by Ralph T. Niemeyer
Whatever has been said about Euro-bonds, being rejected by the German government, has been proven illusory by the fact that the European Central Bank (ECB) has bought up huge amounts of Greek, Irish, Portuguese, Spanish and Italian state obligations over the past weeks for more than €129 billion. At the same time, Deutsche Bank AG sold a third of it’s Greek exposure to the ECB, forcing European taxpayers to owe more than €150 billion of these such bad debts. The difference with the issuance of Euro-bonds is marginal. De facto, these already exist.
Following the 2012-decision of the German Bundestag to support the EFSF sooner rather than later will doom the Euro-zone’s real economy, even in Germany. Since the start of the “rescuing”, Greece accumulated €20 billion in additional debt, first because the real economy collapsed under draconic austerity measurements brought in by the ‘Troika’ and secondly, because the government in Athens still has to re-finance itself through private banks who pocket exorbitant interest payments.
Even Germany would be bankrupt within a split second if the federal government had to pay 10% or 15% interest for its obligations. Interest rates sky-rocket when investment bankers and rating agencies decide to lower a country’s rating.
The only way out of this crisis would be to cut debts and to allow states to re-finance themselves directly at the European Central Bank (ECB), or, if the EFSF was issued a banking licence, at source.
In Brussels and in Luxembourg the thought trickled in the minds of EU Commission and Euro-Group decision makers that public lending institutions would be beneficial for EU member states. The strongest resistance, however, can be observed from the German government as it is foremost German banks that benefit from a ridiculous business model.
Currently, private banks get funds at 1.5% from the ECB and pass those funds on to states or the EFSF for horrendous interest rates of up to 18%. If one avoided this unnecessary detour involving private banks, the public hand would save billions and billions that are currently being paid as interest to private banks and their shareholders.
Such an “EFSF-bank” could borrow funds from the ECB for 1.5% and hand it out to those states that are in need at the same rate as a public institution, which would not have to satisfy shareholders. Currently, the EFSF only pays 3% interest to the ECB because of the guarantee mechanism. Italy, Spain, Ireland and Portugal pay much higher interest rates.
If the EFSF was given a banking licence, this would cut out the middleman, i.e. private banks. Conservatives usually argue that this would lead to inflation, but it is complete nonsense because there wouldn’t be more money circulating than nowadays anyway.
And, it wouldn’t matter whether private American rating agencies downgrade such public lending institutions because they would simply ignore the verdict by those henchmen and continue to give low interest rate loans to states that require such.
Of course, there shouldn’t be anything like endless credit-lines. But, in order to consolidate public finances one should not finish with the European-wide tax-dumping competition that led to a death – spiral. Instead, a harmonised tax system not only involving VAT but foremost corporate taxes and the taxation of excessive wealth would secure the funding of governments.
Mr. Barroso’s jumping onto ATTAC’s bandwagon comes along like a joke when one looks at the estimated €55 billion per year that such a financial transaction tax would raise. In any case, such a tax would be priced-in and not do any harm to speculation.
What would also be needed is the re-capitalisation of banks. Those banks would then be owned by the public hand and serve the real economy by handing out loans and taking deposits. Today, their misbehaviour, as well as their debt cuts both cause them difficulties.
To issue a banking licence to the EFSF, one would only need a single decision by the EU member states which should, by the same token, decide to close down the casino and introduce a European-wide wealth tax.
Even the former conservative French Finance Minister and today’s president of the International Monetary Fund (IMF), Christine Lagarde, recently said that big private banking institutions should be administered by the public hand.
But that would not be enough because public banks should not gamble. They should be required to shut down the casino and impose a little levy or financial transaction tax, an idea that EU Commission President José Manuel Barroso borrowed from ATTAC. It is absurd to let speculators make huge profits by risky gambling and whenever it goes wrong have the taxpayer foot the bill. In the most positive scenario, the financial transaction tax would play-in some €57 billion. Peanuts.
And, one should also repatriate the funds that went astray by multi millionaires who hide their illegitimate trillions in Switzerland and other black-holes of the offshore markets. Over the past years, not only have the public debts exploded but also private wealth; both for the same reason. If one wants to reduce debt one also needs to reduce privately accumulated wealth. The key is to identify the ones who defrauded society by their ruthless greed.
Now, the Euro-zone public debts are €10 trillion, while the top multi-millionaires of the Euro-zone have €7.5 trillion in wealth from the artificially created state-debts. The wealth of the richest Europeans exploded over the past 10 years. In Germany, public debt sky-rocketed and reached €2 trillion while the richest 10% in Germany now own €3 trillion, most of which were gains accumulated during the crisis.
In the past years, 51,000 additional millionaires were counted in Germany than before the crisis, making Germany a paradise of 861,000 multi-millionaires. None of them are asked to contribute money to the crisis as there is no wealth tax.
On the other hand though, the German parliament not only voted in favour of the ESFS but, also constructed a mechanism for parliament to decide over potential increases of the rescue funds as well as the use of the funds schedule.
But, funnily, the German government which is bound by the German federal constitutional court in Karlsruhe to involve parliament at every single decision regarding the pay-out of funds from the ESFS, had the particular law be voted on that makes this special committee adhere to a strict confidentiality that obliges it’s members not to speak about the decisions to be taken in the committee.
That will certainly increase the trust by the German citizens into the political class’s handling of the Euro-decline tremendously. The fact that the citizens are no longer informed when and how their money is being used stirred some controversy in Germany.
There is already strong sentiment among the German population that the debt cut for the troublesome PIGS-states (Brussels-jargon for Portugal, Ireland Greece and Spain) is nearing, especially in the case that Italy joins that infamous club.
But, what will happen when the debts being cut becomes clear: because the states won’t have such huge debts any more, and would require maybe only half of the funds from the EFSF-budget? This unused cash will not be returned to the taxpayers but will be used for compensating the poor banks and their shareholders for their presumed losses. The “rescuing” of the PIGS is smelling as if the entire set-up had been planned from the beginning of the crisis. In other words, if the states are serving only as the middleman for handing over taxpayer’s money to private banks, why not think about cutting out the middleman and leaving all that stupid talk about “rescuing” to Greek or Irish citizens? The mainstream media still throwing sand into citizen’s eyes amounts to deliberate brainwashing. Protests might not be limited to Athens and Wall Street.