Banks get new capital for free and citizens pay the bill

Jürgen Kröger, Representative of the EC in the Troika (EC/IMF/ECB), Luiz Sá Pessoa, acting Head of Representation of the EC in Portugal, Olli Rehn, Vice-President of the EC in charge of Economic and Monetary Affairs and the Euro and Aníbal Cavaco Silva President of Portugal (from left to right). (EC Audiovisual Services).

Yesterday the European Commission approved “temporarily” the recapitalisation of a Portuguese bank Banif with €1.1 billion. The Commission will take a final decision on the compatibility of the capital injection with EU state aid rules after the assessment of the restructuring measures will be proposed by Portugal. Presumably those restructuring measures will be layoffs from the bank and more taxes and salary cuts for the average Portuguese citizen, to pay for the money granted free of charge to the bank.

Banking immorality

The money, €1.1bn, will be transmitted by the Portuguese government to the bank through a subscription of shares issued by Banif in the amount of €700 million and in hybrid securities in the amount of €400 million. To be noted that the entire country is under the supervision of the EU-ECB-IMF troika. In this context Portugal is forced to apply a draconian austerity programme, cutting down salaries and pensions in order to receive new loans. Evidently recipients of the new financial support are the banks, not the citizens.

The comparison speaks by itself. On the one side the banks receiving billions for nothing and on the other side the people have to cope with drastic cuts on their incomes and pay unreasonably increased taxation. Exactly the same scenario unfolds in Spain, Ireland and of course Greece.

However the money used to recapitalise Portuguese, Greek, Irish and Spanish banks is peanuts compared to what the major European banks in Germany and France have already got from their own governments and the European Central Bank to bail them out from their toxic loans to Greece, Spain, Portugal, Ireland and elsewhere. But it’s not only that.

The widely advertised Eurozone aid of hundreds of billions to those countries is used mainly if not exclusively to repay bad loans granted carelessly by big German and French banks to equally inconsiderate borrowers in Athens, Madrid, Lisbon and Dublin. In reality Germany and France are saving their own banks through those “aid packages” to Greece, Spain, Portugal and Ireland.

Freeing “state aid”

But let’s return to the “temporarily” approved by the Commission state aid to this Portuguese bank Banif. The story thought is rather long and begins in 2008, the year when the great financial melt-down begun. In December of that year the EU Commission issued an urgent announcement facilitating the recapitalisation of banks with taxpayers’ money.

The text however didn’t say this. It commented that this free capital injection…was for the good of the society as a whole… because with this new money the banks would grant loans to the real economy …thus help economic activity to rebound and bla…bla…bla. This is the usual language to make it easier for the public opinion to swallow the pill, of course with the help of the main stream media.

Here below are quoted the most important parts of that announcement entitled, “State aid: Commission adopts guidance on bank recapitalisation in current financial crisis to boost credit flows to real economy”. Here is the first paragraph of the text: “The European Commission has published detailed guidance on how Member States can recapitalise banks in the current financial crisis to ensure adequate levels of lending to the rest of the economy and stabilise financial markets whilst avoiding excessive distortions of competition, in line with EU state aid rules”. Mind you this announcement was issued on 8 December 2008.

Four years have passed since and the Commission still makes “temporarily” concessions to banks. But it’s not only that. According to Commission’s estimates over those years Eurozone banks have received €4.5 trillion in financial support, either as direct capital injections from governments and other public institutions or as liquidity loans from the European Central Bank at almost zero interest rate. What happened with all that money?

European Central Bank’s data reveal that new loans accorded by Eurozone banks were only around €300 billion during the time period between the third quarter of 2008 and 2012. What did the banks do with the rest of the €4.5 trillion they received for free during the same time? The answer is very simple. They did exactly the same things they had been doing in the past and brought us all to the present unbearable situation. They spin other people’s money around in risky placements and if they win they keep the profits, if their bets go sour ask governments and central banks to recapitalise them and replenish their coffers with zero cost liquidity.

Unfortunately nothing has changed in the western financial system and it seems that credit crisis will be a regular phenomenon from now on. The great melt down of 2008 served at nothing and people like the governor of ECB Mario Draghi and his counterpart in the American Fed, Ben Bernanke, have decided to follow the steps of Allan Greenspan, who should have being judged for the great credit crunch of 2007-2008.