“My father made him an offer he couldn’t refuse. Luca Brasi held a gun to his head and my father assured him that either his brains, or his signature, would be on the contract.” — The Godfather (1972)
In the modern global banking system, all banks need a credit line with the central bank in order to be part of the payments system. Choking off that credit line was a form of blackmail the Greek government couldn’t refuse.
Former Greek finance minister Yanis Varoufakis is now being charged with treason for exploring the possibility of an alternative payment system in the event of a Greek exit from the euro. The irony of it all was underscored by Raúl Ilargi Meijer, who opined in a July 27th blog:
The fact that these things were taken into consideration doesn’t mean Syriza was planning a coup . . . . If you want a coup, look instead at the Troika having wrestled control over Greek domestic finances. That’s a coup if you ever saw one.
Let’s have an independent commission look into how on earth it is possible that a cabal of unelected movers and shakers gets full control over the entire financial structure of a democratically elected eurozone member government. By all means, let’s see the legal arguments for this.
So how was that coup pulled off? The answer seems to be through extortion. The European Central Bank threatened to turn off the liquidity that all banks – even solvent ones – need to maintain their day-to-day accounting balances. That threat was made good in the run-up to the Greek referendum, when the ECB did turn off the liquidity tap and Greek banks had to close their doors. Businesses were left without supplies and pensioners without food. How was that apparently criminal act justified? Here is the rather tortured reasoning of ECB President Mario Draghi at a press conference on July 16:
There is an article in the [Maastricht] Treaty that says that basically the ECB has the responsibility to promote the smooth functioning of the payment system. But this has to do with . . . the distribution of notes, coins. So not with the provision of liquidity, which actually is regulated by a different provision, in Article 18.1 in the ECB Statute: “In order to achieve the objectives of the ESCB [European System of Central Banks], the ECB and the national central banks may conduct credit operations with credit institutions and other market participants, with lending based on adequate collateral.” This is the Treaty provision. But our operations were not monetary policy operations, but ELA [Emergency Liquidity Assistance] operations, and so they are regulated by a separate agreement, which makes explicit reference to the necessity to have sufficient collateral. So, all in all, liquidity provision has never been unconditional and unlimited. [Emphasis added.]
In a July 23rd post on Naked Capitalism, Nathan Tankus calls this “a truly shocking statement.” Why? Because all banks rely on their central banks to settle payments with other banks. “If the smooth functioning of the payments system is defined as the ability of depository institutions to clear payments,” says Tankus, “the central bank must ensure that settlement balances are available at some price.”
How the Payments System Works
The role of the central bank in the payments system is explained by the Bank for International Settlements like this:
One of the principal functions of central banks is to be the guardian of public confidence in money, and this confidence depends crucially on the ability of economic agents to transmit money and financial instruments smoothly and securely through payment and settlement systems. . . . [C]entral banks provide a safe settlement asset and in most cases they operate systems which allow for the transfer of that settlement asset.
Internationally before 1971, this “settlement asset” was gold. Later, it became electronic “settlement balances” or “reserves” maintained at the central bank. Today, when money travels by check from Bank A to Bank B, the central bank settles the transfer simply by adjusting the banks’ respective reserve balances, subtracting from one and adding to the other.
Checks continue to fly back and forth all day. If a bank’s reserve account comes up short at the end of the day, the central bank treats it as an automatic overdraft in the bank’s reserve account, effectively lending the bank the money in the form of electronic “liquidity” until the overdraft can be cleared. The bank can cure the deficit by attracting new deposits or by borrowing from another bank with excess reserves; and if the whole system is short of reserves, the central bank creates more to maintain the liquidity of the system.
The most dramatic exercise of this liquidity function was seen after the banking crisis of 2008, when credit was frozen and banks had largely stopped lending to each other. The US Federal Reserve then stepped in and advanced over $16 trillion to financial institutions through the TAF (Term Asset Facility), the TALF (Term Asset-backed Securities Loan Facility), and similar facilities, at near-zero interest. Toxic unmarketable assets were converted into “good collateral” so the banks could remain solvent and keep their doors open.
Liquidity as a Tool of Coercion
That is how the Fed sees its role, but the ECB evidently has other ideas about this liquidity tool. Whether a country’s banks are allowed to “access monetary policy operations” is seen by the ECB not as mandatory but as discretionary with the central bank. And as a condition of that access, if a country’s bonds are “below investment grade,” the country must be under an IMF program — meaning it must subject itself to forced austerity measures. According to ECB Vice President Constâncio at the same press conference:
[W]hen a country has a rating which is below the investment grade which is the minimum, then to access monetary policy operations, it has to have a waiver. And the waiver is granted if there are two conditions. The first condition is that the country must be under a programme with the EU and IMF; and second, we have to assess that there is credible compliance with such a programme. [Emphasis added]
Liquidity is provided only on “adequate collateral” — usually government bonds. But whether the bonds are “adequate” is not determined by their market price. Rather, political concessions are demanded. The government must sell off public assets, slash public services, lay off public workers, and subject its fiscal policies to oversight by unelected bureaucrats who can dictate every line item in the national budget.
Europe now has a system where liquidity and insolvency problems can occur and can be deliberately generated (at least in part) by the central bank. Then the Troika can force that country into an “IMF program” if it wants to continue having a functioning banking system. Alternatively, the central bank can choose to simply “suspend convertibility” to the unit of account [i.e. cut off the supply of Euros] and force the write down of deposits [haircuts and bail-ins] until the banks are solvent again.
Pushed to the Cliff by the Financial Mafia
Were liquidity and insolvency problems intentionally generated in Greece’s case, as Tankus suggests? Let’s review.
First there was the derivatives scheme sold to Greece by Goldman Sachs in 2001, which nearly doubled the nation’s debt by 2005.
Then there was the bank-induced credit crisis of 2008, when the ECB coerced Greece to bail out its insolvent private banks, throwing the country itself into bankruptcy.
This was followed in late 2009 by the intentional overstatement of Greece’s debt by a Eurostat agent who was later tried criminally for it, triggering the first bailout and accompanying austerity measures.
The Greek prime minister was later replaced with an unelected technocrat, former governor of the Bank of Greece and later vice president of the ECB, who refused a debt restructuring and instead oversaw a second massive bailout and further austerity measures. An estimated 90% of the bailout money went right back into the coffers of the banks.
In December 2014, Goldman Sachs warned the Greek Parliament that central bank liquidity could be cut off if the Syriza Party were elected. When it was elected in January, the ECB made good on the threat, cutting bank liquidity to a trickle.
When Prime Minister Tsipras called a public referendum in July at which the voters rejected the brutal austerity being imposed on them, the ECB shuttered the banks.
The Greek government was thus broken Mafia-style at the knees, until it was forced to abandon its national sovereignty and watch its public treasures sold off piece by piece. Suspicious minds might infer that this was a calculated plot designed from the beginning to throw Greece’s prized assets onto the auction block, a hostile takeover and asset stripping for the benefit of those well-heeled entities in a position to purchase them, including the very banks, hedge funds and speculators instrumental in driving up Greek debt and destroying the economy.
No Sovereignty Without Control Over Currency and Credit
In the taped conference call for which Yanis Varoufakis is currently facing treason charges, he exposed the trap that eurozone countries are now in. It seems there is virtually no legal way to break free of the euro and the domination of the troika. The government has no access to the critical data files of its own banks, which are controlled by the ECB.
Varoufakis said this should alarm every EU government. As Canadian Prime Minister William Lyon Mackenzie King warned in 1935:
Once a nation parts with the control of its currency and credit, it matters not who makes the nation’s laws. Usury, once in control, will wreck any nation.
For a nation to regain control of its currency and credit, it needs a central bank with a mandate to serve the interests of the nation. Banking should be a public utility, serving the economy and the people.
Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 200+ blog articles are at EllenBrown.com.
Greece is Not the Major Problem – Europe is
Yanis Varoufakis says about Europe:
“A clueless political personnel, in denial of the systemic nature of the crisis, is pursuing policies akin to carpet-bombing the economy of proud European nations in order to save them.” (‘Yanis Varoufakis Sums Up Europe In One Sentence’, February 6, 2015 – zerohedge)
The Greek crisis is very much the work of the so-called ‘free market’ where anything goes. Big banks, led by Goldman Sachs and other vicious speculators pounced on unhappy Greece already in crisis situation due to slack governments, tax evasion and a high level of corruption. The unscrupulous vultures had now secretly stored away booties at the expense of the Greek people.
After all this and five years of austerity suffered by the largely innocent Greek people the EU is now firmly requesting that jobless and hungry Greeks tighten their belts even more. How can you be more jobless than jobless and how can you be hungrier than hungry, unless you are dead. Greece is now a dying nation.
One point is important to mention in the context of the Greek disaster. I doubt if the IMF should even be included any more in this now so popular term ‘Troika’. Very recently, before and after the July 5 referendum, Christine Lagarde, the managing director of the IMF has been saying more and more openly that Greece must get significant debt relief. What is this – the IMF with a human face? It has actually come to an open war between Lagarde and the German chancellor Angela Merkel, the new iron lady. Welcome to the Thatcher club, dear Angela. It may have taken us a long time to recognize your true colors, but it does seem that here is the new fascist who wants to rule Europe single-handedly.
“Lagarde Insists on Greek Debt Easing as Germany Allows Talks” (Bloomberg)
There is one voice in this tragedy that is worth listening to at this time, His name is Yanis Varoufakis and he is the former Greek minister of finance for the Syriza government.
Yanis Varoufakis , the brilliant Greek-Australian economist, left his post as visiting professor at the University of Texas in Austin to become the new finance minister of the Syriza government in Greece.
“In November 2010, he and Stuart Holland, a former British Labour Party MP and economics professor at the University of Coimbra (Portugal), published Modest Proposal, a set of economic policies aimed at overcoming the euro crisis
“In 2013, Version 4.0 of A Modest Proposal appeared with the American economist James K. Galbraith as a third co-author.” (Wikipedia)
Varoufakis knows who to blame for the fiasco that made all the hopes collapse that we had tied to the Syriza government. After the sunny Sunday’s Greek referendum on July 5, just hours after the Greek people’s resounding NO victory and their jubilant dancing in the streets, their joy fell apart.
The Troika (the European Commission, the European Central Bank, and the International Monetary Fund) sweated walrus grease from their brows and they ’knew’ immediately (cheered by the German chancellor) that Yanis Varoufakis had to go. He had already gone. He resigned under pressure from his government (pressured by the EU). It was clear then that Tsipras and Syriza had already capitulated. The seemingly so brave and well-intentioned Alexis Tsipras fell apart. Juncker, Merkel and Co. could breathe again. Syriza had been as powerful a threat to Big Business as it has been a source of hope for democracy to the people.
Varoufakis asks us all: Why are the members of Eurogroup (whoever they are… Big question.) all saying that no other viable basis exists for a solution to the Greek crisis? Austerity, more austerity is all the EU can come up with. The billions in the past two bailouts went to the lenders, the banks, and the Greek government got a nickel to throw to its hungry people. (The Guardian)
“It did not have to be this way”, says Yanis Varoufakis, “On June 19, I communicated to the German government and to the troika an alternative proposal, as part of a document entitled ‘Ending the Greek Crisis’”
Here is Varoufakis’ own proposal:
“Greece’s Proposals to End the Crisis: My intervention at today’s Eurogroup
“”Five months ago, in my very first Eurogroup intervention, I put it to you that the new Greek government faced a dual task:
We had to earn a precious currency without depleting an important capital good.”
“And I shall wear the creditors’ loathing with pride,” the sharp-tongued Varoufakis wrote, (Ode to a Grecian finance minister as Varoufakis steps down – Marketwatch)
“In a discussion with Nobel laureate Joseph Stiglitz on invitation of U.S. economic think tank ‘Institute for New Economic Thinking’, Varoufakis stated on 9 April 2015 that “the Greek state does not have the capacity to develop public assets.” Therefore, he announced that his government was “restarting the privatization process.” However, unlike the former governments they would insist on establishing public–private partnerships with the state retaining a minority stake to generate state revenues.” (Wikipedia)
‘Europe’, the Troika, does not like him. Why? Simple. Because he does not like them. He sees them for what they are – a power-hungry limited group of people who are all set on doing away with any form of sovereignty and independence of European individual nations in order to make the EU a hegemonic bloc alongside the U.S., working with the U.S. and the Corporatocracy and totally disregarding democracy. There are no more sovereign countries in Europe of today. For any form of decision-making, there is only ‘Europe’, the EU, that is Angela Merkel and Jean-Claude Juncker, the Yes-sayers and the like-minded and power-hungry stooges.
Hear the Troika screaming and the media picking it up and repeating: “Blame the Greeks” (some of them were indeed to blame and slack governments were also guilty) – but above all don’t blame the banks and speculators who were responsible for the shenanigans that took place before 2010. Hide it all under the rug and let’s just go on pretending we believe in what we are screaming so loud – so say the leading members of the EU, with Angela Merkel and Jean-Claude Juncker screaming the loudest.
The Financial Times reports: “Something is rotten with the eurozone’s hideous restrictions on sovereignty.”
The European Commission (the EC, the EU, or call it the Troika if you like) is completely set on removing all sovereign power from the individual European countries. I am not saying that the national governments have clean hands, but at least we voted for them and we have to take part of the blame if there is something rotten in our nation.
We, the real left in France and all over Europe, have known from the beginning that Europe was as undemocratic as the U.S. wanted it to be. It was a U.S. dream to make Europe a united vassal. Their dream came true. With a bang. Only the unelected officers of the European Commission have any say whatsoever. The only elected body in the EU is the Parliament, which has no power at all, a symbolic right to utter a word here and there is all. The Parliament is the carnation in the buttonhole.
Merkel and all the dictator-presidents of the European Commission didn’t think we would ever discover the hidden truth about this Europe of the very very few. Be they Barroso or Juncker, they melt into one as far as taking all power away from the individual countries and from the people.
If by any chance it has still until today eluded you that EU equals fascism, Yanis Varoufakis is here to open your eyes.
 “The Greek government proposes to bundle public assets (excluding those pertinent to the country’s security, public amenities, and cultural heritage) into a central holding company to be separated from the government administration and to be managed as a private entity, under the aegis of the Greek Parliament, with the goal of maximizing the value of its underlying assets and creating a homegrown investment stream. The Greek state will be the sole shareholder, but will not guarantee its liabilities or debt.
“The holding company would play an active role readying the assets for sale. It would “issue a fully collateralized bond on the international capital markets” to raise €30-40 billion ($32-43 billion), which, “taking into account the present value of assets,” would “be invested in modernizing and restructuring the assets under its management.”” (Europe’s Vindictive Privatization Plan For Greece)
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