by
Ellen Brown
Remember
when the infamous Goldman Sachs delivered a thinly-veiled threat to
the Greek Parliament in December, warning them to elect a
pro-austerity prime minister or risk having central bank liquidity
cut off to their banks? It seems the European Central Bank (headed by
Mario Draghi, former managing director of Goldman Sachs
International) has now made good on the threat.
The week
after the leftwing Syriza candidate Alexis Tsipras was sworn in as
prime minister, the ECB announced that it would no longer accept
Greek government bonds and government-guaranteed debts as collateral
for central bank loans to Greek banks. The banks were reduced to
getting their central bank liquidity through “Emergency Liquidity
Assistance” (ELA), which is at high interest rates and can also be
terminated by the ECB at will.
In an
interview reported in the German magazine Der Spiegel on March 6th,
Alexis Tsipras said that the ECB was “holding a noose around
Greece’s neck.” If the ECB continued its hardball tactics, he
warned, “it will be back to the thriller we saw before February”
(referring to the market turmoil accompanying negotiations before a
four-month bailout extension was finally agreed to).
The noose
around Greece’s neck is this: the ECB will not accept Greek bonds
as collateral for the central bank liquidity all banks need, until
the new Syriza government accepts the very stringent austerity
program imposed by the troika (the EU Commission, ECB and IMF). That
means selling off public assets (including ports, airports, electric
and petroleum companies), slashing salaries and pensions, drastically
increasing taxes and dismantling social services, while creating
special funds to save the banking system.
These are
the mafia-like extortion tactics by which entire economies are yoked
into paying off debts to foreign banks – debts that must be paid
with the labor, assets and patrimony of people who had nothing to do
with incurring them.
Playing
Chicken with the People’s Money
Greece is
not the first to feel the noose tightening on its neck. As The
Economist notes, in 2013 the ECB announced that it would cut off
Emergency Lending Assistance to Cypriot banks within days, unless the
government agreed to its bailout terms. Similar threats were used to
get agreement from the Irish government in 2010.
Likewise,
says The Economist, the “Greek banks’ growing dependence on
ELA leaves the government at the ECB’s mercy as it tries to
renegotiate the bailout.”
Mark
Weisbrot commented in the Huffington Post:
We
should be clear about what this means. The ECB’s move was
completely unnecessary . . . . It looks very much like a deliberate
attempt to undermine the new government.
. . .
The ECB could . . . stabilize Greek bond yields at low levels, but
instead it chose . . . to go to the opposite extreme — and I mean
extreme — to promote a run on bank deposits, tank the Greek stock
market, and drive up Greek borrowing costs.
Weisbrot
observed that the troika had plunged the Eurozone into at least two
additional years of unnecessary recession beginning in 2011, because
“they were playing a similar game of chicken. . . . The ECB
deliberately allowed these market actors to create an existential
crisis for the euro, in order to force concessions from the
governments of Spain, Italy, Greece, Portugal, and Ireland.”
The
Tourniquet of Central Bank Liquidity
Not just
Greek banks but all banks are reliant on central bank liquidity,
because they are all technically insolvent. They all lend money they
don’t have. They rely on being able to borrow from other banks, the
money market, or the central bank as needed to balance their books.
The central bank (which has the power to print money) is the ultimate
backstop in this sleight of hand. If that source of liquidity dries
up, the banks go down.
In the
Eurozone, the national central banks of member countries have
relinquished this critical credit power to the European Central Bank.
And the ECB, like the US Federal Reserve, marches to the drums of
large international banks rather than to the democratic will of the
people.
Lest there
be any doubt, let’s review Goldman’s December memo to the Greek
Parliament, reprinted on Zerohedge. Titled “From GRecovery to
GRelapse,” it warned:
[H]erein
lies the main risk for Greece. The economy needs the only lender of
last resort to the banking system to maintain ample provision of
liquidity. And this is not just because banks may require resources
to help reduce future refinancing risks for the sovereign. But also
because banks are already reliant on government issued or government
guaranteed securities to maintain the current levels of liquidity
constant.
In
the event of a severe Greek government clash with international
lenders, interruption of liquidity provision to Greek banks by the
ECB could potentially even lead to a Cyprus-style prolonged “bank
holiday”. And market fears for potential Euro-exit risks could rise
at that point. [Emphasis added.]
Why would
the ECB have to “interrupt liquidity provision” just because of a
“clash with international lenders”? As Mark Weisbrot observed,
the move was completely unnecessary. The central bank can flick the
credit switch on or off at its whim. Any country that resists going
along with the troika’s austerity program may find that its banks
have been cut off from this critical liquidity, because the
government and the banks are no longer considered “good credit
risks.” And that damning judgment becomes a self-fulfilling
prophecy, as is happening in Greece.
“The
Icing on the Cake”
Adding
insult to injury, the ballooning Greek debt was incurred to save the
very international banks to which it is now largely owed. Worse,
those banks bought the debt with cheap loans from the ECB! Pepe
Escobar writes:
The
troika sold Greece an economic racket . . . . Essentially, Greece’s
public debt went from private to public hands when the ECB and the
IMF ‘rescued’ private (German, French, Spanish) banks. The debt,
of course, ballooned. The troika intervened, not to save Greece, but
to save private banking.
The
ECB bought public debt from private banks for a fortune, because the
ECB could not buy public debt directly from the Greek state. The
icing on this layer cake is that private banks had found the cash to
buy Greece’s public debt exactly from…the ECB, profiting from
ultra-friendly interest rates. This is outright theft. And it’s the
thieves that have been setting the rules of the game all along.
That brings
us back to the role of Goldman Sachs (dubbed by Matt Taibbi the
“Vampire Squid”), which “helped” Greece get into the Eurozone
through a highly questionable derivative scheme involving a currency
swap that used artificially high exchange rates to conceal Greek
debt.
Goldman then
turned around and hedged its bets by shorting Greek debt.
Predictably,
these derivative bets went very wrong for the less sophisticated of
the two players. A €2.8 billion loan to Greece in 2001 became a
€5.1 billion debt by 2005.
Despite this
debt burden, in 2006 Greece remained within the ECB’s 3% budget
deficit guidelines. It got into serious trouble only after the 2008
banking crisis. In late 2009, Goldman joined in bearish bets on Greek
debt launched by heavyweight hedge funds to put selling pressure on
the euro, forcing Greece into the bailout and austerity measures that
have since destroyed its economy.
Ambrose
Evans-Pritchard wrote in the UK Telegraph on March 2nd:
Syriza
has long argued that [its post-2009] debt is illegitimate, alleging
that the ECB bought Greek bonds in 2010 in order to save the European
banking system and prevent contagion at a time when the eurozone did
not have a financial firewall, not to help Greece.
Mr.
Varoufakis [the newly-appointed Greek finance minister] said the
result was to head off a Greek default to private creditors that
would have led to a large haircut for foreign banks if events had
been allowed to run their normal course, reducing Greece’s debt
burden to manageable levels. Instead, the EU authorities took a
series of steps to avert this cathartic moment, ultimately foisting
€245bn of loan packages onto the Greek taxpayer and pushing public
debt to 182pc of GDP.
The Toxic
Central Banking System
Pepe Escobar
concludes:
Beware
of Masters of the Universe dispensing smiles. Draghi and the . . .
ECB goons may dispense all the smiles in the world, but what they are
graphically demonstrating once again is how toxic central banking is
now enshrined as a mortal enemy of democracy.
National
central banks are no longer tools of governments for the benefit of
the people. Governments have become tools of a global central banking
system serving the interests of giant international financial
institutions. These “too big to fail” behemoths must be saved at
the expense of local banks, their depositors, and local economies
generally.
How to
escape the tentacles of this toxic squid-like banking hierarchy?
For
countries with a bit more room to maneuver than Greece has, one
option is to withdraw public and private deposits and put them in
publicly-owned banks. The megabanks are deemed too big to fail only
because the people’s money is tied up in them. They could be
allowed to fail if public funds were not at risk.
The German
SBFIC (Savings Banks Foundation for International Cooperation) has
proposed a pilot project on the Sparkassen model for Greece. Other
provocative options have also been proposed, to be the subject of
another article.
Source:
http://ellenbrown.com/2015/03/10/the-ecbs-noose-around-greece-how-central-banks-harness-governments/
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