The ECB again takes care of the bankers not the people

ECB Press Conference – 27 Apr 2017. President Mario Draghi arrives at the Conference room. ECB Audiovisual services photo; some rights reserved.

Last week the European Central Bank surprised everybody by letting it be known that interest rates will “remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases”. To be noted, presently, the main refinancing operations interest rate is zero. Of course, the markets expected ECB’s President Mario Draghi to keep the main rates at their present levels for an extended period of time. However, his remark that the phase of zero main interest rate to be extended beyond “the horizon of our net asset purchases”, raised some eyebrows in Germany, the only Eurozone member state that says it has much to lose from low interest rates. Let’s see if the Germans are sincere.

Draghi’s idea behind this is that most Eurozone member states and more so the over indebted ones, will be certainly needing too low interest rates in the foreseeable future. It’s very difficult to imagine how Italy, Greece, Spain, Portugal, Ireland and probably even France and Holland can repay their huge public and private debts, if the ECB stops injecting into the Eurozone economy zero cost refinancing. Nevertheless, the ECB has to stop some time sooner or later its program of money printing through public debt purchases, because there is a lot of cash spinning around. In this case though it’s difficult to imagine how the over indebted Eurozone countries will cope with the higher interest rate cost in refinancing their debts. Forcibly they will cut down social spending.

Refinancing debts

It’s not only the ‘extravagant’ South that needs zero interest rates to keep it going though. The Dutch households and the private sector in general are also over indebted. Already Holland’s banking industry has paid the price for imprudent exposure with the bankruptcy of ABN Amro, the Fortis Bank Nederland and DSB Bank. The most important question though is, can the German and the French mega – banks cope with increasing interest rates? And the answer is no, they cannot because they are dangerously undercapitalized and plagued by non performing loans.

Not to say anything about the heavy fines they are paying on the other shore of the Atlantic Ocean. Deutsche Bank, Commerzbank, BNP Paribas, Crédit Agricole and Société Générale are all dangerously undercapitalized and need zero cost refinancing from ECB, for a period practically impossible to say how long it has to be. Now, what Draghi says is tantamount to rescuing the banks at the cost of the people, since the ECB cannot continue doing both. This is the real meaning of the ECB continuing to refinance the banks at zero interest rates, but stopping the support to governments by ending the purchases of public debt. It’s not the first time that the people are neglected for the well being of banks.

The good old story

Eurozone’s hardest hit from the 2008-2010 financial meltdown countries (Greece, Ireland, Spain and Portugal) practically saved then all the above mentioned French and German banking giants. Those four Eurozone member states were more or less politically blackmailed by Berlin and Paris not to go bankrupt. Instead they were ‘saved’ by the German and the French governments on condition to accept to repay their debts to the Franco-German banks at nominal values.

In this way, the banking giants got back in full the imprudent credits they had accorded to every possible and impossible borrower, and thus were rescued from bankruptcy (see http://www.corpwatch.org/article.php?id=16039). The German and the French governments didn’t allow Greece, Ireland, Spain and Portugal to negotiate with the banking leviathans an agreement, which would have included a write off of the principal. This is the standard practice though, when the borrower becomes insolvent. The US did that with the South American loans of the New York banks in the 1980s. But no, the four poorest Eurozone countries were politically forced to save the most imprudent European banks of the affluent North.

It’s always the banks

Yet, it seems that this was not enough. Today the Franco-German banking giants need more zero interest rate refinancing in order to painstakingly recapitalize themselves. So, last week, Draghi bowed to the banks and stated that the zero cost refinancing of the banks will continue “well past the horizon of our net asset purchases”. In short, the President of ECB says here that the banks will continue to be favored by the central bank, even after it stops purchasing public debt.

The idea is that the ECB, by purchasing public debt, helps the governments refinance their obligations at lower interest rate cost and thus are able to apply social support measures in favor of the population. Now, Draghi confirms that the ECB will continue supporting the banks well after having stopped assisting the Peoples of Eurozone. Germany, and to a lesser degree France, must have been the main force behind this. The reason is that Germany doesn’t need ECB’s support in order to refinance its public debt.

German hypocrisy

At the same time though, the German banks still need and will continue needing in the foreseeable future, zero cost refinancing from ECB, in order to recapitalize themselves. In the case of France, the country needs both, ECB’s intervention for government debt refinancing and zero cost refinancing for the banks. That’s why it must have been mainly Germany behind Draghi’s reassurance that the Eurozone banks will continue to be backed well after the central bank has stopped supporting the governments and the Peoples of Eurozone.

In conclusion, Berlin and Paris are still complotting against the South of Europe and Ireland. Italy, Greece, Spain, Portugal and a number of smaller Eurozone countries will be soon obliged  to take more unpopular measures, in order to pay for the additional cost for their public debt refinancing. Not the banks. Bankers will continue being favored by ECB’s zero refinancing interest rate. The first ‘application’ of this scheme was last Monday’s agreement for more tax increases and pension cuts Athens was forced to accept, in order for Greece to continue being refinanced from the European Stability Mechanism. Again it’s the banks above the people.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

Rare Disease Day: a new EU platform to support better diagnosis and treatment

UN chief welcomes ‘first concrete step’ in normalizing Eritrea-Ethiopia relationship

Brexit: UK to suffer from EU’s uncompromising stance

Drug laws must be amended to ‘combat racial discrimination’, UN experts say

Your chocolate can help save the planet. Here’s how

Baby foods high in sugar, inappropriately marketed in Europe, reveal two UN studies

11 lessons the history of business can teach us about its future

The Banking Union divides deeply the European Union

Brexit update: Will Theresa May’s last-minute desperate efforts procrastinate Brexit?

GradList Launched At TheNextWeb 2014

Medical students: The need for emigration

More answers from Facebook ahead of Parliament hearing today

JADE President opens JADE Spring Meeting 2014

Want more climate action? Let’s show how good a planet-friendly life can be

The key takeaways of G7 Summit in Canada

New rules for short-stay visas: EP and Council reach a deal

Now doctors can manipulate genetics to modify babies, is it ethical?

More billions needed to help Eurozone recover; ECB sidesteps German objections about QE

Eurozone: Black economy loves the South

Brands can be a force for good and for growth. Here’s how

Six children among 53 confirmed fatalities after Libya detention centre airstrikes: Security Council condemns attack

3 reasons why business leaders can’t afford to ignore diversity

A Sting Exclusive: “Europe needs decisive progress for stronger cybersecurity”, EU Commissioner Gabriel highlights from Brussels

WEF Davos 2016 LIVE: Cameron corroborates that Britain should remain in the EU

European Parliament the most trusted EU institution

Close to 7,000 evacuated from Syrian towns after enduring nearly 3-year siege

Young people worldwide can ‘determine the future of migration,’ says UN senior official

OECD joins with Japan to fight financial crime by establishing new academy

Russia can no longer be considered a ‘strategic partner’, say MEPs

COP24: Paris agreement remained alive but fragile while the EU attempts to slow down CO2 emissions for new cars

Entrepreneurial leadership: what does it take to become a leader?

The challenges of mental health: an inconvenient reality

Illegal fishing: EU lifts Taiwan’s yellow card following reforms

MEPs propose more transparent legislative drafting and use of allowances

IMF: Sorry Greece it was a mistake of 11% of your GDP

The Sting’s Values

How bad is the Eurozone economy? The ECB thinks too bad

Why women aren’t allowed to work

Good grub: why we might be eating insects soon

Venezuela: Parliament recognises Guaidó, urges EU to follow suit

How civil society can adapt to the Fourth Industrial Revolution

The financial war touches Frankfurt and Berlin

What have the banks done to the markets making them unable to bear cheap oil?

Climate change hits the poor hardest. Mozambique’s cyclones prove it

SPB TV @ MWC14: The TV of the Future

Pollution could be harming every part of your body. Here’s how

ISIS fighters fleeing Mosul for Syria can topple Assad. Why did the US now decide to uproot them from Iraq?

Mediterranean migrant drownings should spur greater action by European countries, urge UN agencies

Three ways China can make the New Silk Road sustainable

MWC 2016 LIVE: Mobile World Congress shows off planes, trams and automobiles

Who really cares for the environment?

Budget MEPs approve €34m in EU aid to Greece, Poland, Lithuania and Bulgaria

World cannot be transformed without ‘ingenuity of the countries of the South’: UN Chief

Knowledge management and entrepreneurship: short term vs. long term perspective

Germany resists Macron’s plan for closer and more cohesive Eurozone; Paris and Berlin at odds

3 charts that show how global carbon emissions hit a record high in 2018

How India’s globalized cities will change its future

The world’s most expensive places to own a home

Appalling overall unemployment in Eurozone at 20.6%

Donor countries need to reform development finance to meet 2030 pledge

More Stings?

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