21

From an article published in June 2018 on thelocal.de:

Berlin has been one of the main lenders to Greece during its debt crisis. While conservative parties warned that supporting Greece would come at the cost of the German taxpayer, new figures show Germany has made money on the crisis. The German government released figures on Thursday in response to parliamentary question from the Green Party which show that Germany has made €2.9 billion in interest payments on Greek bonds since 2010.

Since 2010 Germany has been buying Greek government bonds as part of an EU deal to prop up the struggling Greek economy. The bonds were bought by the Bundesbank and then transferred to the federal treasury.

Initial agreements with the government in Athens set out that any interest earned on the bonds would be paid back to Greece when it fulfilled its reform obligations.

But the figures published by the government on Thursday show that Germany made €3.4 billion in interest payments on the bonds and only paid Greece €527 million in 2013 and €387 million the following year. That left €2.5 billion in profit, plus interest of €400 million on a loan from the KfW development bank.

The Green party have responded to the figures by calling for debt relief for Greece.

“Contrary to all the myths spread by people on the right, Germany has profited massively from the crisis in Greece,” said Green MP Sven-Christian Kindler.

“It can’t be the case that the government makes billions in profits on Greek debt which it puts into the German budget,” he added. [...]

On Thursday, Eurozone ministers will try to resolve their differences over the terms of Greece’s departure from its massive bailout programme with splits over the degree of debt relief needed by cash-strapped Athens.

Is this the correct/complete picture? Did Germany make a profit on the bailout, apparently not [yet] paying back the interest? Or are there additional conditions attached?

Note that this issue of interest return apparently only applies to the third bailout. Also Germany was (obviously) not the only country involved:

In 2012 with Greece on the verge of bankruptcy, fellow Eurozone states rallied round to rescue one of their own.

Part of the bailout package they agreed was to use almost 27 billion euros to buy up Greek debt to prevent a vicious circle that would see the country facing more and more expensive borrowing costs.

At the time, the countries agreed that they should not profit from this action and that the interest paid to them by Athens linked to the bonds they had bought should be returned.

To this day, that interest amounts to almost €8 billion (More precisely €7,838,000,000, according to an email sent by EU finance commissioner Pierre Muscovici to MEPs). Some of this money has been sent back to Greece but much of it remains in the hands of other European countries. [...]

According to Euronews’ calculations, the Bundesbank, due to its position as the largest of Europe’s central banks earned €2 billion of interest since 2012 on the debt they purchased from Greece. France took €1.58 billion and Italy €1.37 billion. Documents obtained by Euronews confirm the figure for France, officials from other countries would not confirm or deny the amounts by the time this story was published.

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    A condition to fulfill reform obligations for interest payback seems sane from Germanys perspective. – Communisty Aug 22 '18 at 9:49
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    Has Greece paid back all the Bonds? Otherwise it's a bit early to decide if anybody lending money has "made a profit". If you're out €100bn and get €3bn, have you made a profit? What if Greece defaults 2020 and you're still out €95bn? – janh Aug 22 '18 at 11:42
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    I agree with the other comments. Technically one profits only when the total return is larger than the payment. Additionally the return would have to be substantial larger (including interest one could have gotten from alternative investments) than the payment in order to be seen as profitable. – Trilarion Aug 22 '18 at 15:27
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    Since the Greek are still at risk of not paying everything back, this question is premature. – Mast Aug 23 '18 at 12:49
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No.

As long as the original credit of 330 billion euros is not paid back, you can hardly argue that the interest should be considered as a profit. In fact, the starting time for interest payback has just been suspended by ten years, to 2033 - according to the German Department of Finance, this amounts to 34 billion dollars of unpaid interest.

Additionally, the Greens are falsely implying the interest directly goes to the German budget - not true, it remains on a frozen account:

Google Translate: When the SMP profits for 2014 were to be passed on to Greece, Prime Minister Alexis Tsipras, newly elected by the Greeks, and his financier Yanis Varoufakis had canceled the agreements from the then second aid package. The funds were kept in a blocked account by the ESM. The Greens, however, have given the impression that all these profits have flowed into the federal budget. The opposite is the case! The SMP profits were paid to Greece for three years. Only the years 2015 and 2016 are "lost" for the Greeks - by their own fault. And in 2016, Greece was promised that the country would be paid back the money in the blocked account, as well as all SMP profits starting in the 2017 financial year. That's exactly what the Eurogroup decided. Lying, without blushing, also is possible for the Greens!

Quick calculation

The ESM aides for Greece are currently at 176 billion euros. Germany takes over 27% of the ESM, So 47,5 billion are paid by Germany. The so-called profit of 2,9 billion is about 6% of this figure. Compare this to Eurozone inflation of 12% from 2010 to 2017. The profit does not even cover inflation losses.

  • 2
    Greece doesn't owe 330 billion to Germany. – Fizz Aug 22 '18 at 13:22
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    Greece owes 330 billion to the European Union and the European Central Bank. A large part of this is financed by Germany. You could probably even argue that Germany is paying for its own interest :) – Cliff Aug 22 '18 at 13:24
  • Nasdaq had a breakout, but their website is down at the moment (nightly maintenance). – Fizz Aug 22 '18 at 13:27
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    +1. Could be improved by mentioning that money in two years is worth less than money now. – fectin Aug 22 '18 at 20:13
  • Inflation rate of the euro is around 2% from a quick google search. – Tyler S. Loeper Aug 23 '18 at 14:01
7

No and yes.
The thing is that "Germany" can either be the sum of all companies and entities in Germany OR the German Government.
The latter lost money.
The first actually made some by Greece being able to pay back some private debt (though I don't know any exact figures).

4

YES

With the following caveat: No one word answer will satisfactorily answer this question. It is further almost quite unlikely to get an accurate picture from German sources about this. The whole topic became shrouded in mythology for most Germans and that bandwagon biases most economic analysis with political analysis and entrenched opinion:

The German media presentation of the so-called Greek financial crisis caused an unexpected uproar in Germany. An anti-Greek sentiment evolved and spread among German citizens and solidarity for crisis-hit Greece was mostly rejected. Public surveys revealed that many Germans even wanted Greece to exit the Eurozone immediately. This article highlights the crucial role of the media in shaping the negative public opinion. In 2010, a period which has lately been referred to as Greek bashing, the German press had discussed the Greek financial crisis heatedly and controversially. Europe’s largest daily newspaper, BILD, published numerous reports that implicitly and explicitly constituted the myth of the corrupt and lazy Greeks in comparison to the hard-working Germans. In 2012, the crisis had spread much further, and not only Greece but other countries too were suffering from high debt, economic stagnation and unemployment. The news coverage became more moderate and conciliating and presented the dramatic social consequences for the respective population. This study highlights not only the development of the German media’s tenor on the Greek crisis through time, but adds an international perspective and widens the view by comparing the media treatment of the different countries involved. Based on 122 online articles, the study methodologically focuses on the analysis of metaphorical language in the news coverage of three comparable international news magazines: SPIEGEL (Germany), The Economist (the UK) and TIME (the USA), and contrasts the representation of Greece with the depiction of larger indebted European countries like Spain and Italy. The analysis shows remarkable differences in the evaluation and presentation of the crisis, which can be linked to the degree of involvement of Germany, the UK and the USA in European policies.
Hans Bickes et al.: "The financial crisis in the German and English press: Metaphorical structures in the media coverage on Greece, Spain and Italy", Discourse & Society 2014, Vol. 25(4) 424–445.

Then we have the unfortunate monetary and financial system that is so unknowable and difficult to understand that public and private debts, transactions between states, investors and banks are apparently so intransparent that in public discourse they are lumped together arbitrarily most of the time. Good for outrageous opinionated public debate without a solid base, bad for sober analysis and sound understanding.
This is somewhat reflected in the original question: "Did Germany profit…"

  1. What is "Germany" here? The state as such with its budget and cash flow? The German tax payer and her money? The sum of assets private investors and German owned banks have in their balances or cashed out? Depending on perspective, the answers will differ. A really complete picture will suffer from quite a lot of fractalising detail.
    More than 80% of the money "gone South" (of 274bn transferred) was used for re-financing debt. First to bail out private creditors, shifting the debt-ownership to public ones, then shifting that around between them and the IMF, in the end onto the balance sheet for "the taxpayer". -> (German) private investors gained huge, German taxpayer not so much, directly. (LaGarde, IMF: "Yes. I've got my money back!")

  2. What is "profit" here? Just the simple math of plus and minus? Are there other effects to observe and to be included? Like lower unemployment rates in Germany, lower interest rates for new German debts, import-export balance benefits…

Especially for the net effects it has to be concluded that "Germany" "profits" from the Greek tragedy, brilliantly overall.

the German public sector balance benefited significantly from the European/Greek debt crisis, because of lower interest payments on public sector debt. This is due to two effects: One, in crisis times investors disproportionately seek out safe investments (“flight to safety”), bidding down the returns on safe-haven assets. We show that German bunds strongly benefited from this effect during the Greek debt crisis. Second, while the European Central Bank (ECB) monetary policy stance was quite close to an “optimal” monetary policy stance for Germany from 1999 to 2007, during the crisis monetary policy was too accommodating from a German perspective, due to the emerging disparities across the Euro area. As a result of these two effects, our calculations suggest that the German sovereign saved more than 100 billion Euros in interest expenses between 2010 and mid-2015. That is, Germany benefited from the Greek crisis even in case that Greece defaults on all its debt (a total of 90 billions) owed to the German government via diverse channels (European Stability Mechanism [ESM], International Monetary Fund [IMF], or directly).
Geraldine Dany et al.: "Germany’s Benefit from the Greek Crisis", IWH Online, No. 7, Leibniz Information Centre for Economics, 2015.

In the above article some overlooked effects include:

  • Bad news in Greece trigger flight into German bunds
  • Counterfactual yields on German bunds without flight-to-safety
  • The gains from the safe-haven effect

Then there are the immaterial gains in power that relate to German banks and the government. Both now gained power despite or because they were following a narrowminded and unrelenting ideology that did no good to the Greek economy, or most others in the Euro-zone.

Germany’s refusal to cooperate with the Eurogroup members on the Greek bailout in 2010 until the crisis threatened to derail the entire Eurozone is puzzling in that regard especially because Germany is the main beneficiary of the euro. It was alleged at the time that this was a dilatory tactic designed to postpone a domestically unpopular decision until after crucial regional elections. But why would voters allow themselves to be misled like that? And why did Merkel agree to the bailout before the elections took place? To analyze how citizen preferences affect international cooperation, we develop a game-theoretic model of the four-way interaction between two governments that must coordinate a response to a crisis affecting both countries but who also must face the polls domestically with an electorate that might be uncertain whether a response is necessary. We find that, paradoxically, governments that stand to receive the greatest benefits from international cooperation face the greatest obstacles to implement- ing the required policies even when voters would want them to.
Christina J. Schneider et al: "The Domestic Politics of International Cooperation: Germany and the European Debt Crisis", International Organization, Volume 72, Issue 1 Winter 2018 , pp. 1-31.

"Profit" is not only about one sum in one calculation. Only looking at those numbers amassed in one bail-out package is a distorting microscopisation of the whole picture. Those numbers in isolation might be in a certain balance. Including all the other effects leads to the conclusion that "Germany" "profited" massively from the whole situation.

Although the fixation on direct debt and bailout related money flow is an overall misleading calculation, the numbers are all in the same direction over the years and in context:

Germany Profits From Greek Debt Crisis – New figures show that Germany has earned more than €1.3 billion from the hundreds of billions in aid given to Athens over the past decade. (Handelsblatt Global, July, 12, 2017)

Germany reaps a €2.9bn gain from Greek bond holdings, Financial Times, 22.06.2018

Germany has gained £71billion from its tough stance on Greek debt crisis... and will still make a profit if Athens never pays back a single cent, DailyMail 10 August 2015

The truth about Greek debt and German generosity, PBS, 2015

How Germany made money from Greek crisis 2017

James K. Galbraith: Aug 20, 2018: "The Greece Bailout’s Legacy of Immiseration" The Atlantic

Why Greece is Germany’s ‘de facto colony’, Politico, 2017

The initial report from the question is not an outlier.

The biggest chunk of 274bn since 2010 was only "burnt" from a Greek perspective! They could use the money, but they were largely only allowed to pay back, pay interest and re-finance exisiting debt and newly acquired debt. That means the investors got their money back and then some. Just poor little Greece lost and lost in this spiral.

Again, cui bono from the money go around? Where did the money from the third bailout memorandum go?

86bn Euros were authorised initially, 61,9bn were actually used and went "to Greece". Of that 36,3bn were used to pay back or re-finance debt, 5,4bn went into re-capitalising banks (of 25bn authorised initially; 2bn of that already paid back) and only 8.8bn went into "other means". Only those "other means" are therefore free to go into buying German products.

We have to keep in mind that all those loans and credits are constantly shifted around

Previous agreements provided for Greece to pay out the SMP profits of other countries once all savings and reform requirements had been met. However, according to the reply, a total amount of EUR 2 billion was only transferred to Greece in 2013. In 2014, around 1.8 billion euros went into a blocked account of the Euro rescue system ESM. According to the answer, the Bundesbank had generated around 3.4 billion euros in interest gains from SMP purchases by 2017. Only in 2013 and 2014 profits were transferred to the ESM and Greece. In 2013, around 527 million euros were remitted and in 2014 around 387 million euros were remitted, resulting in an overall remaining profit of around 2.5 billion euros. In addition, there are interest gains of EUR 400 million from a loan from the state bank KfW.

An earlier publication that somewhat is in contrast to conservative blog opinions mentioned elsewhere quote the official Ministry of Finance. It says:

The total profit amounts to 1.34 billion euros, as the various statements by the Federal Ministry of Finance show

Buying up Greek debt is not throwing away money from the creditor's perspective. It is not a donation despite portrayed as such. It is not only a great lever for pushing an agenda, it is also constantly generating profit and shows up favourably under debits and credits in the books.

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    I understand the question in such a way that the Greens claim that the State of Germany (i.e. the federal budget) directly profits from the Greek crisis. This is untrue. That there are secondary effects like increased movement into German bonds is probably true - but to reach a conclusion of "massively profited", one would need hard numbers. – Cliff Aug 23 '18 at 13:10
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    I upvoted this for the substantial effort, and I was aware of indirect gains claims e.g. IHW study which was broadly mediatized e.g. BBC some years ago. My question title wasn't too good in retrospect (i.e. much broader than the question body). I guess I should have been more clear what I'm not asking about... – Fizz Aug 23 '18 at 14:15
  • Handelsblatt, FT, New Europe are exactly the SMP the question was alluding to. The study cited by Daily Mail appears to be pretty handwavy. Politico and The Atlantic does not talk about any profit but theoreticize about a "colony". The PBS article claims exactly the opposite of what you claim! Sorry, doesn't convince me. – Cliff Aug 23 '18 at 14:16

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