A lot of the money from the two Greek bailouts went to banks, including local ones and the subsidiaries of foreign banks operating in Greece.
Yet lenders are now the weakest link in the Greek economy. The European Central Bank has only to reduce liquidity assistance or demand more collateral, and the country's financial system will run out of euros.
So what happened to all that bailout money? Greece's champions, including Nobel-winning economists Paul Krugman and Joseph Stiglitz, have said repeatedly that the Greek bailouts favored foreign lenders.
"We should be clear: Almost none of the huge amount of money loaned to Greece has actually gone there," Stiglitz wrote in a recent column. "It has gone to pay out private-sector creditors - including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries' banking systems." That claim has become part of the mythology surrounding the Greek crisis.
In reality, it's not hard to figure out how much money foreign banks pulled out, and how much they lost, in the course of the two bailouts. According to data from the Bank of International Settlements, at the end of 2009, total international claims on Greece stood at $177.9 billion, $96.6 billion of it on the public sector (those were investments in Greece's already swollen government debt). By the end of 2011, before the second bailout and Greece's big debt restructuring, international claims were down to $73.3 billion, $40.8 billion of it on the public sector.
This means that the first bailout, agreed in May 2010 -- 110 billion euros ($120 billion) from the European Union and the International Monetary Fund -- did indeed help foreign banks reduce their exposure to Greek public-sector debt, by $55.8 billion. This sounds like a lot of money, but it was a tiny fraction of German and French banks' total foreign exposure. At the end of 2009, German banks' international position stood at $4.9 trillion, according to the BIS. Contrary to widespread perception, Germany didn't stand to lose much from a Greek default, and it opposed the first bailout.
Nevertheless, foreign banks unquestionably benefited from that first deal. So did Greek banks. According to the debt relief advocacy group Jubilee Debt Campaign, Greece paid out a total of 73 billion euros (about $80 billion) worth of principal and interest on its government debt in 2010 and 2011, so more than $20 billion must have gone to local financial institutions.
What happened afterward is covered in great detail in "The Greek Debt Restructuring: An Autopsy," a 2013 paper by Jeromin Zettelmeyer, Christoph Trebesch and Mitu Gulati. In June 2011, the IMF declared Greek government debt still unsustainable and said Greece needed either another 70-104 billion euros from official creditors or a private debt restructuring. Immediately, German Finance Minister Wolfgang Schaeuble began pushing for the second option. The EU and the IMF pledged another 64 billion euros, and bankers started getting ready to lose part of their remaining Greek debt holdings.
After protracted negotiations and arm-twisting, by the end of April 2012, Greece managed to reduce the face value of its debt by 107 billion euros, or 52 percent. The creditors took a haircut of up to 65 percent, which Zettelmeyer and collaborators calculated as the loss in present value implicit in the bond exchange that Greece initiated. The loss was higher than the straight principal reduction implied because investors also agreed to maturity extensions.
"Within the class of high- and middle-income countries, only three restructuring cases were harsher on private creditors: Iraq in 2006 (91%), Argentina in 2005 (76%) and Serbia and Montenegro in 2004 (71%)," Zettelmeyer wrote. The restructuring was also the biggest ever in absolute size.
At this point, Greek banks stood to lose as much or more than foreign financial institutions. When they joined the creditor committee that negotiated the restructuring, they had the biggest holdings of Greek government debt among its members. The National Bank of Greece held 13.7 billion euros of Greek sovereign bonds, Piraeus Bank had 9.4 billion, Alpha Eurobank had 3.7 billion and Marfin bank had 2.3 billion. For comparison's sake, Deutsche Bank's holding was a mere 1.6 billion.
In March 2012, the IMF said the debt restructuring would "trigger impairments of about 22 billion euros" and that "regulatory capital will be wiped out for four banks representing 44 percent of system assets, while the remaining banks would end up significantly undercapitalized." So in April of that year Greece borrowed 25 billion euros from the European Financial Stability Facility to recapitalize the banks, effectively compensating them for losses from the restructuring.
In total, therefore, Greek banks received about 45 billion euros from the bailouts, more than the 41 billion Europe allocated to Spain's bank recapitalization. Although more than half of it was needed to cover losses from the government- imposed haircut, Greece didn't have to take on the extra debt -- it could have "bailed in" the banks' creditors and depositors, as Cyprus did in 2013. In the Greek case, however, nothing as harsh as that was under discussion.
The recapitalization helped get Greek banks back on their feet. They were still overburdened with bad loans, but in March 2014 Piraeus managed to borrow from the markets for the first time since the crisis started. In April, the National Bank of Greece followed.
Now, Greek banks depend almost entirely on emergency liquidity assistance from the ECB, set at 89 billion euros. That aid allows the banks to keep their ATMs open and (so far) disburse up to 60 euros per day per client. There's not much more they can do, and the government on Monday told them to keep their doors closed until Thursday. There will probably be another extension unless there is a surprise deal with creditors.
So where did the banks' bailout money go? One might say it went to the Greek people, after all. As soon as they got wind that Marxists from the Syriza party could form the next government, they ran to the banks to withdraw deposits, which had remained relatively stable since the bailouts began. Between the end of November and the end of May, they withdrew more than 32 billion euros.
The June withdrawals probably brought the outflow close to the amount of aid that the banks operating in Greece have received from the government.
True, the Greeks who managed to get their money out before the government had to close the banks are not the country's poorest citizens who are most in need of help. Yet they are the ones to whom the government of Alexis Tsipras, in effect, redistributed the money that went first to Greek banks. In view of what's coming if Tsipras fails to negotiate a new deal with creditors, those depositors should be eternally grateful that he didn't close the banks any earlier.
Leonid Bershidsky, a Bloomberg View contributor, is a Berlin-based writer.