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

Eurozone austerity, neoliberalism rebranded

 

Squandered trillions and the Greek exit

 

The Austerity Death Cycle

 

Greek votes, German threats 

 

 

The Golden Hammer of Neoliberalism

The Golden Hammer fallacy is a form of very simple answer fallacy. It seen when the proponent offers the same kind of solution to every problem. If all they have is a hammer then everything begins to look like a nail.

Orthodox neoliberals consider the core neoliberal policies (financial sector deregulation, privatisation of state infrastructure, tax cuts for corporations and the rich, welfare cuts, ceding of fiscal autonomy to central banks) to be economically essential no matter what the economic circumstances. Even when the economic problems of the day (the global economic crisis) can clearly be traced back to previous neoliberalisation policies (financial sector deregulation in the UK, USA, Eurozone, Iceland.....) the orthodox neoliberal will offer only the Golden Hammer of further neoliberalisation (austerity) as a solution.

The use of Golden Hammer fallacies can be seen throughout history. Countless organised religions have used the golden hammer fallacy in order to explain away natural disasters such as droughts or earthquakes. The religious order of the day would claim that the natural disaster occurred only because the followers had not been praying hard enough, making enough religious sacrifices or engaging in heretical behaviour. Thus in order to prevent further earthquakes or to end the drought, the people must pray harder, make more religious sacrifices and avoid heretical behaviour. Thus whatever the circumstances, the answer must always be for the followers to devote more effort and resources to the maintenance of the religious order.

Dr Samuel Solomon became rich selling his
Cordial Balm of Gilead as a cure all medicine, even though
it was nothing more than a herbally infused fortified wine.

Another example of the Golden Hammer fallacy can be seen in the activities of 19th Century quack doctors hawking their patented "cure all" elixirs. These quack "medics" used the modern practices of branding and aggressive marketing to sell unproven, ineffective, and often dangerous medicines to the public. The English quack Dr Samuel Solomon claimed that his Cordial Balm of Gilead could cure almost any medical complaint, even though it contained only brandy and a mixture of herbs. He sold it for for 33 Shillings a bottle (nearly £100 in today's money) making him a rich man, whilst doing absolutely nothing to alleviate the suffering of his patients.

An example of the Golden Hammer fallacy being used to promote a particular political ideology can be seen in the attitude of 20th Century totalitarian communist regimes. When such totalitarian regimes suffered economic crises (often caused by the overcentralisation of the economy or the fear of harsh reprisals against those that would speak out against corruption or inefficiency), the response of the communist state would be to blame the actions of "anti-revolutionary elements" or the interference of "imperialist western agitators". Thus the response to the failings of the isolated totalitarian economic systems would be to adopt an even more totalitarian stance by orchestrating witch hunts against political opponents, or to increase the state of economic isolation through the prevention of trade with the "imperialist west".

Returning to the neoliberal ideology, it is quite clear that the causes of the current economic crisis can be traced back to the neoliberal policy of financial sector deregulation. These financial sector deregulations led to the creation of vast speculative bubbles built on easy credit. Once the bubbles burst, the Western economies were dumped into prolonged periods of recession. The neoliberal response to this crisis was to divert attention away from the causal link between neoliberal financial sector deregulation and the economic crash and instead blame the "cost of welfare" for the crisis. Thus, to the orthodox neoliberal the only solution to the ongoing economic crisis is further neoliberalisation of the economy under the guise of economic austerity.

Neoliberalism is not the first political ideology to rely on the
Golden Hammer fallacy, the communist Soviet Union even
incorporated a golden hammer into their flag!

It is quite clear that neoliberalism is a fundamentalist economic ideology, which on the opposite side of the coin of economic extremism to the equally dogmatic communist ideology, in that faults in the system can always be explained away with post hoc excuses and any inherent problems caused by this kind of economic extremism will always be presented as a need for more fundamentalist reforms.

Neoliberalism and totalitarian communism can both be seen as faith based ideologies, forms of political fundamentalism that have filled in the voids left by decline in organised religion, which has come about due to the deliberate suppression of religious expression in communist regimes or through the rise of self-interested individualism in the West. Both of these political ideologies rely on core indisputable principles. Just as adherents of the organised religions of the past had faith in a God capable of and willing to intervene to punish or reward them for their behaviour, the modern neoliberal has an unshakable faith in the ability of unregulated markets to regulate themselves. Even when faced with overwhelming and undeniable evidence that deregulated markets lead to vast anti-competitive monopolies and oligopolies that become too big to fail, needing vast state interventions to prevent widespread economic chaos (the 2007-08 financial sector meltdown), the neoliberals quickly cobble together some lame post hoc excuses about how the market only failed to regulate itself properly because it wasn't free enough.

The neoliberals like to dress up their argument in the language of maths and science in order to create a veneer of expertise and legitimacy, even though the track record of failed neoliberal experiments is a very long one indeed (brutal South American dictatorships, Russian oligarchs, the south-east Asian crisis, increased poverty in post Apartheid South Africa, the Argentine economic meltdown, the global banking crisis, the Spanish property crisis, the Icelandic financial crisis, the Eurozone crisis). 

Neoliberalism is a form of pseudo-science, since it is a practice which is presented as scientific, yet refuses to acknowledge the litany of failed neoliberal experiments, simply relying on post hoc excuses to explain away the latest failure in the application of their theories. Just like the quack doctors of the 19th Century, the proponents of the neoliberal ideology don't seem to care that huge numbers of people have suffered the terrible side effects of their toxic economic elixirs. 

That so many people lap up the pseudo-scientific drivel of the neoliberals comes as no surprise, people seem inclined to believe in simplistic Golden Hammer explanations. Without widespread public gullibility, religious fundamentalism would never have thrived for Milena, the snake oil salesmen of the 19th Century would have been unable to prosper and any politician spouting defunct neoliberal pseudo-economic gibberish would have been booted out of office back in 2008.                
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