"To some people, the European Central Bank seems like a fire department that is
letting the house burn down to teach the children not to play with matches." So
wrote Jack Ewing in the New York Times last week. He went on:
"The ECB
has a fire hose - its ability to print money. But the bank is refusing to train
it on the euro zone's debt crisis.
"The flames climbed higher Friday after the Italian Treasury had to pay an
interest rate of 6.5% on a new issue of six-month bills ... the highest
interest rate Italy has had to pay to sell such debt since August 1997 ... But
there is no sign the ECB plans a major response, like buying large quantities
of the country's bonds to bring down its borrowing costs."
Why
not? According to the November 28 Wall Street Journal,
"The ECB has long worried that buying government bonds in big enough amounts to
bring down countries' borrowing costs would make it easier for national
politicians to delay the budget austerity and economic overhauls that are
needed."
As with the manufactured debt ceiling crisis in the United States, the ECB is
withholding relief in order to extort austerity measures from member
governments - and the threat seems to be working. The same authors write:
"Euro-zone
leaders are negotiating a potentially groundbreaking fiscal pact ... [that]
would make budget discipline legally binding and enforceable by European
authorities. ... European officials hope a new agreement, which would aim to
shrink the excessive public debt that helped spark the crisis, would persuade
the European Central Bank to undertake more drastic action to reverse the
recent selloff in euro-zone debt markets."
The eurozone appears
to be in the process of being "structurally readjusted" - the same process
imposed earlier by the International Monetary Fund on Third World countries.
Structural demands routinely include harsh austerity measures, government
cutbacks, privatization, and the disempowerment of national central banks, so
that there is no national entity capable of creating and controlling the money
supply on behalf of the people. The latter result has officially been achieved
in the eurozone, which is now dependent on the ECB as the sole lender of last
resort and printer of new euros.
The ECB serves banks, not governments
The legal justification for the ECB's inaction in the sovereign debt crisis is
Article 123 of the Lisbon Treaty, signed by EU members in 2007. As Jens
Eidmann, president of the Bundesbank and a member of the ECB Governing Council,
stated in a November 14 interview:
"The eurosystem is a lender of last
resort for solvent but illiquid banks. It must not be a lender of last resort
for sovereigns because this would violate Article 123 of the EU treaty."
The language of Article 123 is rather obscure, but basically it says that the
European Central Bank is the lender of last resort for banks, not for
governments. It provides:
1. 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.
2. Paragraph 1 shall not apply to publicly owned credit institutions which, in
the context of the supply of reserves by central banks, shall be given the same
treatment by national central banks and the European Central Bank as private
credit institutions.
Banks can borrow from the ECB at 1.25%,
the minimum rate available for banks. Member governments, on the other hand,
must put themselves at the mercy of the markets, which can squeeze them for
"whatever the market will bear" - in Italy's case, 6.5%.
The reason eurozone countries are drowning in debt
Why should banks be able to borrow at 1.25% from the ECB'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 ECB as lender of last resort, the ECB "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 US 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 US 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?
Interestingly, Paragraph 2 of Article 123 of the Lisbon Treaty carves out an
exception to the rule that governments cannot borrow from the ECB 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 ECB 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 US.)
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 25 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.
He observes that Mario Draghi, the new president
of the European Central Bank, was vice chairman and managing director of
Goldman Sachs International, a member of Goldman Sachs' Management Committee, a
member of the governing council of the European Central Bank, a member of the
board of directors of the Bank for International Settlements, and chairman of
the Financial Stability Board.
Italy's new prime minister, Mario Monti, who was appointed rather than elected,
was a member of Goldman Sachs' Board of International Advisers, European
chairman of the Trilateral Commission ("a US organization that advances
American hegemony over the world"), and a member of the Bilderberg group.
And Lucas Papademos, an unelected banker who was installed as prime minister of
Greece, was vice president of the European Central Bank and a member of
America's Trilateral Commission.
Roberts points to the suspicious fact that the German government was unable to
sell 35% of its 10-year bonds at its last auction; yet Germany's economy is in
far better shape than that of Italy, which managed to sell all its bonds. Why?
Roberts suspects an orchestrated scheme to pressure Germany to back off from
its demands to make the banks pay a share of their bailout.
Europe is in the process of being "structurally readjusted" by a private
banking cartel. If its people are to resist this silent conquest, they need to
rise up and, using the ballot box and public banks, throw out the new banking
hegemony before it is too late.
Ellen Brown is an attorney and president of the
Public Banking Institute. In Web of Debt, her latest of 11
books, she shows how a private cartel has usurped the power to create money
from the people themselves, and how we the people can get it back. Her websites
are WebofDebt.com and
EllenBrown.com.
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