Greek Banks Secured an Additional, Hidden €41 billion Bailout from European taxpayers


In 2013 Greek taxpayers borrowed from the rest of Europe’s taxpayers €41 billion to pump into the Greek banks. This is well known. What is not known is that, also in 2013/4, the Greek banks received an additional, well hidden, €41 billion bailout loan from Greek and European citizens. This bailout was never authorised by any Parliament or even discussed in public anywhere in Europe.

This is how it worked: Bank X would lend money to… itself. It would do this by issuing a bond which it did not intend to sell. So, why issue such a phantom bond? Why write an IOU and give it to one’s self? The answer is: In order to hand this phantom bond over to the European Central Bank as collateral in exchange for a cash loan. Normally, of course, the ECB would never accept such a phantom bond as collateral. Accepting it would have been to accept a loan it gave to Bank X as collateral for the said loan. It would have been an assault on the meaning of collateral and a gross violation of the ECB’s rulebook. So, bank X, knowing this, took its phantom bond first to the Greek government and had it guarantee it. With the government’s guarantee stamped on it, the ECB then accepted Bank X’s phantom bond and handed over the cash. Why? Because the Greek taxpayer had, in the meantime, unknowingly provided the collateral for Bank X’s loan.

How extensive was this ‘practice’? Since 2008, European governments have been guaranteeing private bank bond issues to assist them in their desperate quest for ‘liquidity’. The Greek government was no different.[1] Such guarantees were discussed in Parliament and were widely acknowledged as an emergency measure. However, what is startling is what happened in 2013: The heavily indebted Greek government borrowed €41 billion from European taxpayers (secured from the EFSF as part of Greece’s 2012 Second Bailout Agreement) in order to hand it over to Greece’s private banks as a capital infusion that would, in theory, plug their ‘black holes’ once and for all.

Athens, Brussels, Frankfurt and Berlin have been waxing lyrical about the success of this ‘recapitalisation’, proclaiming it as the end of Greece’s banking crisis. Alas, they skillfully neglected to inform us that, during the very same period (and continuing to this day), a second, hidden, rolling (and thus potentially never-ending) bailout (based on government guarantees of fresh phantom bonds) is being extended to the same Greek banks! (See Landon Thomas Jr’s recent article in the New York Times.)

So far, since early 2013, this hidden, second bank bailout has amounted exactly the same value (€41 billion again) as the official, approved by European Parliaments, bailout. This means that, between January 2013 and February 2014, the insolvent Greek state had to add to its liabilities, on behalf of the Greek banks, an astounding €82 billion or 45,6% of GDP![2] Remarkably, this second, hidden bailout was never authorised by any Parliament, nor discussed in any public forum.

The above practice raises two concerns; and the reader can decide which of the two is the most worrying.

First, in an open society, whenever the public assumes responsibility for private debts, it should be properly informed. In a democracy this means that Parliament (or Congress) should debate the assumption of such additional responsibilities. It would appear that in the Eurozone such an important principle has been sacrificed on the altar of the bankers’ interests. Is it thus odd to hear that Europe-wide voters no longer trust European institutions?

Second, the above show that the Greek debt is continuing to rise, not fall. With indebtedness being what it is, who can honestly speak of the Greek economy coming out of its black hole? Rather, it seems that this hole is getting deeper and all this to benefit a small section of society which has already received highly preferential treatment.

For more details and background briefing on the above, read on…

Related Posts

  • 78
    The European Central Bank is poised to impose negative interest rates on its overnight depositors, seeking to cajole banks into lending instead and to prevent the euro zone falling into Japan-like deflation. At its meeting on Thursday, ECB policymakers may also launch a loan program for banks with strings attached…
    Tags: ecb, bank, euro, banks, economy
  • 67
    The European Central Bank announced some measures to ease monetary policy two weeks ago. The euro had been on a downtrend since May and by these measures the ECB increased its support to the economy. The result? Two weeks later, EUR/USD stabilized just above 1.35. This week’s Eurozone economic calendar…
    Tags: euro, bank, economy, ecb, european
  • 66
    A number of changes have been taken or proposed as a result of the financial crisis of August 2007 and the “Great Recession” that are worth discussing in terms of the euro crisis. Most important, though, are the changes of the period between late 2011 and 2012: strict budget rules,…
    Tags: euro, ecb, european, bank, economy
  • 65
      It was almost exactly five years ago that the euro crisis erupted, starting in Greece. Investors who had complacently let all euro-zone countries borrow at uniformly low levels abruptly woke up to the riskiness of an incompetent government borrowing money in a currency which it could not depreciate. There…
    Tags: euro, government, ecb
  • 65
    Greece could take a risky step into the unknown tomorrow if it misses, as expected, a 1.5 billion euro debt payment to the International Monetary Fund. For the moment, credit rating agencies though would not declare Greece officially "in default" on its debt, because the missed payment is to an…
    Tags: government, greek, economy, ecb