*Greece defaults but default arranged in such a way that tax payers will pay more
*All of the 109-billion euro new Greek bailout will go for financing Greek debt until 2014
*ESF to be able to buy debt on secondary market and issue bonds; transfer union cemented
*Key issues of Greek insolvency and lack of competitiveness not addressed
*Outright EU fiscal union and eurobonds avoided due to pressure from German parliament and electorate
*Eurozone continues on unsustainable trajectory of debt, low growth; next crisis preprogrammed
Thursday’s eurozone summit was hyped as a make or break moment for single currency bloc. But if the aim was to provide ease for eurozone tax payers, who are seeing an ever greater proportion of their taxes being transferred to an elite under the pretext of having to pay interest payments on fractional-reserve bank debt, it largely failed.
Clearly worried that the German parliament and electorates will rebell, the elite have pulled back from the brink of a creating an outright fiscal union and seem to be resorting, instead, to an ever more elaborate and subtle system of smoke and mirrors to pursue the same objetive — looting tax payers – albeit a little less aggressively, thereby allowing the eurozone to limp along a little longer as it is sucked deeper into a debt death spiral.
German economist Hans-Werner Sinn swept aside the hype and today strongly criticised the new Greek bailout package “as bad news for tax payers”, according to The Telegraph.
“Germany and France should not make policies that lead to the collectivisation of debts in Europe.
The financial markets are reacting very positively to yesterday’s agreements. As this is a conflict of apportionment between Europe’s tax payers and investors, this is bad news for tax payer,” Sinn said in an interview with Reuters TV.
“The socialisation of losses goes on as merrily as before: the extra money which is being given to the Greeks virtually as a present will never been seen again,“ Sinn told Die Welt.
Reiner Holznagel, vice president of Germany’s League of Taxpayers, also criticised the new eurozone bailout deal.
“There has to be improvement in this respect so that taxpayers aren’t constantly faced with new liability risks,. The EU decision that the bailout fund in the future can buy debt of states in crisis by itself seals the transformation into a liability union,” he said.
True, a precedent was set: a eurozone country was allowed to default on their debt. But Greece’s default was arranged in such a way that it will actually cost tax payers more money.
Greece is to get a new bail out of €109 billion – and all of this will end up in the pockets of the banks.
According to Austrian media, 88 billion will be used for refinancing Greek souvereign debt until 2014. Greece is set to spend 30 billion euros plus every year until 2015 on debt refinancing; in 2015 , a staggering 75 billion euros will be required by Greece to pay the interest.
Where is the much vaunted involvement of the private sector when interest payments of virtually the same size are to continue to be made under the new second Greek bailout as were planned under the first Greek bailout?
True, the Brussels summit on Thursday saw plans for the introduction of eurobonds dropped. But the transfer union was introduced by another door.
The 440 billion eurozone bailout fund, the ESF, is to be transformed into a new European-style Monetary Fund, able to intervene on the secondary market to buy the debt of insolvent governments and able to issue its on bonds, which all eurozone countries are liable for.
Indeed, 20 billion of the new Greek bailout fund of 109 billion euros will be used to buy Greek souvereign bonds from banks.
Banks will get 50% of the nominal value for bonds. Because the banks borrowed money from the ECB to buy the bonds, they are making a huge profit. This measure appears to aim at recapitalising insolvent banks.
There is no sign that eurozone leaders are ready to address the fundamental problems created by so many insolvent banks – and by a financial system based fractional reserve banking and money creation as debt. There seem to be just more creative ways of funnelling money to the banks to hoodwink angry citizens.
In spite of the hype, the eurozone summit also failed to address the key issue of the insolvency of Greece.
True, interest rates for Greece, Ireland and Portugal are to be reduced from about 6% to 3.5% and maturities on Greece’s debt are to be extended from the current 7.5 years to somewhere between 15 years and 30 years, a welcome move.
But what use is such a reduction if the countries still cannot return to the markets to finance their own debt and so will depend on transfers indefinitely? What was needed was a substantial haircut of Greek debt by two thirds or so to 60% of GDP not an overall reduction of only about a quarter.
Ireland is to to pay 800 million less in interest rates a year under the new deal but budget cuts of 3.6 billion are being planned in December , and the people of Ireland will continue to see their wealth transferred to foreign creditors while domestic demand is crushed.
A strong export sector may see Ireland able eventually to servicve its debt at lower interest rates – but why should all the current account surpluses Ireland generates go to pay foreign creditors even if Ireland manages this unlikely feat?
There is virtually zero prospect of Greece ever being able to service ist staggering mountain of debt no matter how low the interest rate is.
Handicapped by corrupt government elite working hand in hand with a complicit EU elite, it is not clear whether how much or any of the EU funds to be mobilised for a “a comprehensive strategy for growth and investment“ for Greece will end up diverted into offshore bank accounts.
No measures to address the fundamental problems of the eurozone countries sinking under a mountain of fractional reserve banking debt have been introduced. There are no plans to allow countries like Greece to regain competitiveness and generate more income by introducing the Drachma.
The new package does little to stop the transfer of wealth from eurozone taxpayers to an elite under the pretext of having to pay interest on fractional reserve debts. It just creates new mechanisms for doing so at a somewhat slower pace.
Terrified of angry citizens, the EU elite have not dared to embark on full scale fiscal union and eurobonds. They have not dared to continue with their flagrant looting of tax payers as before with penal interest rates, crushing economies. They have been forced to make some concessions to tax payers, such as introducing the possibility of a default for an indebted country.
But a closer look at the new Greek bailout shows that behind all the smoke and mirrors, tax payers will see only a little less of their money being transferred to banks as interest payments on debt.
We need real defaults, real haircuts for bondholders and real mechanisms for dealing with insolvent and uncompetitive countries – DM or Drachma? — that lead to a unambiguous and verifiable reduction in the amount of tax money going to banks in the eurozone.
In the long term, the entire financial system based on debt has to be overhauled.
The results of the summit — a default by Greece and lower interest rates — offer a glimmer of hope that continuing pressure by citizens will bring about meaningful action to reduce the debt burden on the eurozone.