Greece wasn’t bailed out, banks were

the Euro-crisis ten years on

David Hollanders


The euro-crisis started ten years ago when the then Greek prime minister Papandreou asked for the largest loan in history on May 2nd 2010, receiving the first tranche on May 19th. The lenders were the International Monetary Fund and EMU-countries. One way, and I feel the best way, to understand and appreciate what happened from 2010 onwards is to consequently follow the money. And in the euro-crisis that comes down to following the moving around of the Greek debt. It is at best a half-truth that Greece was bailed out, as its debt was not annulled. The three ‘bailouts’ were instead used to transfer debt held by private banks, via the ECB and the IMF, to European taxpayers. This basic tenet is easily lost in the proliferation of ad hoc ECB-programs, opaque Memoranda of Understanding, and opaque new institutions. Banks, including the ECB, profited. EMU-citizens lost.


“ad hoc ECB-programs, opaque Memoranda of Understanding, and opaque new institutions. Banks, including the ECB, profited. EMU-citizens lost.”

            Before turning to the post-2010 events, it’s pertinent to establish the origin of the Greek debt. Obviously, Greece borrowed heavily in the pre-2010 decades. Arguably it shouldn’t have. Be that as it may, for each debtor, there is a creditor. And for each reckless debtor, there is a reckless creditor. And it was private banks who lent to Greece before 2010. They did so voluntarily. They of course earned fees and collected interest rates in doing so. The interest rates were higher than those on Deutsche Bunds and Nederlandse Obligaties to compensate for Greece’s credit risk. And that there was credit risk could not have come as a surprise in 2010. The Greek debt-to-GDP ratio was 99% in 1999 when Greece adopted the euro. It increased to 103% in 2007, consistently above the debt-ceiling of 60%. This did not deter banks, who kept lending. And thus continued to make profits. 

This was a risky game to play. Arguably banks shouldn’t have played it. But that was for the banks to decide. After all, they shouldered the losses if the risk would materialize. Or so bankers, economists and supervisors argued.

In 2010 the credit risk finally materialized. For decades, Greece was on the verge of insolvency, and after the 2008 banking crisis it tipped into outright insolvency. That was at least the reading of banks themselves, who collectively stopped lending to Greece. As all nations, Greece lends primarily in order to repay maturing debt. This rolling over of debt stopped suddenly in the spring of 2010. Default loomed. Now, if Greece would indeed have defaulted, banks could have challenged that in court. They would have had to do that in Greece, as the Greek bonds were written under Greek law. This would of course have been a home match for the Greek state, and banks would probably not have been entitled to a 100% rebate. But banks knew the legalities all along –and asked a higher interest rate in return. In any case, the EC, ECB, and IMF were in theory disinterested third parties in what was supposedly a bilateral transaction between Greece and banks. Or so the Treaty of Maastricht (1992), stipulating that member states would not be liable for each other’s debt, had it.


“For decades, Greece was on the verge of insolvency, and after the 2008 banking crisis it tipped into outright insolvency.”

            The EU and the IMF, however, did lend to Greece. This was a strange affair, as it was up to bank-creditors and the debtor Greece to sort things out among themselves. Instead, the 110 billion euro loan was earmarked to be used to repay bank-creditors in full. The second ‘bailout’ in 2012 was similar. EMU-countries now lend to Greece via the European Stability Mechanism (ESM). (The ESM is a special purpose vehicle, located in Luxembourg and falls outside EU-treaties, parliamentary oversight and EMU-bookkeeping.) Greece had to repay foreign private creditors. The only Greek party benefiting from the ‘rescue packages’ were Greek banks, who received earmarked money to avoid their imminent collapse. Just 5% of the ‘rescue funds’ were not spend on somehow (re)paying banks. The ECB aided banks as well. In May 2010, the ECB launched its Securities Markets Programme (SMP), in which it bought bonds on the secondhand market, i.e. allowing banks to sell Greek, Italian and Spanish bonds above market-prices.


            In 2010-2012, Greek debt was moved from banks to the semi-state actors IMF, ESM, EC, and ECB. The latter became the creditors of Greece. De facto, these actors thus operated as debt collectors. Debt collectors take over non collectible bills at a large discount, using their muscle to get debtors to repay. The only substantial difference between the semi-public troika (ECB, IMF, EC) and private debt collectors is that the troika never asked for a discount; banks were, bare a small debt restructuring in 2012, paid in full. This was an extraordinary and unprecedented gift for banks. There have never been private companies, whose debts have been taken over so completely by states.         

       The third ‘bailout’ took place in 2015. It is the most well-known as it took place after months of salient negotiations with Greek minister of Finance Varoufakis, and after a referendum on 2015 July 5th, in which a majority of over 61% of Greek voters voted against the ‘bailout’. Varoufakis resigned on July 6th when it became apparent that then prime-minister Tsipras would accept the ‘help’ anyway. The troika had pressured the Greek government to do so by closing down Greek banks in the week prior to the referendum. That is, the ECB withheld liquidity and Greeks could withdraw a maximum of 60 euro a day. If Tsipras would not have budged, the ECB would probably have let the Greek banking sector collapse.

The ECB pressured the Greek government to accept yet another large loan from the ESM, because in 2015 Greece had to repay the bonds that the ECB bought in its SMP. Were Greece to default, the ECB and the IMF would have suffered from the creditor risk that they took on in 2010. To avoid that, the debt had to be moved completely to the ESM. And so it did in July 2015. In 2015 the Greek debt, now 180% of GDP, was transferred fully to the ESM. Not only banks got off scot-free. The IMF and the ECB were also fully repaid. Greece paid 3.5 billion in interest and fees to the IMF, equaling 79% of the IMF’s expenses. With its SMP the ECB made profits on Greek bonds of at least 7 billion euro. It promised to give that back to Greece. It never did.

            In politics, there are no winners without losers. Among the losers are of course Greek citizens, who will have to repay the ESM until August 20th 2059. EMU-citizens also lost out. EMU-states lend to Greece via the ESM. Given that Greece was insolvent in 2010, and remains insolvent to this day, it will probably not be able to repay. More debt-restructuring as the one in 2018 will turn out to be inevitable. Losses will then fall on EMU-states, i.e. on EMU-citizens. The banks who made the loans and profited from them will not be hurt. 


“With its SMP the ECB made profits on Greek bonds of at least 7 billion euro. It promised to give that back to Greece. It never did.”

            The euro-crisis seemingly resided after 2015, and is in any case overshadowed by the pandemic. It will, however, not be over until 2059, when Greek citizens, most of them unborn in 2010, will have repaid the ESM to the fullest extent possible. And even if it’s over, the injustice of the operation taking place in 2010-2015 cannot be undone. The troika, including the ECB and the EC, operated as bailiffs on behalf of bank-creditors. It became apparent what it really means to give up monetary sovereignty. It means the use of and borrowing in a currency one does not control. Consequently, the ECB can make and break the public finance of any member state and it can sink any banking sector. It’s sad that the ECB will do exactly that to aid private banks.


First published Online. July 2020. Volume 15, Issue 3. Cartoon by Beattie (2010)