ECB with an iron hand disciplines the smaller Eurozone member states; latest victim: Greece

European Parliament. Economic and Monetary Affairs Committee meeting (ECON) 23/3/2015. Monetary Dialogue with President of the ECB Mario Draghi (first from right). In the Chair of the ECON Committee, Roberto Gualtieri (second from right). (European Parliament Audiovisual Services, 23/3/2015, Brussels Belgium, © European Union 2015 - Source EP).

European Parliament. Economic and Monetary Affairs Committee meeting (ECON) 23/3/2015. Monetary Dialogue with President of the ECB Mario Draghi (first from right). In the Chair of the ECON Committee, Roberto Gualtieri (second from right). (European Parliament Audiovisual Services, 23/3/2015, Brussels Belgium, © European Union 2015 РSource EP).

Last Monday the President of the European Central Bank, Mario Draghi reacted strongly while answering a MEP’s question in the European legislature. He was asked if the ECB is “blackmailing” and financially “suffocating” Greece. As expected, he denied the accusations. Was he right though? Rather not. Only some hours afterwards the central bank ordered the country’s four systemic lenders not to buy any more government bills, thus straining Athens from its last available financial sourcing. The order was issued by the newly created branch of ECB, the Single Supervisory Mechanism – SSM, the new system of banking supervision for Eurozone.

Unfortunately for Draghi, within hours the deeds confirmed the accusations. Greece hasn’t received any financial aid after July 2014 and since then she services its huge debts using only proper means, scratching the bottom of the barrel and employing even the reserves of the pension funds. Just this month Athens paid back €1.2 billion to IMF and €360 million in interests to Germany.

This is so far as Greece can go though and next month’s obligations cannot be served without financial support from its creditors; that is the EU, the ECB and the IMF. In this respect this is the crucial week. Greek Prime Minister’s visit to Berlin last Monday and Tuesday clarified that the country has to come up with a convincing package of financial measures and structural reforms during this week. A delegation under Alexis Tsipras had exhaustive discussions with Angela Merkel’s staff on this issue in the German Chancellery. The conclusion was that the Eurogroup, that is the 19 ministers for Finance of Eurozone, are the ultimate judges if Greece can convincingly schedule a growth and stability policy mix. Only then Greece will receive any additional credit in order to repay its maturing debts.

As if nothing had changed

While the European political rhetoric is decorated with beautiful words like ‘trust’ and ‘solidarity’, the real job to ‘convince’ the new Greek government that there is no other way than following Eurozone’s austerity rules, is secured by the ECB. Tsipras and his left wing SYRIZA party won the 25 January election on a populist program, repudiating austerity and the unpopular structural reforms like the privatizations of public utilities. However, now that the Athens government chooses to stay in the Eurozone, it is finding it now impossible not to follow the general Eurozone policy lines of fiscal orthodoxy. But how can Tsipras be actually convinced to repudiate his pre-electoral rhetoric? At that point enters the ECB.

The central bank plays the key role in convincing Athens for all that. Understandably Tsipras and his companions would have resisted a lot more before starting complying with the Eurozone orthodoxy, but only if they could command the needed liquidity to keep the country afloat for a few more months. Unquestionably, staying in Eurozone is politically imperative for the government because more that 80% of Greeks want to continue using the euro. Then, with the return to the drachma out of question, the ECB undertook the role of practically ‘convincing’ or rather forcing Athens to comply with the euro area rules. And there was no better way to do that than the financial strain. How is this done?

The ECB controls it all

For one thing the central bank can ordain the way the country’s four systemic lenders act. Traditionally those four banks have been the major source of liquidity for the government, through their purchases of state bonds and bills. This had to be blocked, if Greece was to be effectively ‘blackmailed’ and financially suffocated. So this Tuesday, in order to accomplish the encirclement, the ECB legally blocked the four Greek systemic banks from purchasing more state debt paper, thus cutting off the last source of extra cash available to the Tsipras administration. Somebody in the ECB must have thought that the Greek politicians do not understand any other language than the iron rein on finance. This is exactly what the ECB did, to make Tsipras and his companions more susceptible to Eurozone’s political determinants.

In detail now, according to well informed ECB sources the central bank this week changed a recommendation into a legally binding tenet forbidding the Greek banks from financing the Athens government through purchases of more public debt paper. Reportedly, the reason for was that one of the four systemic banks disregarded the initial simple recommendation of ECB’s Single Supervisory Mechanism, and kept refinancing the government. So this had to be blocked if the financial horizon of Athens was to be restricted to just some weeks.

Ireland and Cyprus paid the price too

It was exactly the same frame as in the case of Ireland and Cyprus. At the end of 2010 the Irish government was ‘convinced’ by the ECB, under the threat of a disorderly bankruptcy, to undertake the huge toxic debt of the country’s major private banks and thus burden the taxpayers with its servicing. The cost of it to the Irish people came to almost one annual GDP. Only in this way the ECB could safeguard the imprudent exposure of French and the German banks to the reckless Irish lenders. As a result the Irish public debt from 20% of GDP in 2008 reached 120% last year. A similar arrangement was followed in Cyprus, but in this case it was primarily the shareholders, the lenders and the depositors of the two major banks who bore the largest part of the cost.

All in all the Eurozone may aspire of becoming a political union in the not so distant future, but with such a strategy and ruthless practice followed by the ECB when it comes to the smaller members states, the project will be derailed.

 

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Knowledge is power: why the future is not just about the tech

Myanmar companies bankroll ‘brutal operations’ of military, independent UN experts claim in new report

Inflammation is the fuel that feeds the cancer flame. So how do we fight back?

Cryptocurrency mining could become the new face of energy storage. Here’s how

Independent UN rights experts call for ‘immediate investigation’ into alleged Bezos phone hack by Saudi Arabia

Acute food insecurity ‘far too high’ UN agency warns, as 113 million go hungry

Sassoli: Positive measures from Commission. Europe united in face of common challenge of COVID-19

Conquering COVID-19 through Collaboration

EU-US trade deal: Europe to Americanize its social model?

This is how good governance can make sure technology works for everyone

Deepening Europe’s Economic and Monetary Union: Commission takes stock of progress

Feel no shame, change the game

High-technology manufacturing saves the EU industry

Is poverty and exclusion the necessary price for EU’s recovery?

State aid: Commission adopts revised Regional Aid Guidelines

Legal Manager – 2050

Killings and violence targeting ethnic group in DR Congo ‘may amount to crimes against humanity’

How to stop data leaks

IWD 2021: The gender dimension must be included in the COVID-19 recovery plans

6 ways least developed countries can participate in the 4IR

Commission to decide definitely on genetically modified Maize 1507 seed

Emergency meeting called as Ebola spreads to Congolese city – UN health agency

We had the hottest June ever this year – this is what happened around the world

More funding needed to tackle child labour in agriculture says UN, marking World Day

Empathic AI could be the next stage in human evolution – if we get it right

Coronavirus update: Countries urged to fight ‘controllable’ pandemic

EU files WTO panel request against illegal export restrictions by Indonesia on raw materials for stainless steel

Zuckerberg preaches that Artificial Intelligence will protect Data Privacy in Facebook whereas Verhofstadt demands the big European state to take charge

This Norwegian cruise line plans to power its ships with rotting fish

Telemedicine in Brazilian favelas: The medicine of social isolation transforming public health

Mergers: Commission opens in-depth investigation into proposed acquisition of Transat by Air Canada

Posting of workers: final vote on equal pay and working conditions

Ambassador Zhang wishes from Brussels great success and prosperity for the China-EU relations in the Year of the Dog

‘Laser-sharp focus’ needed to achieve Global Goals by 2030, UN political forum told

Thomas Cook bankruptcy: Better consumer and employee protection needed

Portugal can use its economic recovery to build up resilience

One-in-five suffers mental health condition in conflict zones, new UN figures reveal

Youth platforms call on German Government to break down legal barriers for young volunteers and pupils

What the COVID-19 pandemic teaches us about cybersecurity – and how to prepare for the inevitable global cyberattack

Emergency coronavirus research: Commission selects 18th project to develop rapid diagnostics

Multilateralism more vital than ever, as World War centenary looms: Security Council

How companies can build resilience against pandemics

Does the sharing economy truly know how to share?

EU: Divided they stand on immigration and Trump hurricanes

What does ‘excess deaths’ mean – and can it give a clearer picture of the number of coronavirus fatalities?

European Youth Forum and youngest MEPs call on President Juncker to keep his promise to Europe’s youth

State aid: Commission approves €431 million public support for cleaner transport in German cities

Thinking throughout HIV: changing a perspective

Everything you need to know about Ireland’s economy (Post Brexit)

This underwater restaurant teaches you about the ocean while you eat

European Business Summit 2014 : The Sting Report, Day II – Business, Politics and EBS 2015

How to promote Primary Healthcare to the Young Healthcare Workforce?

Israel is joining forces with Arab states to save coral from climate change destruction

Call to revitalize ‘language of the ancestors’ for survival of future generations: Indigenous chief

The EU to bear the cost of eventual sanctions against Russia

Mental health In Times of a Pandemic: What can each Individual to lessen the Burden.

How data can empower patients to personalize and improve their cancer treatment

One life for another

UN condemns attack on Ebola treatment centre in DR Congo which left doctor dead, two others injured

This Chinese tech giant’s latest gadget is… a bus

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s