The government of Greece borrowed a lot more money than their economy can repay. They borrowed that money mostly from banks in other European countries. Now Europe is proposing to create more European debt to “bail out” Greece by “giving” them money to give back to the European banks, which would only be stupidly circular, except that above and beyond the amount that Greece owes, they still also have to fund their government.

“The structure of the deal puts the IMF/EU/ECB clearly in control of the finances of Greece so they have replaced some sort of Czar with the bureaucrats of the Troika and the country no longer will control its own finances as they traded away their sovereignty for cash. In fact, an escrow account will be set up for Greece which will be controlled by the Troika and Greece is being forced to change their Constitution pledging to pay their creditors before providing any money for the country. A quick study of the math reveals that Greece will get about 19 cents on the Dollar and the rest of the money is the sovereign nations of Europe paying back their banks with the money they have supposedly lent to Greece. Greece is now nothing more than a conduit for the nations of Europe to pay back their own financial institutions.” [Source]

So the deal basically says that Europe is going to borrow money to lend Greece money and 80% of that money is going to Europe’s banks and 20% is going to fund Greece.

But that level of funding for Greece means crushing austerity for the Greek people and at the same time, the rest of Europe is bailing out its own banks via piling more debt on top of Europe’s and Greece’s already too much debt, and they are paying a 20% premium on that bailout money to Greece.

And all of this makes sense for exactly whom?

In a nutshell, Europe is creating new debt and paying an extra 20% and the Greek people are going to live in a hell-realm so that a handful of fat bureaucrats can keep their jobs.

Whether or not the European taxpayers should bail out the European banks at all is a question I’ll leave to another time, but even if one believed this was a good idea, it would clearly be better for them to give the money directly to the banks and skip the 20% premium to Greece.

On the other side of the picture, the Greek people would be FAR better to default on their debt, leave the Euro, devalue the reinstated Drachma, and start rebuilding their economy from the base of an incredible advantage they would have in the tourism industry and whatever exports they brought to the market with a local currency that was very cheap against the Euro.

So it’s far better for the European people for Greece to default and leave the Euro, and it’s far better for the Greek people for Greece to default and leave the Euro. If Europe directly bailed out the European banks that are holding Greek debt, it would be a wash to the banks. So the only tiny group of players in this drama who are benefitting from the farce of “bailing” Greece out are the bloated eurocrats — the people whose jobs and twisted little fiefdoms depend on shoring up the terminally flawed Euro.

Right, business as usual then.