What Greek bailout?

The Gavyn Davies on the FT blog has some interesting numbers on the Greek bailout. They are based on research by JP Morgan and are based on guesswork because full numbers are not in the public domain and the deal keeps on changing.

Bailout by the numbers



Lets look at the numbers in the table:

Total debt before bailout is €352 Billion.
Total debt after bailout is €333 Billion.
Net effect of bailout is a reduction in debt of €19 Billion.

So European tax payers are putting in €130 Billion (and more) on top of the first €110 Billion bailout, and Greek debt is only lowered by €19 Billion? That doesn't sound like a good deal to me.

What is more, the private sector is losing € Billions via the PSI:

Private debt before bailout is €171 Billion.
Private debt after bailout is €92 Billion.
Net money lost by private sector lenders is €79 Billion.

So to reduce Greece's debt by €19 Billion they are stealingc €79 Billion from private sector lenders.

That is just the primary debt. It will be >€100 Billion after you add lost interest payments.


What is wrong with this picture?



A bail out is supposed to be like a flooded boat. That 'bailing out' is taking water out of the boat. Greece is taking €79 Billion out of the boat from the private sector.

Meanwhile the EU is busy 'bailing in' more debt. European countries are putting €60 Billion of water back into the boat.

The boat is still flooded. Greece is still in massive debt, but the debt is now owed to the European tax payers instead of private sector institutions.


Now what happens when the boat finally sinks?



Before the deal the private sector would have lost all of its €171 Billion. Now it will only lose €92 Billion (because it already lost the other €79 Billion).

The public sector would have lost €181 Billion. Now it will lose €241 Billion.

The so called bail out will not make a huge difference to the boat. It is still on its way to sinking, but they have managed to move the problem onto European tax payers - to the tune of €60 Billion more than before the deal.

So the before the deal the losses would be:

Private sector €171 Billion
Public sector €181 Billion
Total losses €352 Billion

After the deal the losses will be:

Private sector €79 Billion (debt write downs)
Private sector €92 Billion (remaining debt)
Public sector €241 Billion
Total losses €412 Billion

The so called 'bailout' actually creates an extra €60 Billion of losses.

Why would anybody sign a deal like that?


So what is the bailout all about?

Maybe this will help: