Policeman protesting austerity measures in Athens by Guardache
Remember when the infamous Goldman Sachs delivered a thinly-veiled threat to the Greek Parliament in December, warning them to elect a pro-austerity prime minister or risk having central bank liquidity cut off to their banks? (See January 6th post here.) It seems the European Central Bank (headed by Mario Draghi, former managing director of Goldman Sachs International) has now made good on the threat.
The week after the leftwing Syriza candidate Alexis Tsipras was sworn in as prime minister, the ECB announced that it would no longer accept Greek government bonds and government-guaranteed debts as collateral for central bank loans to Greek banks. The banks were reduced to getting their central bank liquidity through "Emergency Liquidity Assistance" (ELA), which is at high interest rates and can also be terminated by the ECB at will.
In an interview reported in the German magazine Der Spiegel on March 6th, Alexis Tsipras said that the ECB was "holding a noose around Greece's neck." If the ECB continued its hardball tactics, he warned, "it will be back to the thriller we saw before February" (referring to the market turmoil accompanying negotiations before a four-month bailout extension was finally agreed to).
The noose around Greece's neck is this: the ECB will not accept Greek bonds as collateral for the central bank liquidity all banks need, until the new Syriza government accepts the very stringent austerity program imposed by the troika (the EU Commission, ECB and IMF). That means selling off public assets (including ports, airports, electric and petroleum companies), slashing salaries and pensions, drastically increasing taxes and dismantling social services, while creating special funds to save the banking system.
These are the mafia-like extortion tactics by which entire economies are yoked into paying off debts to foreign banks -- debts that must be paid with the labor, assets and patrimony of people who had nothing to do with incurring them.
Playing Chicken with the People's Money
Greece is not the first to feel the noose tightening on its neck. As The Economist notes, in 2013 the ECB announced that it would cut off Emergency Lending Assistance to Cypriot banks within days, unless the government agreed to its bailout terms. Similar threats were used to get agreement from the Irish government in 2010.
Likewise, says The Economist, the "Greek banks' growing dependence on ELA leaves the government at the ECB's mercy as it tries to renegotiate the bailout."
Mark Weisbrot commented in the Huffington Post:
We should be clear about what this means. The ECB's move was completely unnecessary . . . . It looks very much like a deliberate attempt to undermine the new government.- Advertisement -
. . . The ECB could . . . stabilize Greek bond yields at low levels, but instead it chose . . . to go to the opposite extreme -- and I mean extreme -- to promote a run on bank deposits, tank the Greek stock market, and drive up Greek borrowing costs.
Weisbrot observed that the troika had plunged the Eurozone into at least two additional years of unnecessary recession beginning in 2011, because "they were playing a similar game of chicken. . . . [T]he ECB deliberately allowed these market actors to create an existential crisis for the euro, in order to force concessions from the governments of Spain, Italy, Greece, Portugal, and Ireland."