The much vaunted "130 billion-euro bailout for Greece" is not a "130 billion-euro bailout", is it?

Some wilful misreporting by the likes of the BBC has enabled them to dredge up some splendid rent-a-quotes:

"The funds that are coming in are not staying in Greece, are not being invested in Greece, are not here to help the Greeks get out of this crisis," Constantine Michalos, president of the Athens Chamber of Commerce and Industry, told the BBC, "It's simply to repay the banks, so that they can retain their balance sheets on the profit side."

Anastasis Chrisopoulos, a 31-year-old Athens taxi driver, saw no reason to cheer the bailout. "So what?" he told Reuters, "Things will only get worse. We have reached a point where we're trying to figure out how to survive just the next day, let alone the next 10 days, the next month, the next year."

The BBC have presented the Greek "bailout" as if it were two entirely separate transactions: a new €130 billion loan from the EU/ECB; and an agreement with private creditors (i.e. private holders of Greek government bonds) that they will reduce their claims to 53.5% of their face value of €200 billion-odd. That makes it look like Greece comes out with €227 billion of spare cash, which is patently untrue, the net figure is more or less zero. Then there are the "austerity measures" which are a separate issue - they relate to future spending plans and not existing debts.

Actually, Mr Michalos has it spot on, there is no intention for very much of that €130 billion to go into "the Greek economy" (to the extent they still have one).

The real substance of the transaction is that Greece is defaulting pure and simple, which we can all understand, that's the same as private creditors agreeing to waive 46.5% of their claims. There's a sneaky way that Greece could have done this, which is to simply go round buying back €200 billion of its own debt for its market value of (say) 53.5% of face value = €107 billion. You can't owe yourself money, so those claims cease to exist, and Greece's debts would have been reduced to the €107 billion it has to borrow to finance the buy back (it will borrow this money from the EU/ECB, as we shall see).

For reasons unknown to me, in central banking circles, it is considered very ungentlemanly to buy back your own debt at a discount to face value, so they have to dress this up a bit (issue new bonds with a much lower face value + pay a bit of hard cash in exchange for old ones with a €200 billion face value etc), but the bulk of the €130 billion from the EU/ECB will in fact end up in the pockets of the private creditors who have agreed to take that €93 billion loss on the chin.

As Al Arabiya explains:

The private creditor bond exchange is expected to launch on March 8 and complete three days later, Athens said on Saturday. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.

The vast majority of the funds in the 130-billion-euro program will be used to finance the bond swap and ensure Greece's banking system remains stable: 30 billion euros will go to "sweeteners" to get the private sector to sign up to the swap, 23 billion will go to recapitalize Greek banks.

A further 35 billion will allow Greece to finance the buying back of the bonds, and 5.7 billion will go to paying off the interest accrued on the bonds being traded in. Next to nothing will go directly to help the Greek economy.

Yup, 14.5 + 30 + 23 + 35 + 5.7 = €108.2 billion goes to the private creditors. That leaves €21.8 billion on the side to cover a handsome commission for Goldman Sachs and interest/debt repayments falling due in the next couple of months until it is all gone.

But so what? If I were a Greek, I'd be eternally grateful to all these private creditors for agreeing to write off half their debts, not whining and moaning.