Home > Uncategorized > ECB Bond buying as a hard-right bank centered political strategy.

ECB Bond buying as a hard-right bank centered political strategy.

from Norbert Haering.

Thursday the ECB’s Governing Council will decide on whether to start a large bond buying program. I am afraid the decision is clear. Though it will not be based upon economic reasons. A few days later, the Greek will probably vote for a left leaning government under the Syriza-party, which is opposed to the EU-imposed austerity program which has impoverished the country and which wants to renegotiate the terms of the huge government debt. The result will be a standoff, in which Brussels, Frankfort (the ECB) and Berlin threaten to throw Greece out of the euro, causing the people even more suffering, and Athens counting on this being an empty threat, because any country leaving might easily lead to more countries being pushed out by speculative attacks on their bond markets. If the ECB has a free hand to buy as many government bonds as it wants from any government that follows the ECB’s commands and fulfils their conditions, this danger is very significantly reduced. In such a situation, Greece can be forced out if needed (by cutting of ECB financing for Greek banks, which can be done any day at the ECB’s discretion). The experience would be made as harsh as possible to the Greek people to scare of the voters of other crisis countries, who might consider voting for similar parties, like Podemos in Spain. If this sounds like a conspiracy theory for you, just consider what Hans-Werner Sinn, President of the IFO economic research institute, one of the politically better connected economists in Germany, let slip in a guest comment in “Handelsblatt” October 7, 2014 (in German) about the true rulers of Europe. He confides that in autumn 2011 Italian prime minister Silvio Berlusconi wanted to solve Italy’s economic problems by leaving the Euro and devaluating. “To that goal, he had already had some preliminary talks with other governments of the euro area. He had an agreement with the Greek prime minister Papandreou, who had wanted to make his people chose in a referendum between exit and a hard austerity policy”, Sinn informs us and continues: “Both had to step down in November 2011, almost at the same time”. He gives the following reason: “An exit was going against higher-ranking political interests, but also against the interest of the banking system.”
Such wild “conspiracy theories” we are used to hear only from the fringes of politics – not from heads of economic think tanks! If the interests of the banking system are at stake (the interests of the “fifth power”, as the former head of Deutsche Bank, Rolf Breuer, or the former chief economist of the Bundesbank and the European Central Bank, Otmar Issing, named it) then the citizens of European countries have nothing to decide any more. In such cases, they are given a government which does what suits the “higher-ranking interests and the interest of the banking system”. Democracy takes a break. Everybody is invited to figure out for themselves what the “higher-ranking public interests” are and, above all, whose interests these are.
How this was done in Greece, we have read occasionally, for example in an article series in the Financial Times titled “How the Euro was saved“. The articles say that in November 2011 the president of the EU-commission, Barroso, behind the back of prime minister Papandreou, brokered a deal with finance minister Venizelos and then-opposition-leader Samaras to cancellation the referendum on the euro, as well as a unity government under the “technocratic” leadership of Lucas Papademos, whose term on the ECB Directorate had just expired. When Venizelos drafted a press statement on the flight back from the summit in Cannes, declaring the cancellation of the referendum, while Papandreou was sleeping, the political fate of the prime minister was sealed. We also learned from the FT that Italy was the other problem child besides Greece at the Cannes-meeting, that he was pressured very hard, there. The next week, Italian bond yields skyrocketed above seven percent.
The ECB’s active role in the Italian regicide is fairly well documented now. In August 2011, ECB-President Trichet and the President of the Bank of Italy, Draghi, had written a threatening secret letter to Berlusconi, with a laundry list of economic and social measures he was to take if they wanted the ECB to buy Italian bonds and thus help stave off the speculative attack on Italy. The letter found its way into the public in late September, which put Berlusconi under great political pressure at home and the Italian bond market under renewed speculative pressure, which the ECB and the Bank of Italy refused to resist. Only after Berlusconi had stepped down did bond yields go down sharply. My suspicion is that the Bank of Italy sold Italian bonds and bought other euro area bonds then to put pressure on Berlusconi and reversed this after he had stepped down. However, this cannot be proven, since the Bank of Italy does not provide any information about the structure of its huge bond portfolio or about its dealings in bonds. The little information it had provided in its annual reports up to the one on the year 2011 it dropped after I used it for some newspaper reports in Handelsblatt. I had investigated that in 2010, the year that Italian bonds first came under pressure, the Italian central bank had significantly REDUCED the share of Italian bonds in its portfolio. In 2011 it raised this share again, though it is not known whether it did so before or after Berlusconi stepped down.
The ECB has recently bowed to pressure from Spain an published a similar threatening letter that Trichet had sent to the Spanish prime minister Zapatero and Zapatero’s servile response, in which he expresses the hope that the government’s decisions and assurances will be enough to make the ECB buy Spanish bonds. The ECB sunk the exchange, on the last Friday before Christmas in 2014, in the depths of its website, without any public alert, such that media outside of Spain did not take any notice.
The citizens of Ireland have had their experience with the power of finance a year earlier already. When the big Irish banks, which had grotesquely overextended themselves under the watch of the central bank, were threatening to go bust in 2010, ECB-President Trichet wrote blackmailing letters to the government, which the ECB kept strictly secret for years, until it finally published the ensuing exchange under pressure from the Irish parliament in November 2014. In his second letter, Trichet, making reference to an earlier letter, openly threatens to cut off Irish banks from all ECB financing if the government did not immediately ask for a large European financial assistance program, which was to be used to keep the large Irish banks from going bust and thus saving their continental European creditor banks from large losses. Another condition was, unsurprisingly, the passage of a structural reform program (i.e. cutbacks in social security and public employment and public wages) and expenditure cuts. In an emergency meeting other the weekend, the demanded measures were taken and the minister of finance Lenihan told Trichet in a letter that Ireland had surrendered, making it quite clear that this was done under massive pressure, only. This ECB-enforced bank bailout was the source of the vast government debt that Ireland has today. Ireland’s citizens will have to pay for it for generations and suffer from the structural reforms that decimated their incomes. They were never asked for approval. Greece is in big trouble. They are up against the most powerful foe imaginable.

This is an extended and updated version of a text first published in German in October here.
This version is also published on the website of the author at http://norberthaering.de/index.php/en/

  1. Helge Nome
    January 18, 2015 at 9:21 pm

    Amen.
    What’s new under the Sun?

  2. BC
    January 18, 2015 at 10:39 pm

    There is one int’l banking syndicate, the owners of which are the top 0.001-0.01% rentier Power Elite in the US, Canada, Australia, UK, and among the elite Germans, Swiss, Dutch, and Milanese. They own the central banks that facilitate the activities and run political cover in the interest of the syndicate, as well as own the gov’ts that write the rules and legitimize, enable, and protect the existence, profits, and power of the private central banks and the TBTF/TBTE banks.

    As Helge implies, there is nothing “new under the Sun”; or, as the Talking Heads sang, “same as it ever was”.

    Now, what is to be done about it . . . ?

    • blocke
      January 19, 2015 at 8:11 am

      These look like social-power-elite, institutional problems, so you won’t find your way to what is to be done in an economics that ignores them; bring these analytical factors into the subject. I’ve seldom seen so many dumb people congregated in one association as neoclassical economics (unless it is the college of cardinals).

      • BC
        January 21, 2015 at 2:02 am

        Yes, the institutions are all captive to the rentier Power Elite who effectively own the world, including “their money”, i.e., private debt-money they created and which they have a claim in perpetuity, which we only circulate after taxes, debt service, and price changes for our subsistence, if we’re lucky.

    • January 21, 2015 at 5:20 pm

      You’re right on the money here BC. In the current Oxfam report (http://ww.oxfam.org/en/pressroom/pressreleases/2015-01-19/richest-1-will-own-more-all-rest-2016) the real extent of this problem is clearly laid out. As you have also indicated, the issue now before us is “what is to be done about it?” It is here that we need to be focusing.

  3. January 19, 2015 at 4:53 pm

    Thanks for this clear report on the political power of financial elites. We have posted the new UN Inquiry on Re-Designing Financial Systems for Longterm Sustainability , released today. We highly recommend this ! Hazel Henderson

    • BC
      January 21, 2015 at 2:12 am

      Hazel, thank you for a lifetime of good work. The system is working perfectly for its owners; therefore, they will not submit to “reform” or “redesign”. The system must be lost to them or otherwise taken away from them by force or default, as they have extracted for a couple of generations all future labor product, profits, and gov’t receipts for social goods. Their remedy for the result of same is “austerity” and elimination of representative governance and the social welfare-state income supports for the bottom 90-99%.

      The rentier-parasitic zeitgeist imposed upon the rest of humanity by the top 0.001-0.1% is a social pathology, i.e., a psychological disease, and unworthy of universalist-humanist objectives and intentions by, and for, the human ape species.

      Someone has to say it: The rentier-financier top 0.001-0.1% are insane sociopaths who require the necessary and appropriate treatment for their benefit and that of the human ape and non-human species on Spaceship Earth.

  4. January 20, 2015 at 1:13 am

    There is no conspiracy theory about it. A 2010 study by three complex systems analysts from Swiss Federal Institute of Technology in Zurich shows the control that the bank holding companies have over the core of the global economy (http://www.newscientist.com/article/mg21228354.500-revealed–the-capitalist-network-that-runs-the-world.html). We also know that the Federal Reserve System (which backs up the ECB) is still owned by the same few families that unconstitutionally became law in 1913, and whose notes later became world reserve currency (http://www.scribd.com/doc/46627723/Federal-Reserve-Directors-A-Study-of-Corporate-and-Banking-Influence-Staff-Report-Committee-on-Banking-Currency-and-Housing-House-of-Representative).

    • BC
      January 21, 2015 at 1:57 am

      Precisely, Robert. It is not a “conspiracy” but self-preservation and will to power by the rentier Power Elite in a Limits-to-Growth, post-capitalist, post-Oil Age, hyper-competitive, winner-take-all, hyper-financialized, and soon-to-be deindustrialized world for the bottom 90-99%, akin to an Elysium-like world of unprecedented wealth and income inequality for the top 0.01-0.1% and violent gov’t reaction against the bottom 99% merely for existing and rising up against inequality and injustice.

      Once it is recognized by a growing minority that becomes a small plurality that the Fed cannot print in the form of TBTE bank reserves the real, after-tax purchasing power to sustain the “non-negotiable American Way of Life” in terms of debt service to wages and GDP and subsistence purchasing power for the bottom 90% at the prohibitive cost to the bottom 90%, the mass-social recognition that the system is finished will occur much faster than you and I currently imagine; but the Power Elite know this and are well prepared for the contingencies.

      • January 21, 2015 at 3:46 am

        Yes, the hope is that, through education, massive numbers of people will catch on. The .00001% depend on the military and the internationalized and militarized police to stay in power. If those foot soldiers catch on, change will come. http://coloradopublicbanking.blogspot.com/2014/08/restoring-democracy.html

      • January 21, 2015 at 5:26 pm

        Since the “power elite” are sufficiently entrenched to repel all attempts to unseat them, the only remaining option is to try and convince them that human survival itself is at risk, and that their help is needed to try and neutralize that threat, which effects them just as much as it effects all of us.

      • davetaylor1
        January 22, 2015 at 11:28 am

        Good stuff, all this. If the New Scientist article is right about the interconnections of major company’s finances being the problem, surely the answer is to abolish the money market and go back to states using their own money, agreeing rationally what should be imported and exported rather than leaving decisions on that to traders with no responsibility for necessity or balance. Among the .00001%’s footsoldiers, though, one needs to count politicians as well as the military.

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