B00BLPJNWE EBOK (21 page)

Despite the legal clarity, the charters of both financial organizations are being ignored for no other reason than to prevent bankers from having to pay for their own mistakes.

Lacking their own central banks that can extend credit to the government by monetizing the government’s debt, the PIIGS do not have “quantitative easing”--the purchase of the government’s debt by its own central bank--as an option open to them.

Bankers bought more Greek debt than Greece can pay interest on, roll over, or retire. Normally what would happen in such a case is that the debt is restructured and reduced to an amount that the debtor is able to pay. This involves the holders of the bonds taking a haircut by having to write down losses on their investments. However, the bankers now have sufficient power to transfer the cost of their own mistakes to the general public.

In Greece’s case, the banker-preferred solution is that the ECB and IMF violate the rules under which they are supposed to operate and lend enough money to Greece in order that Greece can repay the bankers with more borrowed money. Indeed, it is even worse than that.

Obviously, if Greece cannot make its bonds good, Greece cannot repay the loans from the ECB and IMF. For the scheme to go forward, the Greek government has to be coerced into permitting private interests, that is, the bankers or the bankers’ customers, to plunder Greece by acquiring the state lottery, the country’s ports, postal service, the water companies of municipalities, and a collection of Greek islands. The banks, or business interests funded with bank loans, expect to purchase the public sector of Greece on favorable terms.

In addition, the Greek government has been told to free up tax revenues with which to repay the ECB and IMF loans by laying off public employees, cutting their pensions, raising taxes, and slashing the remaining public services. The money and income flows leave Greece and go to foreign bankers, driving the Greek economy deeper into recession and inability to pay.

Needless to say, the Greek population opposed the austerity that is mandated in order to receive what the New York Times called in the summer of 2011 the prize of “winning a bailout.” The winner, of course, is not Greece, but the German, Dutch, and French bankers. This is why Greeks, who have been protesting in the streets, were further enraged to discover that their socialist government represents foreign banks and not Greek citizens.

The Greek government aligned with the foreign bankers. On June 23, 2011, the Greek finance minister “won” the bailout, or perhaps more precisely a stage of the bailout, with a five-year austerity plan that lowers the minimum threshold for income tax to 8,000 euros a year, increases the tax on heating oil, and imposes a “solidarity levy” on income of between 1 and 5 percent. Obviously, the poor are being made to pay for the rich bankers’ mistakes.

The “won” bailout was disrupted by Prime Minister Papandreou’s endorsement of a referendum. With Papandreou forced out of office by the EU elite, Greece found itself with an appointed prime minister who is a former vice president of the European Central Bank. The European elite expect the new prime minister to sacrifice the Greek people to the bankers.

As I write the outcome of the European debt crisis is unknown. The effort to save the bankers, the EU and the euro with coerced austerity programs and illegal bailouts might succeed or fail. However, at time of writing, the most conclusive result of the crisis to date is that European elites have decided to terminate member country’s sovereignty over budgets, taxing, and spending.

According to Jean-Claude Trichet, the leader of the ECB until November 2011, the next step in “making democracy work” is to remove the sovereignty of the Greek government. In a speech on June 2, 2011, Trichet said that the task was to bring Europe beyond a “strict concept of nationhood” and the traditional practice of protecting debtors. Whether a country could afford to pay its debts was no longer a question of its budgetary condition if the country has public domain that can be privatized.

Greece would have to be made to pay, said Trichet, or other EU member states would demand restructuring and write-downs of their excessive debts. In order to avoid a contagion of write-downs, which would be at the expense of creditor banks, the ECB was justified in disregarding its charter and providing the forbidden loans to Greece “in the context of a strong adjustment program.” However, if the Greek government did not stick to the mandates of the adjustment program and sell off its public domain, a “second stage” of intervention would come into play. European Union authorities would exercise an “authoritative say in the formation of the country’s economic policies.”

EU interdependence, Trichet said, “means that countries
de facto
do not have complete internal authority.” The “second stage” would make this
de jure
. European Union authorities would simply take over Greece’s fiscal affairs and decide its budget. Sovereignty and representative government would be abrogated, and EU member states would come under the suzerainty of unaccountable rulers.

Much the same thing has happened in the US. Wall Street executives control the Treasury and financial regulatory agencies. Public money and the Federal Reserve’s balance sheet were used to bail out the speculative and leveraged gambling bets of the irresponsible financial institutions. Government officials who arranged the bailout formerly headed the bailed out banks. Vast sums of money went to the banks, while millions of citizens lost their homes, jobs, pensions, and medical insurance. In the US direct democracy, in which the people decide by referendums, appears to be the only recourse to rule by the private interest groups that openly purchase the government in Washington.

The Greek “crisis” has not yet played out, despite the submission of the Greek government when its best option is simply to default and to leave the EU. Germans have been suspicious of monetary union from the start, because it removes control over inflation from their hands. As the bailouts of EU member countries by the ECB breach multiple clauses of EU treaty law, the bailouts breach the conditions on which Germany agreed to enter the European Union.

The pressure is on Merkel and Germany “to submit to realities” and to permit the monetization of debt that Germany has feared. The stakes for Germany are even higher. If the EU achieves the power to take over Greece’s budget, as Trichet advocates, the EU obtains the power to put every member country’s taxing and spending under its control. European countries will become like once independent American states, subservient to central power that rules from afar.

Does powerful Germany wish to cease to exist as an independent country? Are Germans content to assume the debt burdens of the PIIGS? If this is the price of Germany’s membership in the European Union, what does Germany gain?

The Greek drama that is playing out is both nonsensical and sinister. The bailout is not a bailout; it is a power play. The new loans are not designed to reduce Greece’s accumulated debt. The package merely creates new loans from the European Union and the International Monetary Fund to take the place of loans to Greece from private banks. The purpose of the bailout is not to rescue Greece, but to pay off the private banks that failed to do due diligence and lent more to a creditor than the creditor can repay. If Greece cannot repay the banks, it cannot repay the EU and IMF.

Greece, a country of 11 million people, had an estimated GDP of about $310 billion in 2010. According to the Hellenic Statistical Authority (
http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A0704/PressReleases/A0704_SEL84_DT_QQ_04_2011_01_P_EN.pdf
), Greek GDP declined by almost 7% in 2011. With Greek GDP contracting more than forecast and the Greek budget deficit rising more than expected, the Greek government has been unable to meet the debt to GNP target ratios that are specified by the bailout plan.

Greek GDP decline is also forecast for 2012, the fourth consecutive year of economic contraction. On June 8, 2012, the Associated Press reported that Greek GDP contracted by 6.5% in the first quarter of 2012, an indication that the decline will be worse than forecast.

When GDP declines relative to the forecast used for the bailout and the budget deficit rises relative to the forecast, the ratio of debt to GDP rises despite the austerity measures. The attempt to reduce Greece’s annual budget deficit and ratio of debt to GDP by imposing austerity measures, such as cutting pensions, wages, social services, and laying off government workers, causes aggregate demand and the economy to fall further, thus raising the ratio of debt to GNP.

Ever since John M. Keynes, economists have known that austerity measures are an unlikely solution to a weakening economy and rising budget deficits. So what is going on?

The “Greek debt crisis” is a “weapons of mass destruction” ruse to advance agendas that otherwise could not be pursued. We have seen what these agendas are: to solidify the principle already established in the US and Ireland that the general public, not shareholders, must bear the costs of bank losses; to give the ECB the power to monetize government debt; to use the crisis to destroy the sovereignty of the member countries of the EU.

The approach being taken to Greece’s sovereign debt is one that the IMF imposes on third world countries with balance of payments problems due to persistent trade deficits. Greece is the first time this approach has been applied to sovereign debt. No explanation has been provided as to why the usual standard procedures for dealing with debt problems are not being used in Greece’s case.

The reason I conclude that the “Greek debt crisis” is a ruse is that there are solutions that would solve the problem without the austerity and the looting which will
not
solve the problem. Normally, Greek debt would be restructured to fit the amount the country can repay. The rest would be written off.

If the amounts of the write-downs are large enough to wipe out the private banks’ capital and leave the banks with insolvent balance sheets, there are easy solutions to this problem. One is to allow the banks to write down the bad debt over time as the profits of the banks allow. Instead of taking the hit all at once, the banks could spread it out over time, thus remaining solvent.

Another is for the European Central Bank to inject new capital into the banks instead of using its resources to lend money to Greece to hand over to the banks, money unlikely to be repaid.

Yet another is for the German, French, and Dutch governments to purchase their banks’ bad debt, taking shares in the banks in return.

The value of any of these solutions is not only are they neater, easy to apply and less costly, but also they actually would solve the problem, because Greece’s debt would be reduced.

Instead of reducing Greece’s debt, the EU’s scheme increases the debt relative to Greece’s GDP as the economy declines under the austerity imposed. This suggests that the EU does not want to solve the Greek debt crisis, but to use the crisis to achieve more authority over member governments. The argument is that a common currency (the euro) requires the member states to have a common tax and budget policy set by Brussels.

Jean-Claude Trichet, the head of the European Central Bank, revealed the real agenda in his June 2, 2011 speech, when he said that the next step in the development of the European Union was to bring Europe beyond a “strict concept of nationhood.”

This is the goal that the “Greek debt crisis” is being used to achieve. As Greece’s economy continues to decline, Greece’s ratio of debt to GDP will worsen. The EU will declare that it has no other recourse except to take over Greece’s affairs. Greece will be the precedent that will then be applied to Italy, Spain, Portugal and, unless the EU is to become a Franco-Germanic Empire, eventually to France and Germany. The political sovereignty of the EU members will be erased. As the EU bureaucracy is essentially unaccountable, it means the end in all but name of representative government in Europe.

The US government is aiding and abetting this transition to tyranny. Washington fears that America’s own troubled financial institutions have sold more credit default swaps against EU members’ sovereign debt than the US banks can pay. A restructuring of Greek debt involving involuntary write downs would trigger the swap payments, whereas voluntary write downs by the banks as part of a deal does not trigger swap payments. However, a write down of Greek debt could cause Spain, Italy, and Portugal to demand equal treatment. Thus the bank losses would grow.

Washington fears that swap payouts would worsen the US banking crisis and require more multi-trillion dollar loans from the Federal Reserve in order to prevent a collapse of banks “too big to fail.” Therefore, Washington is in league with the EU in opposing debt restructuring. Washington has decided that tyranny in Europe is preferable to a deeper US financial crisis.

If the Greek protests evolve into open rebellion, the government could be overthrown. A successor government would have to repudiate the debt, thus halting for the time being the assault on the political sovereignty of the EU member states. The resistance of the Greek people caused EU authorities in the last months of 2011 to propose partial write-downs of Greek debt as part of the bailout deal.

The most likely outcome of the sovereign debt crisis will be an increase in EU authority over member countries. European Council President Herman Van Rompuy said that the sovereign debt crisis caused European authorities to reflect “on a further strengthening of economic convergence within the euro area, on improving fiscal discipline and deepening economic union, including exploring the possibility of limited Treaty changes.” Van Rompuy’s remarks indicate that member countries of the EU will become less independent in their decisions as they are merged into a single political entity.