Series: Governments submit to “Too Big to Fail” banks (part 3)

Private banks shamefully enjoy a monopoly of lending to the public sector

4 September 2014 by Eric Toussaint


The eurozone banks have the monopoly of lending to the public sector. It is prohibited for 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.

https://www.ecb.europa.eu/ecb/html/index.en.html
and the eurozone’s central banks to grant loans to public authorities (see box on the ECB). The governments in the eurozone have the possibility of borrowing from publicly owned banks where they still exist, but they do not do so.

The private banks get most of their funding, since 2008, from public sources (the ECB and the Central Banks in the eurozone) at very favourable interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
. Since June 2014 they borrow from the ECB at 0.15% and at 0.05 % as from the 4th September 2014 (while the inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. rate in 2013 was 0.8% in the Eurozone, which means that the real 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. rate is, in fact, negative). Then they lend to peripheral European countries like Cyprus Greece, Ireland, Italy, Spain, Portugal and the East European members of the eurozone) at high, or even exorbitant interest rates (between 4% and 10%). They lend to Belgium, France and the Netherlands at 2% and to Germany at 1.6% (figures March 2014).

The European 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.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx



Created in 1998 on the model of the German Bundesbank and installed in Frankfurt-am-Main in Germany, the European Central Bank (ECB) is the European institution responsible for applying monetary policy in the eurozone [1] . The Treaty on European Union, commonly known as the Maastricht treaty (1992) created the ECB and defined its missions (art. 105):

  • to define and implement the monetary policy of the Community;
  • to conduct foreign exchange operations;
  • to hold and manage the official foreign reserves of the Member States;
  • to promote the smooth operation on payment systems.



Its principal mission along with that of the national central banks of the eurozone is to maintain price stability [2] around an annual inflation level of 2%.

The eurozone’s national central banks’ monetary competences have been transferred to the ECB. Proclaimed independent, the ECB is governed by bankers in pure banking logic. If European populations demanded other democratic monetary choices, the ECB can quite simply ignore them and continue with its dogmatisms favourable to big business and the wealthiest individuals. This so called independence is no more than a front leading us to believe that the ECB’s choices may not be questioned. In fact, it is the big banks and financial institutions, along with the European leaders that impose neoliberal politics on their peoples that have the ear of the ECB. Although labour market policies are not the competence of the ECB, it intervenes regularly to criticise labour rights, and promote the interests of big business.

It must be mentioned that the ECB does not directly buy from the states the public bonds that they emit. The founders of the ECB chose to give the private sector the exclusive right to finance public borrowing. Since 2010 the ECB buys public 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. from the bankers who bought them on the primary market and have difficulties to unload those it no longer wants. This is another way the ECB finances the banks. If the ECB would buy public bonds on the primary market it could directly finance the states. The ECB only bolsters in this way the bonds having been issued by the countries that submit themselves to its brutal austerity policies.

The Lisbon treaty and the ECB statutes prohibit the ECB, as indeed the national central banks, from lending directly to the states. They lend to the private banking sector who in their turn lend to the states at higher interest rates. Article 101 of the Maastricht treaty, reproduced as article 123 of the Lisbon treaty states: “Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.” This is one of the reasons why this treaty must be abrogated in favour of a truly democratic European Union.

Translation : CADTM



Éric Toussaint, is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège. He is the President of CADTM Belgium (www.cadtm.org), and sits on the Scientific Council of ATTAC France. He is the co-author, with Damien Millet of Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He is the author of many essays including one on Jacques de Groote entitled Procès d’un homme exemplaire (The Trial of an Exemplary Man), Al Dante, Marseille, 2013, and wrote with Damien Millet, AAA. Audit Annulation Autre politique (Audit, Abolition, Alternative Politics), Le Seuil, Paris, 2012.

Footnotes

[1Eleven countries founded the eurozone in 1999 (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain), they were joined by Greece in 2001, Slovenia en 2007, Cyprus and Malta en 2008, Slovakia en 2009, Estonia in 2011 and Latvia in 2014. See: http://www.civitas.org.uk/eufacts/eurozonemap.html

[2Treaty of Lisbon, article 282.

cadtm.org
Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.

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