Greece – It’s all about bailing out French and German Banks

Twenty thousand Greek citizens gathered outside the Greek parliament on Wednesday to protest against their government’s attempt to force through another round of even more severe austerity measures dictated by the EU and the IMF. Inside the Parliament, two government deputies defected from the government saying they would not vote for the measures.

It is not enough.

The forces ranged against the Greek people are simply too large and too entrenched, with far too much at stake to be so easily defeated. If the Greeks want to stop the rape of their country they have to have a clearer idea of the stakes they are playing for, what those ranged against them are playing for and then they will have to take to the streets in their hundreds of thousands.

What Prime Minister Papandreous was trying to force through on Wednesday, was to cut another 28 Billion Euros from public spending, to make redundant one fifth of all remaining government employees and raise 70 billion euros by selling off/privatizing State assets. Bear in mind that when this plan was announced employees in state enterprises simply walked off the job. And in terms of broader social unrest it is worth noting that within the official figure of 16% unemployment, which will certainly be a gross underestimate, unemployment among 16 – 25 year olds is 43%!

However, stark and clear Greek popular anger is, you have to see impossibility of the corner the EU and ECB have painted themselves in to.

When the Greek debt crisis first surfaced it could have been dealt with as a crisis in Greece. Granted Ireland was already insolvent, but neither Portugal nor Spain had yet been dragged as close to their own crisis as both now are. But that was then and nothing was done. We had two doors to chose from, an exit from debt over which was the inscription “It will hurt” and another with the inscription “Ignorance is bliss”.  Our leaders were advised by the banks to herd us through the second door. And here we are. In more debt than before, with rapidly shrinking economies, making paying off not only our own, public debts, but those of the private banks as well, less and less feasible with every passing month.

The problem today is worse than it was a year ago. So much worse that our financial overlords will not countenance any default.

The paymasters of the EU and the ECB, France and Germany, house the banks with the most to lose if Greece defaults. Most recent estimates are that French banks are exposed to €53 Billion of Greek debt while German banks have €34 billion.

Consequently the ratings agency Moodys has said it is putting the big French banks, Credit Agricole, PNB Paribas and Societe General all on notice of possible credit downgrades of their own. Where French Banks are headed the German’s will follow. And sure enough Moodys added it would ‘consider similar actions for other banks’ which I take to mean the German banks.  The reason the German banks have not been fingered yet is because Germany has deeper pockets and the big German banks have been doing very nicely speculating on commodities. But they are still next on the list. €53 billion euro exposure is too much to ignore.

And that is just if Greece defaults or restructures. The compounding problem is that there is a real fear in the financial world that any default or restructuring of Greek debt will be the trigger Ireland and Portugal are waiting for to do the same with immediate effect. The so called domino effect. Rumours in Ireland are that the government has already told the EU it is going to default sooner or later but doesn’t want to be seen as the villain. Ireland is waiting for an excuse to claim it was pushed.

So what can be done to stop the unthinkable of a cascade of defaults? How can it be headed off and contained in Greece? That is how our leaders see the crisis. Not, ‘How can we help the Greek or the Irish people?’

Well already this evening the rumours from the Greek parliament are that a revised, ‘softened’ austerity programme will be presented along with a reshuffled government in the hope that parliament will vote it through. The problem with that is that there is little scope for real ‘softening’ in the demands made by the EU and the IMF as conditions for releasing the next installment of the previous IMF bail-out loan which Greece needs just to keep the lights on.

Thus the ‘softening’ will be paltry. The whole present crisis is because Greece has not actually made the cuts and savings it had previously promised and is now being forced to make large cuts in a hurry.

I expect a weasel-word formulation that appears to make concessions but doesn’t, which may sap what little moral fortitude Greek parliamentarians have and get the vote through. If so it averts immediate crisis but it will do nothing to deal with public outrage.

But even if this happens it addresses less than half the problem. Greece will still need another bail out and another after that as well. In the next two years Greece will need to find about €96 billion to pay off existing bonds and the interest on them. It cannot get this money by borrowing it, because the market has locked them out. This 96 billion euros is more than Greece has any prospect of getting from presently envisaged bail outs and selling off state assets. So already the mathematics of the ‘good’ scenario say there will have to be another bail out after this one.

However, before we even consider yet more, future bail outs, Europe hasn’t even agreed on this one.  Germany has made noises about expecting the private bond holders to share some of the pain. Plans have been mooted for extending Greek debt, to give Greece more time to pay by replacing present bonds with new ones on different terms and with different repayment schedules. But as soon as these ideas were put up, the ratings agencies said very clearly that ANY such resheduling or replacing of present bonds with new ones – any restructuring at all – they would considered a default. Which gives almost no room for compromise.

Basically the private bond holders are making it clear they are not going to voluntarily accept any loss. The position they have held from the beginning. That leaves France and Germany whose banks are the ones at risk, having no option but to pay up so the ECB can bail out Greece again. Greece would then have the money to  keep the lights on, might force more cuts on its citizens and therefore get the next tranche of blood money from the IMF, which is’ let’s remember the money Greece needs to pay in order to keep France and Germany’s banks afloat.

You might think it would be so  much simpler if Germany and France let the Greeks default on what they clearly cannot pay and which is clearly going to result in the shattering of Greek civil society, and then bail out their own banks directly, instead of making the Greeks do it for them.  But I do not believe the French or German governments are prepared to do this.

I think what it boils down to is that the French and German governments calculate it is politically less explosive for them, to have the Greeks as a scape goat. As it stands it looks like it is the Greeks who are to blame and who are insolvent.

Telling the French and the German tax payers they are going to have to bail out the ‘feckless and lazy Greeks’ deflects a great deal of the anger away from the politicians in Paris and Berlin and keeps any blame at all away from French and German Banks. And that is the point of the whole painful, unfair and undemocratic Greek bail-out charade.

The way the French and German bankers and State want the story told is that Greece is insolvent and her put upon neighbors are standing firm shouldering great costs to help them in their hour of need – even though they are lazy and don’t deserve it.

They way the French and German banks do not want the story told is that they, the banks, made private debt deals with Greek developers, Greek cities and municipalities, Greek Banks and the Greek state – PRIVATE deals – lent money, bought bonds – because being risky they offered a ‘good return’ and then got burned when Greece could not pay. Then, instead of taking the losses just as in the good times they happily took the profits, they cried, ‘the sky will fall’, and insisted that someone make sure all their bad private debts were settled in full buy someone, anyone they didn’t care who. Bad French and German bank loans are being paid off by Greek tax payers, destroying Greek civil society, whether they were ever involved with the loans or not.