German and French bankers looted the Irish and Spanish unemployed

Press conference by Michel Barnier, Member of the European Commission, on the communication on ‘shadow banking’. He probably shows with his hands the hole through which bankers can avoid controls and bet other people’s money on risky placements, that may bring huge spoils to the lenders and catastrophe to others. (EC Audiovisual services, 04/09/2013).

According to a Commission‘s new ‘on-line state aid to banks benchmarking tool’ published on 20 December, between October 2008 and December 2012 the EU member states provided €591.9 billion (4.6 % of EU 2012 GDP) of capital support (recapitalisation and asset relief measures) to the financial sector (banks).

It was not only that. The same source revealed that the guarantees measures and other forms of liquidity support to the banking sector reached its peak in 2009, with an outstanding amount of € 906bn (7.78% of EU 2012 GDP). As the crisis became gradually less intense in many EU countries, the outstanding amount of guarantee and other forms of liquidity support has dropped by almost half to €534.5bn (4.14% of EU 2012 GDP) in 2012.

A gift to banks valued at 12.38% of GDP

In short, the combined support to the banking sector in the form of capital injections, guarantees, asset relief and liquidity facilities all of them financed with taxpayers’ money reached in 2009 the astronomical sum of 7.78+4.6% of GDP that is 12.38% of EU’s Gross Domestic Product. However, other sources amongst which the EU Commission estimate the total cost of public aid to banks during the period 2008 – 2012 at €4.5 trillion.

Now let’s find out how much those same governments spent on the labour market to support the unemployed and the people encountering problems in relation to their job. According to a survey by Eurostat (the EU statistical service) published on 19 December, “In 2011, EU Member States spent a total of €205bn on Labour Market Policy (LMP) interventions to support the unemployed, people in work but at risk of involuntary job loss, and others needing help to make the transition into work. In relative terms, that figure represents just under 2 % of the combined GDP of Member States (excluding Greece)”.

Only 3.7% of GDP for the labourers

The survey continues like this, “A first illustration of this is the extent to which expenditure on LMP as a proportion of GDP varies between countries. The highest relative level of expenditure in 2011 was reported in Belgium and Denmark (both 3.7 % of GDP), followed by Ireland and Spain (both 3.6% of GDP) – the only other EU Member States to spend more than 3 % of their GDP on such interventions. At the other end of the scale, ten Member States spent less than 1 % of GDP on LMP: Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and the United Kingdom”.

Now, one can compare what certain EU member states have spent on banks and what on people having problems with their job. Take for example Spain and Ireland. Both those countries went bankrupt because their governments decided to bailout some private financial firms with taxpayers’ money (the Anglo Irish Bank with €32bn and the Spanish Bankia with €22bn amongst others). Of course the Irish and the Spanish private lenders had not bet their customers’ money but money they borrowed from German and French banks. In reality, the Madrid and Dublin governments decided to repay in full the risky placements of some German and French bankers in the Irish and the Spanish real estate sector bubble.

No negotiation took place between Ireland and Spain on the one side and Germany and France on the other, in order to reach a deal for a fair partitioning of the cost and, hence, partial repayment of the German and the French banks’ risky placements (loans) in the Irish and the Spanish markets. The combined political pressure of Berlin and Paris on Madrid and Dublin led to a lion’s agreement, where the Spanish and the Irish taxpayers were forced to pay in full the bets of the imprudent and careless German and the French bankers.

Nothing left for the unemployed

After that, there was nothing left in the Irish and Spanish government coffers to be spent on the labour market, to slightly relieve the catastrophic situation there. Between 2008 and 2011 unemployment tripled in Ireland and doubled in Spain, with their governments being unable and helpless vis-à-vis the unbearable state of a large and increasing part of the population. All that in order for the careless and imprudent German and French bankers to be repaid at face value (100 cents for every euro) for their risky, and on many occasions unethical, placements in the Irish and the Spanish real estate bubbles. Huge construction projects, during the crazy period of 2003-2007, didn’t pay any attention to environmental issues and there were reports for historical site destructions.

It’s more than obvious that the Spanish and the Irish unemployed who remain without adequate state support pay the price for the unduly and unethical enrichment of the German and the French bankers. Only the Icelanders did it the right way and left their banks to go bust in 2008. The Reykjavik government refused to pay anything to the European bankers who had invested in the crazy development in the Icelandic real estate. Iceland’s banks and their European lenders were the only financial agents who paid the right price for their carelessness and unlawful behaviour. Alas Spain and Ireland couldn’t find the courage to do the same to their country’s bankers and their German and French lenders. The EU Commission played a crucial role in this affair acting as an agent for the two powerful member states.