Greece repays a loan: an ECB typical shenanigan

Success story (by Varoufakis, from "Adults in the room", 2017)

While Stournaras was taking over at the finance ministry during the hot summer of 2012, the folks at the EU and IMF were trying to solve a little conundrum of their own. The loans for the second bailout had been delayed by the twin Greek elections and would not start arriving before the autumn. Unfortunately, Athens was meant to send just under €3.5 billion to the ECB, one of its many unpayable debt repayments, on 20 August. How could that happen given that the coffers were empty? When the troika has a will it discovers a way. Here is the wizardry they used to conjure up the necessary illusion, narrated in slow motion so that the reader can fully appreciate the magic.

- The ECB granted Greece’s bankrupt banks the right to issue new IOUs with a face value of €5.2 billion – worthless pieces of paper, given that the banks’ coffers were empty.

- As no sane person would pay money to buy these IOUs, the bankers took them to the finance minister, Stournaras, who stamped on them the bankrupt state’s copper-bottomed guarantee – in reality a useless gesture since no bankrupt entity (the state) can meaningfully guarantee the IOUs of another bankrupt entity (the banks).

- The bankers then took their worthless IOUs to the Central Bank of Greece, which is of course a branch of the ECB, posting them as collateral for new loans.

- The Eurogroup gave the green light to the ECB to allow its Greek branch to accept these IOUs as collateral and, in exchange, give the banks real cash equivalent to 70 per cent of the IOUs’ face value (a little more than €3.5 billion).

- Meanwhile, the ECB and the Eurogroup gave Stournaras’s finance ministry the green light to issue new Treasury bills with a face value of €3.5 billion – IOUs issued by the state, which of course no investor would touch in their right mind given the emptiness of the state’s own coffers.

- The bankers then spent the €3.5 billion they had received from the Central Bank of Greece – in fact from the ECB itself – when they pawned their own worthless IOUs in order to buy the state’s worthless IOUs.

Lastly, the Greek government took this €3.5 billion and used it to pay off ... the ECB!