According to James Mackintosh of the Financial Times, JP Morgan produced some figures today that showed where the money provided to Greece in its much-publicised bailouts actually went. Here’s what James said on twitter:

"JP Morgan estimates only €15bn of €410bn total "aid" to Greece went into economy – rest to creditors. No wonder they are cross"

No wonder indeed. The price they paid for those bailouts has been severe cuts in public spending and five years of deep recession. Their adult unemployment is now about 20% and their youth unemployment over 50%. And there is no relief in sight, only further cuts and deeper recession. The Greek economy is collapsing.
No prizes for guessing who the main creditors are, either. Banks, of course. This fun interactive graphic from Thomson Reuters shows which countries’ banks are the most exposed to Greece and therefore, presumably, have benefited the most from the bailouts.
In the most recent bailout, of course, the private sector has taken substantial losses – up to 75% NPV haircut on their holdings of Greek debt. But they had already sold a lot of it. Guess who they sold it to? National central banks and the ECB – none of which took a haircut, though they did forego some interest. So quite a bit of the bailout money has also gone to those institutions. But their purchases of that debt were also effectively a rescue of the banks that were overexposed to Greek debt.
So directly or indirectly, the main beneficiaries of Greek bailout money have been French and German banks. "Aid" to Greece? Anything but. The Greeks can be justifiably angry that their economy has been wrecked in order to fool German taxpayers into believing that they were rescuing a profligate southern state when actually they were bailing out their own banks and protecting France.
The Thomsons Reuters graphic also includes exposures for two other countries that have received "aid" in return for wrenching fiscal austerity. Click on the buttons to see who really benefited from their bailout money. For Portugal, the main beneficiary has been Spanish banks – well, heaven knows they need it (although I suspect most of the exposure is in the largest banks, which are not the ones in trouble). Ireland is interesting, because the banks most exposed are UK banks, though closely followed by German ones. It would seem that despite the UK’s steady refusal to participate in Eurozone rescue packages, some of the bailout money is propping up its banks. Nice.
The Spanish bailout acknowledges that the main problem lies with the domestic banks not the sovereign, and therefore imposes "austerity" – of a sort – on the banks, not the people. It is the first sovereign "bailout" to do this. But it won’t remain like that for long. Spanish sovereign debt yields are already rising to unsustainable levels. Banks holding that debt will have to mark down the value of those holdings and face substantial losses as a result. At the moment the ECB is not buying the debt, but it is only a matter of time until it does. And eventually Spain will require a sovereign bailout – at which point the screws will be turned on the Spanish people, even though they are already buckling under self-imposed austerity measures and have adult and youth unemployment rates higher than Greece. The Bundesbank’s Jens Weidmann is already making noises about higher taxes and deeper spending cuts for Spain. That gives a clue as to which banks are most exposed to Spanish government debt (apart from its own, of course), and the graphic confirms it. German banks, of course. And French.  
Italy has not yet been bailed out, and is introducing a range of increasingly desperate measures to try and reduce their government debt significantly – it currently stands at about 120% of GDP, double the Maastricht limit. But yields on its debt are already rising, affecting the value of banks’ holdings as with Spanish debt. Again, a quick look at the graphic shows who is most exposed. French banks, this time. And German.
By now it should be apparent where the bailout money has mainly been going, and – more importantly – where it will go when first Spain and then Italy require sovereign bailout. Yes, the UK and Spanish banks have benefited. But they aren’t the main beneficiaries overall. The Thomson Reuters graphic shows that the principal beneficiaries of bailout money are French and German banks.
So Germans, too, should be angry. Not with the Eurozone sovereigns, but with their own banks and the French banks. Because it is the reckless lending of those banks, primarily, that has brought the Eurozone to its knees.  Yes, we can blame the half-baked Euro for the trade imbalances within the Eurozone, and the incompetent ECB for the crippling deflation in the periphery that is now dragging the entire Eurozone into recession. But the debt crisis – that was created by banks. And it is those same banks that are now receiving trillions of euros in bailout money, one way or another. All the hard work that Germans put in to repair their economy after reunification is going to waste as their taxes and their savings are used to bail out banks, whether indirectly via sovereign bailouts or directly through infusions of capital.
Let’s end this madness. Stop inflicting pain on the people of Europe in order to prop up banks. And even more, stop lying to them. The banks that have lent so recklessly across borders are bust. If they are to be bailed out, let them be bailed out by their own governments – if their electorates agree. And if their electorates don’t agree, LET THEM FAIL. America’s FDIC has much to teach us on this, and Europe would do well to create an equivalent institution. Their mantra is – protect depositors, provide emergency access to funds, take over payments systems, then wind up the failed institutions. Europe should do the same.  Let there be no more covert or overt bailouts of banks.

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