Read The Default Line: THE INSIDE STORY OF PEOPLE, BANKS AND ENTIRE NATIONS ON THE EDGE for Free Online

Greece reflected a view that the crisis was temporary, that it would eventually ‘evaporate’, and therefore northern Europe’s taxpayers could be put at risk lending money to repay their creditors on time and in full. ‘Initially Greece [and Portugal and Ireland] all got gross bailouts,’ he says. ‘They were given the money to pay their creditors in full and on time. If Greece had been restructured in spring 2010 with a haircut, you might have destabilised some fragile northern European financial institutions, forcing a very embarrassing need to recapitalise them directly.’ Buchheit suggests that it was ‘perhaps more politically palatable’ to give Greece the money to repay a French or German bank rather than recapitalising them directly.
    In other words, the first bailout of Greece was a backdoor bailout of northern Europe’s banks. When the bailout deal had been finalised in Brussels in the early hours of 10 May 2010, German and French banks had promised ‘solidarity’ with Greece. At the end of 2010 German banks were the largest holders of Greek government debt. But then, at the beginning of 2011, the German banks quietly dumped €10 billion of Greek debts, mostly government debt, leaving the French banks trailing in their wake. German banks were much better prepared for the Greek debt default, pushed for by their own government. President Sarkozy of France was left fumbling around, failing in his argument for limited PSI. French banks were hit by contagion, by funding concerns, and at one point by a complete stop to essential dollar-liquidity funding from Wall Street. ‘Greece – exceptional and unique’ remained the Eurozone mantra. Buchheit detected at this point the origins of the perception in the Troika that it faced a binary choice when faced with other Eurozone countries that were in danger of defaulting: either repay all debts, or give the bankers a violent haircut. A third option, ‘re-profiling’ or ‘extend-and-pretend’, had been dabbled with in Greece and had been used in the previous contagious regional financial crisis, the debt crisis in Latin America that began in the 1980s. But now this third option was being ignored. The financial advantage of ‘re-profiling’ is that it enables affected institutions to cushion themselves. The political advantage is that it can appease those in creditor nations who oppose any kind of bailout.
    But what of Greece itself? Not only had the Eurozone supplied the funds Greece could not get from international markets, it had also strong-armed the international banking system into writing off a third of Greece’s national debt. The shackles of the nation’s debt bondage were loosened – a little. But the bankers and politicians negotiating the deal in the Grande Bretagne Hotel in Syntagma Square had a ringside view of the rage and the riots. Protestors actually used marble from the steps of the hotel to hurl at the police.
    Nothing to match the anger of the Greek protestors in the squares of Athens was expressed in northern Europe. But the political class – especially in Germany, the Netherlands, Austria and Finland – felt there was widespread discontent, and they felt that they had to neutralise it. The process of placating the objectors reached a surreal climax in October 2011, when, after Greece’s first bailout had failed, bailout number two was negotiated at a series of crisis summits. The funds would come from a generalised bailout vehicle called the European Financial Stability Facility, rather than the bespoke programme arranged for the original Greek bailout. If the northern countries were to lend yet more ‘rescue’ funds to Greece through the EFSF, their political leaders needed something to show for it. Some tabloid-friendly German politicians suggested the Greeks put up some of their islands as collateral for the loans, or even the Parthenon itself. The proposal agreed in October 2011 was far more absurd: the surety was to be