The Real Cost of the Greek Bailout

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Last Updated on: 26th April 2021, 08:11 pm

As the dust settles on the latest bailout deal for Greece, it is becoming increasingly obvious of the pain which lies ahead for Europe in the months and years ahead. While initial market reaction has been positive to the news that Greece has agreed to a set of new proposals, more astute market analysts are recognizing more ominous alarm bells which point to a deteriorating democratic picture in Europe, and a complete forfeiture of financial sovereignty. The financial implications this latest twist in the Greek bailout saga will have on individuals all over the world are drastic. As the world economy continues to limp from one debt fueled crisis to the next, individual savers and investors will increasingly find themselves caught in the crossfire of asset seizure and confiscation as the primary policy response from governments. The recent events in Greece over the past few weeks leave little to the imagination – those in a position of power to confiscate wealth, will do so.

Asset Seizure Underpins the Latest Greek Deal

As Greek Prime Minister Alexis Tsipras heads back to Athens to try and sell the latest proposals to the Greek people and parliament, he does so with the knowledge that it involves handing over EUR 50bn worth of Greek infrastructure assets to a liquidation fund controlled by mainland creditors. The fund overall accounts for roughly 25% of total Greek GDP, and contains some of the most choice assets available in Greece including airports, seaports, property, islands, roads, and banks. The intention of the fund is to begin a wide scale privatization process that will go some way to paying down Greece’s outstanding debt (which will never be repaid) to existing creditors. Effectively creditors are swooping like vulchers on Greece, using their perceived power to extract as much wealth as they can from the country regardless of the political implications and deterioration of democracy in the long run.

Reading between the lines, it appears the Greek government were left with little choice but to accept handing over assets into this fund- EUR 25bn of the fund is earmarked for recapitalization of the Greek banking sector, which has become almost exclusively dependent on the Emergency Liquidity Assistance program. With the threat of such assistance being pulled by the ECB should Greece have failed to reach an agreement, the domestic banking system would have surely imploded. As a result, it appears that Greece have had to sell the family silver just to allow their banking sector to limp along a while longer, surrendering ull control of the domestic banking system to the ECB in return. As one member of the Greek government noted, the recent deal was akin to “negotiating with a gun held to your head”.

Deposit Haircuts and Bank Restructuring

With the ECB pulling the strings over the Greek banking sector, there is growing expectation of a large restructuring program within the sector, with some European officials telling Reuters that just two major banks could remain in the country following the shakeup. The resulting losses from such closures could potentially be pushed onto bondholders or depositors. The banks that remain will also likely have some form of “bail in” imposed on depositors – there is effectively nowhere to hide for the people of Greece.

What’s good for Greece is good for us all

When banks worldwide began to collapse at the height of the subprime crisis, governments were lining up with bailout packages, and recapitalization programs in an attempt to rescue the very industry which nearly plunged the world back into the financial dark ages.

For individuals, the story is increasingly bleak. There is no one on the horizon who is riding to the rescue – if there is anyone on the horizon at all, they are likely harboring malicious intentions. The events happening in Greece right now highlight the precarious position individual savers find themselves within the conventional financial system, and just how out of touch politicians are with the average citizen. Bail Ins, deposit haircuts, asset seizure, are all becoming the favored policy response rather than the exception. Any deposits held within the system now must be recognized for what they are, liabilities of increasingly insolvent financial institutions.

Unfortunately for Greece, a painful financial procedure looks unavoidable in the near future, but they are unlikely to be the last. The problem of unsustainable global debt is not going away and with the favored blueprint of wealth confiscation well established, it will be individuals who are hung out to dry at the expense of those with power and influence.