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Where would the Greek bailout money really go?

by Aaron McCormack on February 10, 2012

Remember the principle of the conservation of money I talked about yesterday?

The excellent site have put together a wonderful chart to show what the Greek government will do with the bailout money when it arrives…

Most of the money (58%) is to pay back outside banking interests including the ECB.  Another 23% goes to Greek financial institutions that bought the bonds of their own government.  Behind those Greek banks there will be a bunch of foreign bondholders too – just as there were in Irish banks.

Only one-fifth (19%) is actually going to be spent on the Greek people and their needs.

Now, sorry to say that this is nothing new.  This is exactly what most international bailouts tend to look like.  Previously it was only ever the IMF that was involved.  That’s why they tended to get such a bad reputation.

But this is not your normal bailout.  It is an exercise to save the Euro and not the Greek people.  That is why you are seeing this deal on the brink of not being done.  It is bailout economics “in extremis”.  The Irish bailout was even more ill-advised because it involves paying the bondholders 100% of their debt – in the Greek deal above a haircut of around 60% is likely assumed.

The EU/ECB are saying that Greece is a special case and will be a one-off.  Irish government ministers are saying that they expect concessions if the Greek deal is done.  It will be interesting to see how that pans out….

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