Unfortunately,
the Troika was not interested in a rational solution. Its aim was to
crush a government that dared challenge it. And crush us it did by
engineering a six-month-long bank run, shutting down the Greek banks
in June, and causing Prime Minister Alexis Tsipras’s capitulation
to the Troika’s third bailout loan in July. [...] despite capital
injections of approximately €47 billion (€41 billion in 2013 and
another €6 billion in 2015), the taxpayer’s equity share dropped
from more than 65% to less than 26%, while hedge funds and foreign
investors (for example, John Paulson, Brookfield, Fairfax,
Wellington, and Highfields) grabbed 74% of the banks’ equity for a
mere €5.1 billion investment.
by Yanis
Varoufakis
Since 2008,
bank bailouts have entailed a significant transfer of private losses
to taxpayers in Europe and the United States. The latest Greek bank
bailout constitutes a cautionary tale about how politics – in this
case, Europe’s – is geared toward maximizing public losses for
questionable private benefits.
In 2012, the
insolvent Greek state borrowed €41 billion ($45 billion, or 22% of
Greece’s shrinking national income) from European taxpayers to
recapitalize the country’s insolvent commercial banks. For an
economy in the clutches of unsustainable debt, and the associated
debt-deflation spiral, the new loan and the stringent austerity on
which it was conditioned were a ball and chain. At least, Greeks were
promised, this bailout would secure the country’s banks once and
for all.
In 2013,
once that tranche of funds had been transferred by the European
Financial Stability Facility (EFSF), the eurozone’s bailout fund,
to its Greek franchise, the Hellenic Financial Stability Facility,
the HFSF pumped approximately €40 billion into the four “systemic”
banks in exchange for non-voting shares.
A few months
later, in the autumn of 2013, a second recapitalization was
orchestrated, with a new share issue. To make the new shares
attractive to private investors, Greece’s “troika” of official
creditors (the International Monetary Fund, European Central Bank,
and the European Commission) approved offering them at a remarkable
80% discount on the prices that the HFSF, on behalf of European
taxpayers, had paid a few months earlier. Crucially, the HFSF was
prevented from participating, imposing upon taxpayers a massive
dilution of their equity stake.
Sensing
potential gains at taxpayers’ expense, foreign hedge funds rushed
in to take advantage. As if to prove that it understood the
impropriety involved, the Troika compelled Greece’s government to
immunize the HFSF board members from criminal prosecution for not
participating in the new share offer and for the resulting
disappearance of half of the taxpayers’ €41 billion capital
injection.
The Troika
celebrated the hedge funds’ interest as evidence that its bank
bailout had inspired private-sector confidence. But the absence of
long-term investors revealed that the capital inflow was purely
speculative. Serious investors understood that the banks remained in
serious trouble, despite the large injection of public funds. After
all, Greece’s Great Depression had caused the share of
non-performing loans (NPLs) to rise to 40%.
In February
2014, months after the second recapitalization, the asset management
company Blackrock reported that the burgeoning volume of NPLs
necessitated a substantial third recapitalization. By June 2014, the
IMF was leaking reports that more than €15 billion was needed to
restore the banks’ capital – a great deal more money than was
left in Greece’s second bailout package.
By the end
of 2014, with Greece’s second bailout running out of time and cash,
and the government nursing another €22 billion of unfunded debt
repayments for 2015, Troika officials were in no doubt. To maintain
the pretense that the Greek “program” was on track, a third
bailout was required.
The problem
with pushing through a third bailout was twofold. First, the
Troika-friendly Greek government had staked its political survival on
the pledge that the country’s second bailout would be completed by
December 2014 and would be its last. Several eurozone governments had
secured their parliaments’ agreement by making the same pledge. The
fallout was that the government collapsed and, in January 2015, our
Syriza government was elected with a mandate to challenge the very
logic of these “bailouts.”
As the new
government’s finance minister, I was determined that any new bank
recapitalization should avoid the pitfalls of the first two. New
loans should be secured only after Greece’s debt had been rendered
viable, and no new public funds should be injected into the
commercial banks unless and until a special-purpose institution – a
“bad bank” – was established to deal with their NPLs.
Unfortunately,
the Troika was not interested in a rational solution. Its aim was to
crush a government that dared challenge it. And crush us it did by
engineering a six-month-long bank run, shutting down the Greek banks
in June, and causing Prime Minister Alexis Tsipras’s capitulation
to the Troika’s third bailout loan in July.
The first
significant move was a third recapitalization of the banks in
November. Taxpayers contributed another €6 billion, through the
HFSF, but were again prevented from purchasing the shares offered to
private investors.
As a result,
despite capital injections of approximately €47 billion (€41
billion in 2013 and another €6 billion in 2015), the taxpayer’s
equity share dropped from more than 65% to less than 26%, while hedge
funds and foreign investors (for example, John Paulson, Brookfield,
Fairfax, Wellington, and Highfields) grabbed 74% of the banks’
equity for a mere €5.1 billion investment. Although hedge funds had
lost money since 2013, the opportunity to taking over Greece’s
entire banking system for such a paltry sum proved irresistibly
tempting.
The result
is a banking system still awash in NPLs and buffeted by continuing
recession. And with the latest round of recapitalization, the cost of
the Troika’s determination to stick to the practice of
extend-and-pretend bailout loans just got higher. Never before
have taxpayers contributed so much to so few for so little.
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