The ECB: Not just another vulture fund

19 August 2015 by Olivier Bonfond , Renaud Vivien

On August 20, the European Central Bank (ECB) is expecting Greece to repay another € 3.2 billion. Drawing on the conclusions articulated in the report of the Truth Commission on the Greek Public Debt [1], the government could refuse to pay this creditor, which has acted unlawfully and behaved much like a vulture fund.

Under the Securities Market Program (SMP) which lasted between May 2010 and September 2012, the ECB ECB
European Central Bank
The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.
purchased Greek bonds for less than their face value on the secondary debt market, i.e. the “second-hand” market where debt securities are sold and bought based on supply and demand. Much like the vulture funds Vulture funds
Vulture fund
Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors.
, the ECB paid € 40 billion to buy Greek bonds from several private banks and is now demanding that Greece fully repay their face value, that is, € 55 billion plus the interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set.  [2].

Another inherent feature of the vulture funds’ strategy is that they systematically refuse to partake in debt restructuring schemes. This is also true of the ECB, which ruled out any participation in the 2012 Greek debt restructuring. It even exerted pressure to prevent a debt reduction in 2010 although the debt was already unsustainable. As stated by Panagiotis Roumeliotis, a former representative of Greece to the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
, during a hearing before the Greek Parliament, the Frenchman Jean-Claude Trichet, then President of the ECB, “was among the ones who led the case against a debt restructuring by threatening to starve Greece of cash. In reality, Mr. Trichet was bluffing in an attempt to save the French and German banks” [3]. The goal was to give them the time to be repaid thanks to the loan extended by the Troika Troika Troika: IMF, European Commission and European Central Bank, which together impose austerity measures through the conditions tied to loans to countries in difficulty.

and to get rid of their Greek bonds on the secondary market Secondary market The market where institutional investors resell and purchase financial assets. Thus the secondary market is the market where already existing financial assets are traded. through the SMP. It is worth recalling that in 2010 the bulk of Greece’s debt was in the hands of only 7 banks (3 French and 4 German banks); that was before the intervention of the Troika, now renamed “the Institutions” – namely the IMF, the ECB, the European Commission and the European Stability Mechanism ESM
European Stability Mechanism
The European Stability Mechanism is a European entity for managing the financial crisis in the Eurozone. In 2012, it replaced the European Financial Stability Facility and the European Financial Stabilisation Mechanism, which had been implemented in response to the public-debt crisis in the Eurozone. It concerns only EU member States that are part of the Eurozone. If there is a threat to the stability of the Eurozone, this European financial institution is supposed to grant financial ‘assistance’ (loans) to a country or countries in difficulty. There are strict conditions to this assistance.

The report of the audit commission established that over 80 per cent of the € 240 billion in loans granted by the Troika in 2010 and 2012 went directly back to repay around twenty private banks. A significant share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of the money never even reached Greek soil and simply passed through an ad hoc account opened at the ECB. By allowing these banks to remain immune from the bursting of the private-credit bubble they themselves had created, this bailout of private creditors by public institutions generated an illegitimate debt for the population.

A third similarity with the vulture funds: the ECB took advantage of the weak position of the debtor State to “negotiate” agreements that were clearly unbalanced. The so-called Institutions imposed upon Greece Memoranda which violate the rights of the Greek people and exacerbate the debt burden. Even worse, they did it knowingly. In an internal confidential document, the IMF wrote in March 2010 that the Memorandum it was about to sign would have dire social consequences and lead to a further increase in the Greek debt [4].

Moreover, the agreements signed since 2010 include abusive clauses revealing that Greece was forced to relinquish significant parts of its sovereignty. British law, which is very protective of creditors (and is given priority by the vulture funds), is now applicable in case of dispute. Under these agreements, the State also commits itself to fully forgo its immunity. In other words, Greece renounced any means of defense against its creditors, who – just like the vulture funds – can seize any assets belonging to the State as a form of repayment. To protect themselves, the creditors went so far as to include a clause guaranteeing that Greece will have to honor its obligations even if the agreements are proven to be illegal!

Illegality is indeed an issue. The austerity measures embedded in the Memoranda directly violate several provisions of Greek, European and international law. These violations engage the responsibility of the Institutions, including the ECB, whose acts violate the rules of the European Union and its own statutes. For instance, the SMP is conditioned on the implementation of austerity measures, which is clearly a breach of its statutes and the principle of “independence” of the ECB, enshrined in article 130 of the Treaty on the Functioning of the European Union (TFEU). In engaging in such political blackmail, the bank blatantly oversteps its mandate, unlike the vulture funds, which are solely driven by profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. . Recently the ECB also abused its power by stifling the Greek banks in order to force the Syriza government to yield Yield The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. . Yet, as a central bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

, it is supposed to be the lender of last resort and take steps to avoid any instability or bank run. Thus in that capacity it should have provided the Greek financial institutions with the necessary funds. All these actions and pressures by the ECB are irregularities that nullify Greece’s commitments towards the institution.

This article was translated by Anishu Jakim & Snake Arbusto


[1The report is available here:

[2Atkins R. (2012), “ECB Moves to Help Fund Greece Bail-Out”, The Financial Times

[3Paumard Emilie, “Audition de Panagiotis Roumeliotis (15 juin 2015)”, 17 June 2015, (in French)

[4Criminal case file transmitted to the Hellenic Parliament by the prosecutor in charge of economic crimes concerning the statements made by the former representative of Greece to the IMF:

Olivier Bonfond

Is an economist and adviser to the CEPAG (André Genot Centre for Popular Education, Belgium). He is a militant for Global Justice, a member of the CADTM, of the Citizens’ Debt Audit Platform in Belgium (ACiDe) and of the Truth Commission on Public Debt founded on 4 April 2015.
He has published the following books in French: Et si on arrêtait de payer ? 10 questions / réponses sur la dette publique belge et les alternatives à l’austérité (Aden, 2012) and Il faut tuer TINA. 200 propositions pour rompre avec le fatalisme et changer le monde (Le Cerisier, fev 2017).
He also coordinates the Belgian website Bonnes nouvelles (also in French).

Renaud Vivien

member of CADTM Belgium, member of the Truth Commission on Public Debt.




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