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OpEdNews Op Eds    H1'ed 7/29/11

EU Bailouts: Serf's Up

Message Paul Craig Roberts
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This article is from the Summer 2011 issue of the Trends Journal, a publication of Gerald Celente's Trends Research Institute. It is republished below with Mr. Celente's permission.

We don't know what rhetoric elites used in the 13th century, when peasants were uprooted from the land that had provided their sustenance for centuries, to disguise expropriation by "fire and sword." Eight centuries later with expropriation again underway, the rhetoric is Orwellian. Today the peasants in Greece, Ireland, and Spain are being expropriated by having their wages and pensions cut, their taxes raised, their jobs abolished, their social services slashed, and their social infrastructure privatized in the name of "making democracy work," "rescuing Greek finances," "winning a bailout," "saving the Euro," "internal devaluation," "free market reform," and "avoiding contagion."

Economist Michael Hudson calls it "financialized neofeudalism." Peoples are being enserfed and economies destroyed so that bankers don't have to suffer losses on their casino gambling bets.

Not only is the process immoral, it is also illegal. The European Central Bank (ECB) and the International Monetary Fund (IMF) are illegally supplying the funds to bail out the German, French, and Dutch banks that hold the Greek government's bonds. The treaties that created the European Union (EU) prohibit the ECB from bailing out EU member governments. The IMF Articles of Agreement prevent the IMF from lending to governments for the purpose of fiscal or budgetary support. IMF loans are restricted to balance of payments loans when a country lacks the foreign exchange reserves to cover a deficit in its balance of payments. Greece's problem is not its balance of payments.

Despite the legal clarity, the charters of both financial organizations are being ignored for no other reason than to absolve bankers from having to pay for their own mistakes.

Except for the UK, which still retains its own currency, EU members no longer have central banks that can extend credit to the government by monetizing the government's debt. EU countries have to rely on private banks to finance their deficits. Quantitative easing -- the purchase of the government's debt by a central bank -- is not an option open to them, and the ECB is not allowed to finance member countries' deficits. Despite the prohibition, the ECB is nevertheless lending money to governments in order to finance the bailouts of EU countries' creditor banks.

Bankers bought more Greek debt than Greece can pay interest on or retire. Normally what happens in such a case is that the debt is restructured and reduced to an amount that the debtor is able to pay. This involves the holders of the bonds "taking a haircut" and having to write down losses on their investments. However, the bankers now have too much power for it to work this way. In Greece's case, the banker-imposed solution is that the ECB and IMF violate the laws under which they are supposed to operate and lend enough money to Greece for Greece to repay the bankers with more borrowed money. Indeed, it is even worse than that.

Obviously, if Greece cannot make its bonds good, Greece cannot repay the loans from the ECB and IMF. For the scheme to go forward, the Greek government has to be coerced into selling to private interests -- that is, to the bankers -- the state lottery, the country's ports, its postal service, the water companies of municipalities, and a string of Greek islands. The banks, or business interests funded with bank loans, expect to pick up these privatized public assets for pennies on the dollar.


In addition, the Greek government has to free-up tax revenues with which to repay the loans by laying off public employees, cutting their pensions, raising taxes, and slashing the remaining public services. All the money and income flows leave Greece and go to foreign bankers, driving the Greek economy deeper into recession and inability to pay.

Needless to say, the Greek population opposes the austerity that is mandated in order to receive what the New York Times calls the prize of "winning a bailout." The winner, of course, is not Greece, but the German, Dutch, and French bankers. This is why Greeks have been protesting in the streets for weeks, only to find that their socialist government does not represent them.

The Greek government has aligned with the foreign bankers. On June 23, the Greek finance minister "won" the bailout with a five-year austerity plan that lowers the minimum threshold for income tax to 8,000 euros a year ($11,200), increases the tax on heating oil, and imposes a "solidarity levy" on income of between 1 and 5 percent. Obviously, the poor are being made to pay for the rich bankers' mistakes.

According to the head of the ECB, Jean-Claude Trichet, the next step in "making democracy work" is to remove the sovereignty of the Greek government. In a speech on June 2, Trichet said that the task was to bring Europe beyond a "strict concept of nationhood" and the traditional practice of protecting debtors. Whether a country could afford to pay its debts was no longer a question of its budgetary condition if the country has public domain that can be privatized.

Greece would have to be made to pay, said Trichet, or other EU member states would demand restructuring and write-downs of their excessive debts. In order to avoid a contagion of write-downs, which would be at the expense of creditor banks, the UCB was justified in disregarding its charter and providing the forbidden loans to Greece "in the context of a strong adjustment program." However, if the Greek government did not stick to the mandates of the adjustment program and sell off its public domain, a "second stage" of intervention would come into play. European Union authorities would exercise an "authoritative say in the formation of the country's economic policies."

EU interdependence, Trichet said, "means that countries de facto do not have complete internal authority." The "second stage" would make this de jure. European Union authorities would simply take over Greece's fiscal affairs and decide its budget. Sovereignty and representative government would be abrogated, and EU member states would come under the rule of private bankers.

Much the same thing has happened in the US. The Wall Street executives who control the Treasury and financial regulatory agencies used public money and the Federal Reserve's balance sheet to bail out the casino bets of the irresponsible financial institutions that they formerly headed, while millions of taxpayers lost their homes, jobs and medical insurance. In the US, Direct Democracy appears to be the only recourse to rule by the private bankers.

But the Greek "crisis" has not yet played out, despite the decision of the Greek government to submit, when its best option was simply to default and to leave the EU. Germans have been suspicious of monetary union from the start, because it removes control over inflation from their hands. As the bailouts of EU member countries by the ECB breach multiple clauses of EU treaty law, the bailouts breach Germany's supreme and sovereign Basic Law and have ended up in the German Constitutional Court, which must rule on their constitutionality.

The court began hearing the cases on July 5, and a ruling could be months away. The court will be pressured to follow "a higher law" than the one on the books and to accept that bailing out bankers is more important than German law. If that is the result, then Germany's supreme and sovereign Basic Law will be overthrown along with the ECB and IMF charters. The supremacy of the bankers will be total.

On the other hand, if the court rules against the bailout, the resulting fireworks could result in defaults and debtor countries leaving the EU.

Another alternative is that the Greek and Spanish peoples will overthrow their non-representative governments and repudiate the debts. This alternative had been open to Ireland, but having lost their characteristic pugnacity, the Irish have submitted to rule by bankers.

So far only the people of Iceland, via the referendums of Direct Democracy, have managed to force their government to defy the bankers.
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Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He is a contributing editor to Gerald Celente's Trends Journal. He has had numerous university appointments. His books, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available (more...)

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