Thursday, June 21, 2012

How the ECB are profiting from Greek misery

No wonder the unelected head of the ECB is smiling, his team have figured
 out a way to turn a profit on the hoard of Greek bonds his predecessor
bought in an insane attempt to shore up the failing Greek economy.
One of the most infuriating things about mainstream commentaries on the Greek economic crisis is the absurd assumption that the vast bailout loans being sent over to Greece are actually designed to help the Greek economy. One barely mentioned tranche of loans to Greece was a €4.2 billion payment from the European Financial Stability Fund (EFSF) in June 2012 provides a perfect example of how the bailouts are actually being used to benefit the European financial establishment at the direct expense of the Greek economy.

In May 2010 the European Central Bank initiated a barmy policy of buying up tens of billions of euros worth of Greek government bonds in an absurd attempt to prop up their market value. The ECB were given a significant discount on the market rate (estimated at 20%), meaning that after spending €40 billion they were sitting on a paper profit of around €10 billion.

In February 2012  Greece's private creditors were forced to take large losses on their investments, effectively slashing the value of Greek government bonds. In order to avoid turning their €10 billion "paper profit" into a large loss, the ECB insulated their own Greek bond holdings by insisting that the "old devalueable" bonds be swapped for "new" bonds as part of the deal. This bond swap ensured that the ECB would not suffer the same kind of large scale losses as Greece's private creditors.

The Greek bond swap allowed the ECB to avoid losses on their Greek bond holdings, but it still left them in the tricky position of holding tens of billions worth of Greek bonds at a time when extremely high profile European political leaders (such as Angela Merkel and David Cameron) were openly scare mongering about Greece being thrown out of the Euro if they dared to vote for anti-austerity parties. The ECB solution to this problem has been to force the Greek state to borrow billions more from the EFSF in order for them to begin buying back the ECB hoard of Greek bonds. The first tranche of bond buy-backs took place in June 2012 shortly before the re-run of the first undecided Greek legislative election.

Instead of providing money to the Greek government so that they could do something to combat the shocking shortages of medical supplies or to create some kind of demand in the austerity stricken economy, the European Union have actually used this €4.2 billion EFSF loan in order to reduce the ECB's exposure to Greek debt, meaning that all of this €4.2bn loan flowed straight back out of Greece, leaving only another vast debt for the Greek people to pay off behind it.

As if using the "bailout fund" in order to serve the ECB's financial interests isn't bad enough, 
it has been reported that Greece were made to buy back their own bonds at face value, despite having sold them to the ECB at a 20% discount, meaning that of the €4.2 billion in increased debt for Greece, the Greek economy will see no benefit at all whilst the ECB make a tidy profit of €840 million. Not only did the ECB use their powerful position to avoid the "haircut" other Greek creditors experienced, they used it to actually turn a tidy profit for themselves from the economic chaos in Greece.

From this arrangement alone it is quite clear that the European Union and the ECB are far more interested in protecting their own financial interests than they are in preventing the annihilation of the Greek economy or alleviating the suffering of countless Greek people. This situation is reminiscent of the IMF's handling of the Argentine economic crisis, which prompted the late Argentine president Néstor Kirchner to say that "The IMF has transformed itself from being a lender for development to a creditor demanding privileges". This shady, virtually unreported bond buy-back deal demonstrates that the troika of the IMF, the ECB and the European Union are not the economic saviours they dress themselves up as, they are a ruthless bunch of sociopaths that are using devastating socio-economic chaos in order to enforce their favoured brand of ideologically driven neoliberal pseudo-economics under the guise of "austerity" whatever the cost to ordinary Greek civilians and to put their own financial interests first to such an extent that they are even prepared to turn a profit from the socio-economic chaos they have done so much to create.

See also

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