EU-Greece: only 10 per cent of loan used for budget balance

Report shows most of Greece's bailout money used for recapitalising banks, with huge profit expected for European central bank.

By Julie Levy-Abegnoli

01 Jul 2015

All eyes have been on Greece and its creditors in recent weeks, as they try to come to a new agreement for the repayment of Athens' debt and the unlocking of further bailout funds. 

Greece has been receiving financial assistance since 2010, mostly from eurozone countries and the international monetary fund (IMF), so far amounting to over €310bn. 

According to a report by Greece's truth committee on the public debt - established last April by president of the Hellenic parliament Zoe Konstantopoulou - the majority of this funding, 41.9 per cent, comes from the European financial stability facility (EFSF), which is financed by members of the eurozone. 


Greece has also received money through bilateral loans with other member states - 16.9 per cent of its total financial aid. Germany has contributed the largest bilateral loan - over €15bn - however according to Bloomberg, if Greece was to default on its debt, Berlin wouldn't be hit the hardest.

When looking at exposure as a share of a country's nominal GDP, Slovenia emerges as the country with the most to lose, with potential losses equivalent to 3.06 per cent of its GDP. Also in a risky position are Malta - 3.03 per cent - and Spain - 2.78 per cent.

Germany, on the other hand, has an exposure of 2.37 per cent of its GDP.

Eurozone governments' total contribution to the loan - including the ESFS - amounts to 62 per cent. The European central bank (ECB) has contributed eight per cent, the IMF has contributed 10 per cent and the private sector has contributed 17 per cent.

And although the ECB has not contributed as much as the other creditors, it is set to make a vast profit, as the truth committee explains that it purchased Greek bonds for less than their nominal value, but has asked for full reimbursement - nominal value plus interest.

The truth committee's report explains, "the ECB spent €40bn to acquire the estimated face value of €55bn, and if held to maturity, the ECB would reap the full difference between the price paid and the repayment plus interest".

Greece is also part of the securities market programme (SMP), along with Italy, Spain, Portugal and Ireland. With this programme, the ECB can buy stocks and bonds directly from the open market, to ensure that money is able to flow around the eurozone.

Greece only represents 12 per cent of the total SMP debt that the ECB is owed, yet Athens has been charged so much interest by the European central bank that it has actually contributed 40 per cent of the €728m income brought in by all the interest paid by the SMP countries.

The report explains that in 2012, eurozone governments agreed to "transfer an amount equal to any profit on SMP holdings of the country's debt as long as it complies with the conditions of its surveillance programme".

"The ECB owes Greece almost €2bn from the profits the ECB has made", the document adds.

46.3 per cent of the country's bailout money was used for amortisation costs, which is depreciation applied to intangible assets. 19.8 per cent of the money went towards bank recapitalisation, with only 10 per cent for budget balance.

Greek prime minister Alexis Tsipras had called a snap referendum on new bailout terms set out by creditors, however, he is now expected to cancel the vote and accept the deal presented to him under certain conditions.


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