Poor Greeks, Irish and Spaniards still pay for the faults of German and French banks

From left to right: Mario Draghi, President of the European Central Bank, Olli Rehn, Vice President of the European Commission. (“The Council of the European Union” photographic library, 27/01/2014).

Government deficit decreased substantially in the third quarter of last year and reached -3.1% of the GDP in Eurozone. This is just one decimal point away from the 3% benchmark, set by the Treaty of Maastricht and the strict EU economic governance Regulations (the famous ‘two’ and ‘six’ packs). The gap between government income and spending skyrocketed during the crisis years of 2008 and 2009 reaching levels above 7% of GDP.

Then, as from the last quarter of 2010, the deficit started to recede continuously and last year almost reached the 3% limit, as provided by the above mentioned EU laws. No need to mention that the austerity policy enforced by Brussels to all the EU member states has undermined the political and social structures in many EU countries, particularly in the south of Eurozone. Let’s follow those developments more closely.

Today Eurostat, the EU statistical service, published an update of its quarterly government finance statistics. According to this source “EU-27 and Euro Area-17 general government deficit (seasonally adjusted) decreased significantly since the fourth quarter of 2010, to stand at -3.5 % of GDP and at -3.1 % of GDP respectively in the third quarter of 2013. However, for the EU-27 this represents a slight increase of 0.1 percentage point of GDP compared to the previous quarter. For the EA-17, a decrease of -0.2 percentage points is recorded”.

Eurozone imposes austerity

The different directions the deficit followed in the EU-27 and the EA-17 has to be attributed to the fact that the Eurozone countries have applied more strict austerity measures than the rest of the EU member states. Obviously the reason is that the relevant legislation obliges the euro area countries (‘two pack’ regulations) to comply more quickly and thoroughly with the targets set than the rest of the EU (‘six pack’ regulations).

At this point, it has to be reminded that four euro area countries, namely Greece, Ireland, Portugal and Spain have been borrowing from the European Financial Stability Facility. This financial support came on the condition that the four countries apply severe austerity measures to reduce government deficits. Italy and other EU countries were also obliged to apply severe fiscal austerity through the ‘excess deficit’ procedure, which enforces compliance with the 3% of DGP deficit limit. As it has become apparent by now, those EFSF loans were not used to support the unemployed southerners, but to subsidise the German and the French banks.

On an individual country level, Eurostat found that “In the third quarter of 2013, twelve Member States recorded an improvement in their government balance relative to GDP with respect to the same quarter in 2012. These are: Belgium, the Czech Republic, Denmark, Ireland, Greece, Croatia, Lithuania, Luxembourg, the Netherlands, Romania, Slovenia and the United Kingdom”. The same source explains that, “The largest decreases with respect to the third quarter of 2012 are recorded in Greece (+10.0 percentage points of GDP, influenced by capital transfers to support banks in 2012Q3)”.

Taxpayers recapitalise the banks

In most cases the fiscal deficit problems and the government’s over- indebtedness were recorded in countries where their governments were politically forced by Brussels, Berlin, Paris and the European Central Bnak to underwrite and repay the debts of their banks. Ireland is a negative example of this politically enforced undertaking of private bank debts by the country’s taxpayers. Obviously the reason was that those Irish, Greek, Spanish and Italian bank debts were owed to German and French financial groups like Deutsche Bank, Credit Agricole and BNP Paribas.

In conclusion, the taxpayers of impoverished countries like Greece, Spain, Portugal and Ireland are still repaying at par value all the imprudent, almost crazy loans and ‘investments’, of a handful of German and the French banks. Unfortunately nobody tells the truth to the German and the French public opinion and let the people of those countries blame and accuse the ‘lazy southerners’ and not the greedy bankers for the financial crisis.