment budget--so it's not just bank recapitalization, which was important mostly in 2012 and which was financed mostly with external funds (although ultimately borrowed by the Greek state).

  5. Great analysis as usual. Great to see the data in simplified form.

    However. this time I will disagree with your implications/comments. Even though most of the bailout funds end up in northern banks (mainly German and French) this does not mean that Greeks are not involved. The money that has to be repaid to EU banks were used and abused by Greeks (government, companies, citizens, pension funds etc) before the crisis. This money was consumed by Greece so it should be repaid. If most of the bailout funds serve to pay the loans before the crisis this does not make it unjust to blame us Greeks.

    I see your point about haircut in the start and another discourse on the crisis but if we were getting a haircut before the change in our policies, most Greeks would assume that we got another gift from the stupid foreigners who are there to give Greece free money - this was the belief until the crisis hit Greece at least.

    In other words, there is no free meal as I am sure you agree... :)

    1. Your point is well taken. Let me try a slightly different way to phrase the conclusion:

      It takes two sides to pile up excess debt--one side to borrow and one side to lend. Greece went on a binge with this money, yes, but it was enabled by the lack of due diligence on behalf of its lenders. You cannot blame one side only.

      Similarly, if Greece and its European partners had decided, in 2010, that Greece should repudiate its debt, Europe would still have still paid some of this money to recapitalize northern banks which were then highly exposed to Greek debt.

      In other words, the language should not say "we [Europeans] are subsidizing irresponsible Greek behavior." It should say, "we are giving money to correct the stupidity of our banks for continuing to lend to this sovereign even if though its debt trajectory was highly negative--and we chose to give this money to Greece to repay the banks rather than give the money to the banks themselves because it was politically and economically better to do so."

    2. I agree with this - I think you put it better now. It is obvious that Merkel is using a lot of populism to support her policies as I guess it is way easier to say you bailout lazy Greeks than greedy/corrupt bankers. Believe it or not, germans (whatever the nasty tabloids say) accept easier to save a corrupt/problematic European partner than their own banks as they know that they are deep in the red and blame.

      In any case, I believe that despite this reality Greece needed massive reforms and I really cannot any other way to push them through without this really painful/annoying/humiliating mechanism. Even now, there is debate about firing corrupt civil servants...5 years after the crisis and with almost 30% unemployment!

      Keep up the good work!

  6. I'm still thinking about that €100bn figure (€60bn foreign-owned, €30bn domestic-owned) for paying out maturing bonds, and €37.9bn for interest payments.

    Effectively, it was the cost of keeping the single currency (composed of many deeply-indebted sovereign states) on the road.

    It's easy to point fingers at either borrowers (the greek governments) or lenders (the banks and institutional investors). And quite justifiable too, of course. The former cooked the books, the latters ensured (through Basel-II regulations) that sovereign bonds were rated at zero-risk. Which, contractually, they certainly weren't.

    But ... it's a common currency area. Investment is bloody well supposed to flow across borders in a common currency area. It may not have been well invested (in greek sovereign bonds, or in spanish and irish property bubbles), but those flows are part of what the Euro was mean to achieve.

    And - just to take an example - if the investment flows into greece (either into sovereign debt, or into bank debt) would rejuvenate, then presumably the interest costs for the critical SME sector would reduce, and thus unemployment come down.

    The numbers look horrible, sure. But taking a stick to foreign investors would be wildly counter-productive. They (the ECB, principally) had to keep the incentive to invest across borders alive.

    But describing it as a "bailout for greece", with or without adding stuff about them being lazy and or corrupt on top of it, was counterproductive.

    The same mechanisms hold in other countries in an adjustment program, of course. Irish people rail about the "bailout for german banks" in 2010 - the senior bond-holders of the irish banks were made whole).

    And the cypriot politicians currently rail that they have been treated "unfairly", because the bank creditors (bond-holders and uninsured depositors) were not made whole.

    Fascinating, and horrifying, how this complex financial edifice is so incompetently portrayed in the differing national media.

    German media too, incidentally. I read a piece recently, from a quality left-of-centre paper (SZ). "Who gambles, pays" (wer zockt, zahlt). It was commenting approvingly on the intention to use the bail-in as a template to force losses onto banks' creditors.

    It's german banks and insurance companies, investing my bloody pension fund, they're talking about there, of course, amongst others.

    Not that they have an option. That's capitalism. Higher return, higher risk.


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