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Greek Debt With Taxpayers Means No Rescue Retreat: Euro Credit

Taxpayers as Greek Creditor Put Onus on Politicians
A European Union flag flies beneath the Parthenon temple on Acropolis hill in Athens, Greece. Photographer: Kostas Tsironis/Bloomberg

April 5 (Bloomberg) -- European taxpayers hold most Greek public debt in the wake of last month’s bond swap and a second bailout, increasing chances the rescue will stay on track as euro leaders channel loans to Athens to repay themselves.

Of Greece’s 266 billion euros ($351 billion) of debt, about 194 billion euros -- or 73 percent -- is held by the European Central Bank, euro-area governments and the International Monetary Fund, according to the Greek Debt Management Office in Athens. In 2010, before the first bailout, Greece owed about 310 billion euros, all to the private sector.

As the possibility of a third bailout looms, the onus is on Greek leaders to follow through on austerity commitments and on the euro’s guardians to hold together the 17-nation currency bloc. The yield on Greek government bonds maturing in February 2023 rose 368 basis points to 22.13 percent since March 12, the day the securities started trading after the biggest sovereign debt restructuring. Redemptions in 2015, the year after the European lifeline is due to run out, amount to 8.1 billion euros owed mainly to the ECB, data compiled by Bloomberg show.

“With little prospect of Greece being able to sell debt to anyone by 2015, and assuming the domestic consensus to stay in the euro doesn’t break down, Europe would have little choice but to lend more to the country,” said Riccardo Barbieri, chief European economist at Mizuho International Plc in London. “It is a question of ensuring the ECB gets repaid.”

Fifth Recession

Greece won the extra public loans this year after private creditors forgave 100 billion euros of debt in March. The rate on the February 2023 Greek bonds was 9.95 percentage points higher than comparable Portuguese securities and 13.92 percentage points higher than Irish debt of similar maturity.

Greece is in its fifth year of a recession, with record-high unemployment of 21 percent in December and a budget deficit equal to about 9 percent of gross domestic product last year. Debt, at 165 percent of GDP in 2011, is targeted to fall to no lower than 116 percent in 2020.

The economic case for more aid risks running up against political skepticism in donor nations about propping up Greece, which got an initial package of 110 billion euros 23 months ago.

Bailout fatigue in euro nations like Germany, the Netherlands and Finland means it’s important for Greece, which is due to hold elections in the coming weeks, to enact the budgetary and economic overhaul tied to the second rescue and lose its “bad student” tag, according to Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London.

‘Degree of Commitment’

“I think there will be a third package from 2015 through 2020 because Greece will need to pay the public-sector wages and switch on the lights,” Peruzzo said by phone on April 3. “But implementation of the current program is going to be very tough. If Greece shows a higher degree of commitment, I think Europe will be more willing to be a bit more accommodative.”

Opinion surveys show as many as eight parties may win seats in Greece’s 300-member legislature. New Democracy, headed by Antonis Samaras, who has criticized the austerity package while supporting the interim government of appointed Prime Minister Lucas Papademos, leads with about 20 percent of the vote. No date has been set for the balloting.

Mizuho’s Barbieri said the election, which is risky to the extent that it may show weaker support for mainstream parties that back euro membership, is also an opportunity for the next Greek government to take greater “ownership” of the nation’s so-called adjustment program.

“So far they’ve been cornered into accepting the program, but they haven’t fully implemented it,” he said. “Maybe they will after the elections.”

IMF Support

Scope for relief on publicly held debt may be limited after the euro area extended maturities and cut interest rates on previous emergency loans to Greece. In addition, the IMF is scaling back its support for the country, contributing a smaller share to the new rescue than to the initial one.

The ECB warned last month that the second bailout of Greece risks collapsing unless the political class challenges “vested interests” to achieve a “substantial internal devaluation,” including through cuts in private-sector wages.

“Without a regime change in policy implementation and a much broader political consensus in favor of painful but necessary reforms, there is a high risk that the program derails,” ECB Executive Board member Joerg Asmussen said on March 27. “Political courage is needed more than ever.”

At the same time, Asmussen said Greece may continue to get by as most policy makers want to keep Greece in the single currency because an exit would risk destabilizing European financial markets.

“A country leaving the euro area would give incalculable risks to financial stability of the euro area as a whole,” he said.

To contact the reporter on this story: Jonathan Stearns in Brussels at

To contact the editor responsible for this story: James Hertling at

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