Debt That Costs Less Than Nothing: Greece's Unique Opportunity

Abstract

A river of ink and controversy has been spent for the past seven years trying to ascertain and comprehend how the money loaned to Greece through the infamous Eurozone-IMF bailout programs has been used. Research pieces, live debates, and opinion articles aplenty have attempted to clarify things, not always reaching identical conclusions. A particular point of contention is exactly how much of the funds directly reached the pockets of ordinary Greeks (to put it in familiar terminology, how much “austerity” was enhanced or reduced because of the bailouts). Here I endorse a very simple way of appreciating what the bailouts delivered and shall continue to deliver: repayment for a very prolonged number of years of all outstanding debt obligations of the Greek government (at no medium-term cost to the sovereign, and without implying an increase in overall borrowing levels), plus a huge pile of money (to be used, for instance, to make a national investment that happens to save the domestic banking industry, and to pay many a government employee salary, state pension, and social benefit). Clearly, having someone else give you for a long time all the cash you need to avoid default plus a lot of extra cash to spend on nice things sounds like a definitely positive proposition, especially when the terms attached to the loans are incredibly generous and accommodative towards the bailed-out party. In essence, Greece’s liabilities would have been transformed into debt that costs less than nothing (don´t make any debt payment, get a ton of cash). The amounts of the rescue loans, €255 billion so far with €55 billion more in waiting, would be enough to meet all existing debt repayments during 2010-16 and, if all proceeds along, 2010-18 and still have many billions left for non-debt-related austerity-fighting government spending. A key concept here is the idea of “bailouts-enabled money”, which encompasses the very substantial sums of money accruing to Greece on top of the bailout loans that took place because, and only because, the bailouts took place first. That is, the real aid that reached and shall reach Greece since 2010 is larger than the already vast headline bailout figures. This is a side-effect that seems often ignored, and that adds extra fuel to the conclusion that the rescue programs, far from being a drag on Greece, have been a Godsend. A unique multiyear opportunity to get back on its feet and regain financial independence.