The Real Reason Eurozone Countries Are Drowning in Debt
Why should banks be able to borrow at 1.25% from the E.C.B.'s unlimited fountain of euros, while the tap is closed for governments? The conventional argument is that for governments to borrow money created by their own central banks would be "inflationary." But private banks create the money they lend just as government-owned central banks do. Private banks issue money in the form of "bank credit" on their books, and they often do this before they have the liquidity to back the loans. Then they borrow from wherever they can get funds most cheaply. When banks borrow from the E.C.B. as lender of last resort, the E.C.B. "prints money" just as it would if it were lending to governments directly.
The burgeoning debts of the Eurozone countries are being blamed on their large welfare states, but these social systems were set up before the 1970s, when European governments had very little national debt. Their national debts shot up, not because they spent on social services, but because they switched bankers. Before the 1970s, European governments borrowed from their own central banks. The money was effectively interest-free, since they owned the banks and got the profits back as dividends. After the European Monetary Union was established, member countries had to borrow from private banks at interest--often substantial interest.
And the result? Interest totals for Eurozone countries are not readily accessible; but for France, at least, the total sum paid in interest since the 1970s appears to be as great as the French federal debt itself. That means that if the French government had been borrowing from its central bank all along, it could have been debt-free today.
The figures are nearly as bad for Canada, and they may actually be worse for the United States. The Federal Reserve's website lists the sums paid in interest on the U.S. federal debt for the last 24 years. During that period, taxpayers paid a total of $8.2 trillion in interest. That's more than half the total $15 trillion debt, in just 24 years. The U.S. federal debt has not been paid off since 1835, so taxpayers could well have paid more than $15 trillion by now in interest. That means our entire federal debt could have been avoided if we had been borrowing from our own government-owned central bank all along, effectively interest-free. And that is probably true for other countries as well.
To avoid an overwhelming national debt and the forced austerity measures destined to follow, the Eurozone's citizens need to get the fire hose of money creation out of the hands of private banks and back into the hands of the people. But how?
Governments Cannot Borrow from the E.C.B., but Government-owned Banks Can
Interestingly, Paragraph 2 of Article 123 of the Lisbon Treaty carves out an exception to the rule that governments cannot borrow from the E.C.B. It says that government-owned banks can borrow on the same terms as privately-owned banks. Many Eurozone countries have publicly-owned banks; and as nationalization of insolvent banks looms, they could soon find themselves with many more.
One solution might be for the publicly-owned banks of Eurozone governments to exercise their right to borrow from the E.C.B. at 1.25%, then use that liquidity to buy up the country's debt, or as much of it as does not sell at auction. (The Federal Reserve does this routinely in open market operations in the U.S.) The government's securities would be stabilized, keeping speculators at bay; and the government would get the interest spread, since it would own the banks and would get the profits back as dividends.
Taking a Stand in the Class War
In a November 25th article titled "Goldman Sachs Has Taken Over," Paul Craig Roberts writes:
"The European Union, just like everything else, is merely another scheme to concentrate wealth in a few hands at the expense of European citizens, who are destined, like Americans, to be the serfs of the 21st century."
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