‘Safe Eurobonds’: a new trick to betray the south euro area countries

Aerial Photography. European Central Bank main building in Frankfurt am Main, Germany. (ECB Audiovisual Services, some rights reserved).

All along the years after the 2008-2010 financial crisis, which in the European Union took the form banking/government debt breakdowns starting with Greece, there were cries for the creation of a solid Eurozone. In every respect, these calls amounted to demands that super prosperous Germany accepts some degree of risk-sharing with the rest of the other 18 member states of the euro area. All that time Berlin stubbornly resisted the slightest financial mutualisation or risk sharing within the euro area countries.

The story is repeated again now with a new mutualisation for the Southerners. It’s about the issuance of a new financial instrument called ‘safe eurobond’ which in the face of it, mutualizes the debt of euro area countries. In reality though, it’s just a decoy, because it still penalizes the south and favors the north, exactly as the capital markets are doing today. Let’s take this story from the beginning.

The Greeks like the Irish

In the cases of the Greek, Irish, and Portuguese failures of 2009- 2010 the Teutonic intransigency forced the taxpayers of those poor close to default countries, to bear the full cost of saving the Eurozone banking system. And this, despite the fact that the German banks and, ultimately, the German taxpayer, should have accepted participating in the writing off of a part of those bad debts. At all times in economic history and more recently in the arrangements of the Latin American debt in the 1980s and the South East Asia defaults of the 1990s, creditors and debtors agreed to share the cost of the bailouts.

But no, this wasn’t the case for the poor South European countries. Affluent Germany has condemned those nations to repay in full, hundred per cent, the bad debts for which her mammoth lenders were also responsible. As a result, the Greek and the Irish taxpayers have to repay almost one GDP over the coming many decades to finance in full the bailouts. The arrangement provided that the Irish and Greek banking and government debts to German and French mega lenders were swiftly and fully transformed into government to government debt.

Saving the mega banks

In the transaction, the German and the French creditor banks, were paid off in full for their bad debts, despite the fact those debts were valued by the capital market at one third of their nominal value. The German and the French exchequers, the European Central Bank and other central banks of the euro zone, who have bought some Greek government bonds in the secondary market at a decimal of their nominal value, are being paid off by the Greek taxpayer at full nominal values.

As a result, they have realized capital gains of €10 billion so far. In 2012 and then again in 2015 Berlin and the other sovereign creditors had promised Athens to return those capital gains to the Greek exchequer, but the Germans aren’t honoring their pledge. Only France has returned to Greece those usurp gains though not in full. It’s really a sad story, but let’s return to the larger picture, where the perennial question remains, if and when is Germany to decide to return a part of her huge gains, which this country has realized after the formation of the Eurozone and the introduction of the single currency.

Safe for whom?

In the latest episode of this unbelievable series of financial racketeering, there comes a proposal for the issue of a new Eurozone financial instrument, the ‘safe Eurobond’. In the face of it all eurozone governments and major banks will be able to borrow through such paper, but once again there won’t be any risk sharing. Eurozone’s southerners will be charged much higher interest rates than the borrowers of the north. But the question is how much more? This was an idea ‘produced’ by the European Systemic Risk Board. This is a body functioning under the roof of the European Central Bank. Last week, it published a 303 pages report, proposing the introduction of this new borrowing tool.

After reading it carefully though, it becomes evident that the southern and the northern borrowers will be charged practically with the same interest rate differentials as today. Obviously, under this scheme there will be no risk sharing whatsoever amongst the 19 member states of Eurozone. As a result, the German exports will continue being favored by the creation of the single money union without paying any refunds. The country will still have no obligation to recycle its gains nor is to share risks with those who help create those profits.

Vanishing Banking Union

It’s the same old story as the creation of the European Banking Union. This was a hugely advertised project in the early 2010s, supposed to support the weak south Eurozone countries. At that time, the Southerners, the Irish and some other euro area nations had to be convinced to bear the full cost of the financial crisis, without any risk-sharing with the North. Politically then, the EU needed a sweetener to make this bitter pill palatable. As it’s clear by now though the European Banking Union is a dead thing. Italy is currently obliged to bear the full cost of saving its failing banks, without any help from the EBU ‘instruments’.

After the EBU project was completed in March 2014 this newspaper published a leader entitled, “Can the banking union help Eurozone counter its imminent threats?”. It concluded as follows: The European Banking Union will be a rather weak tool to help Eurozone confront the eventual future woes, that may arise…As things stand now, only the European Central Bank can act as a truly European agent and help Eurozone effectively counter its negative eventualities”. Alas, the past four years have proved accurate every word of this passage.

the sting Milestone

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

Bill Gates’ top 10 breakthrough technologies of 2019

Low quality healthcare is increasing the burden of illness and health costs globally

How to fight back against misinformation and polarization

How solar is powering the Middle East towards renewables

Europe is progressing most towards these UN Sustainability Goals: A report card for Europe

The French army is enlisting sci-fi writers to predict the future

Khashoggi case highlights ‘very worrying practice’ of overseas abductions, says UN expert

Threats from mammoth banks and Brussels fuel May’s poll rates

Civilian deaths in Afghanistan hit record high – UN

Primary Healthcare vs Specialization Careers, how to promote PHC to the Young Health Workforce?

Economic recovery won’t tackle youth unemployment problem

‘Intense zones of transmission’ in Central and South America; the ‘urgent challenge’ of antimicrobial resistance – WHO briefing

EU and Amazon cut deal to end antitrust investigation over e-books deals

A Sting Exclusive: Paris Climate Change Summit, a defining moment for humanity, by Ulf Björnholm Head of UNEP Brussels

The EU adopted €297 million in concrete actions for refugees and local communities in Jordan and Lebanon

Internet Forum: Prioritize technologies most needed for sustainable development

A machine din

Coronavirus: Commission starts testing interoperability gateway service for national contact tracing and warning apps

Support ‘winds of change’ in DR Congo to consolidate positive developments, urges UN mission chief

Macron plans for Europe, Brexit and banks but vague on France

Future EU-UK Partnership: European Commission publishes draft legal text

This is why retail is such a sore point in India-US trade relations

Wolves are back in Switzerland – but not everyone is happy about it

Campaign kicks off with High-level Event on #FairInternships

Why this moment could be decisive for tackling climate change: Report

COP24 addresses climate change displacement ahead of crunch migration meeting

International World Summit Award calls for outstanding digital applications with impact on society from 178 UN member states

Von der Leyen on EU long-term budget: our opportunity to make Europe fit for the future

EU-US ties to break over Iran; Democrats’ electoral win may not change it

Green Deal: Commission adopts new Chemicals Strategy towards a toxic-free environment

“The Sea is vast as it admits all rivers”, Ambassador Yang Yanyi of the Chinese Mission to EU gives her farewell address in Brussels

Switzerland: prepare for population ageing to maintain high living standards

Do you dare to go to China?

Counterfeiters are taking advantage of the pandemic. Here’s how to stop them

5 surprising ways major cities are going green

144 years on, Universal Postal Union meets to define its 21st Century role

UN welcomes ‘record’ Brussels conference pledge of nearly $7 billion to support Syrians

3 strategies for Africa to thrive in this new era of globalization

Jakarta is one of the world’s fastest disappearing cities

Warmongers ready to chew what is left of social protection spending

How one change to shipping goods could change the way we live

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

Remarks by High Representative/ Vice-President Federica Mogherini at the press conference following the EU-China Strategic Dialogue

State aid: Commission approves €2 billion Italian guarantee scheme to support trade credit insurance market in the context of the coronavirus outbreak

Refugees now make up 1% of the world’s population

Humanitarian visas would reduce refugees’ death toll

Scientists have created the world’s ‘first psychopath AI’

European Commission secures EU access to Remdesivir for treatment of COVID-19

Family businesses are the lifeblood of the Middle East. How do we ensure they survive?

Scientists in Iceland are turning carbon dioxide into rock

Ηealth’s foundation is falling apart: what can we do about it?

Meet the Seed Warrior: the man on a mission to rescue India’s rice diversity

COVID-19: A time screaming for positivity

EU Budget 2019: no deal before the end of the conciliation period

Main results of G20 summit in Buenos Aires, Argentina

Council strongly criticised over failing to act to protect EU values in Hungary

Central Africa Republic: Violence drives thousands of refugees into neighbouring DR Congo, says UN agency

‘Exercise restraint’ Guterres urges Sri Lankans, as political crisis deepens

New Eurobarometer survey shows: The majority of Europeans think the EU should propose additional measures to address air quality problems

Guterres appeals for ‘maximum restraint’ over Jammu and Kashmir, as tensions rise

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