Greek debt crisis is the Iraq War of finance
Guardians of financial stability are deliberately provoking a bank run and endangering Europe's system in their zeal to force Greece to its knees
By
6:29PM BST 19 Jun 2015
Rarely in modern times have we witnessed such a display of petulance and bad judgment by those supposed to be in charge of global financial stability, and by those who set the tone for the Western world.
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The spectacle is astonishing. The European Central Bank, the EMU bail-out fund, and the International Monetary Fund, among others, are lashing out in fury against an elected government that refuses to do what it is told. They entirely duck their own responsibility for five years of policy blunders that have led to this impasse.
They want to see these rebel
hanged from the columns of the Parthenon – or impaled as Ottoman forces preferred, deeming them bandits - even if they degrade their own institutions in the process.
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If we want to date the moment when the Atlantic liberal order lost its authority – and when the European Project ceased to be a motivating historic force – this may well be it. In a sense, the Greek crisis is the financial equivalent of the Iraq War, totemic for the Left, and for Souverainistes on the Right, and replete with its own “sexed up” dossiers.
Does anybody dispute that the ECB – via the Bank of Greece - is actively inciting a bank run in a country where it is also the banking regulator. In this it has succeeded. The latest data suggests that deposit flight from Greek banks has jumped from €400m a day to nearer €1.5bn.
The guardian of financial stability is
accelerating a financial crisis in an EMU member - with possible risks of pan-EMU and broader global contagion – as a negotiating tactic to force Greece to the table.
I leave it to lawyers to decide whether this is a prima facie violation of the ECB’s primary duty under the EU treaties. It is certainly unusual. The ECB has just had to increase emergency liquidity to the Greek banks by €3bn (enough to last to Monday night) to offset the damage.
In its report, the Bank of Greece claimed that failure to capitulate to creditor demands would “most likely” lead to the country’s ejection from the European Union. Let us be clear about the meaning of this. It is not the expression of an opinion. It is a threat by the ECB to throw the Greeks out of the EU if they resist.
This is not the first time that the ECB has strayed far from its mandate. It forced the Irish state to make good the claims of junior bondholders of Anglo-Irish Bank, saddling Irish taxpayers with extra debt equal to 20pc of GDP.
This was done purely in order to save the European banking system at a time when the ECB was refusing to do the job itself, betraying the primary task of a central bank to act as a lender of last resort.
It sent secret letters to the elected leaders of
in August 2011 demanding detailed changes to internal laws for which it had no mandate or technical competence, even meddling in neuralgic issues of labour law that had previously led to the assassination to two Italian officials by the Red Brigades. It demanded changes to the Spanish constitution.
When Italy’s Silvio Berlusconi balked, the ECB switched off bond purchases, driving 10-year yields to 7.5pc. He was forced him from office in a back-room coup d’etat, albeit one legitimised by the ageing ex-Stanlinist EU fanatic who then happened to be president of Italy.
Lest we forget, it parachuted in its vice-president – Lucas Papademos – to take over Greece when premier George Papandreou merely suggested that he might submit the EMU bail-out package to a referendum, a wise idea in retrospect. That makes two coups d’etat. Now they are angling for a third.
The creditor power structure has lost its way. The IMF is in confusion. It is enforcing a contractionary austerity policy in Greece – with no debt relief, exchange cushion, or offsetting investment - that has been discredited by its own elite research department as scientifically unsound.
The
in this fiasco is by now well known. As I argued last week, its own internal documents show that the original bail-out in 2010 was designed to rescue the EMU banking system and monetary union at a time when it had no defences against contagion. Greece was sacrificed.
One should have thought that the IMF would wish to lower the political temperature, given that its own credibility and long-term survival are at stake. But no,
has upped the political ante by stating that Greece will not be accorded the IMF’s standard 30-day grace period if it misses a €1.6bn payment to the Fund on June 30. Default will be immediate.
Klaus Regling, head of the eurozone bail-out fund (EFSF), entered on cue to hint strongly that his organisation would trigger cross-default clauses on its Greek bonds – 45pc of the Greek package – even though there is no necessary reason why it should do so. It is a discretionary matter for the EFSF board.
He seems to be threatening an EFSF default, even though the Greeks themselves are not doing so, a remarkable state of affairs.
It is obvious what is happening. The creditors are acting in concert. Instead of stopping to reflect for one moment on the deeper wisdom of their strategy, they are doubling down mechanically, appearing to assume that terror tactics will cow the Greeks at the twelfth hour.
Personally, I am a
conservative with free market views. Ideologically, Syriza is not my cup tea. One has a soft-spot for democracy – and we don’t care for monetary juntas – even if it leads to the election of a radical-Left government.
As it happens, Edmund Burke would have found the
d to the Eurogroup last night by finance minister Yanis Varoufakis to be rational, reasonable, fair, and proportionate. They include a debt swap from the ECB bonds coming due to bail-out bonds with longer maturities and lower interest rates, reflecting the market borrowing cost of the creditors.
Syriza said from the outset that it was eager to work with on market reforms with the OECD, the leading authority. It wants to team up with the International Labour Organisation on Scandinavian style flexi-security and labour reforms, a valid alternative to the German-style Hartz IV reforms that have impoverished the bottom fifth of German society and which no Left-wing movement can stomach.
It wished to push through a more radical overhaul of the Greek state that anything yet done under five years of Troika rule – and much has been done, to be fair.
As Mr Varoufakis told Die Zeit: “Why does a kilometer of freeway cost three times as much where we are as it does in Germany? Because we’re dealing with a system of cronyism and corruption. That’s what we have to tackle. But, instead, we’re debating pharmacy opening times,” he said.
The Troika pushed privatisation of profitable state assets at knock-down depression prices to private monopolies, to the benefit of an entrenched elite. To call that reforms invites a bitter cynicism.
The only reason that the Troika pushed this policy was in order to extract money. It was acting at a debt collector. “The reforms were a smokescreen. Whenever I tried talking about proposals, they were bored. I could see it in their body language," Mr Varoufakis told me.