[This article published in August 2012 is translated from the German on the Internet, http://www.blaetter.de/archiv/jahrgaenge/2012/august/europaeischer-bankensozialismus.]
Up to today, a reliable regulation of the inflated and out-of-control financial sector has been lacking. Instead of seeking a permanent solution of the crisis, the EU states abandon principles at summit after summit that they had previously repeated like mantras – and contribute to aggravating the situation.
At the beginning of the crisis, stabilizing so-called system-relevant banks was central so the financial system wou9ld not collapse with a great bang. This limitation changed into its opposite after the last summit. The newly created European Stability Mechanism was designed to supply every bank with sufficient capital. There should not be special conditions concerning investment banking.
The motto “Too Big to Fail” frees the financial sector from all chains. In the future, the banks will not have to assume any liability for taking irrational risks. Instead they can commit fraud without limit – in a system that already leads us to the brink and creates millions of unemployed in Europe alone. In return, the banks can pay out subsidized bonuses that are often in inverse proportionality to the performance of the enriched.
The planned European bank oversight that should monitor all institutes in the EU will not accomplish much against this boundless fraud. This European Banking Authority launched at the beginning of 2011 and outfitted with an annual budget of 20 billion euro will not have its headquarters in London.
Instead Angela Merkel prevailed that the already overstrained European Central Bank in Frankfurt will take over this new function. How the EU will establish an effective bank oversight there by the end of 2012 is still completely unclear.
The risks will not be banished even if the bank oversight monitors the transactions of the money-systems more strictly. The intention of the Brussels resolutions is to prevent all bankruptcies. The summit decisions may lead to the exact opposite, to a dangerous snowball system that can trigger a bankruptcy avalanche at any time burying everything.
The unrestricted re-capitalization of all banks is necessary since these have a growing write-off need on account of the collapse of EU bonds. For this reason, they need more money which also must be refinanced.
The Brussels resolutions also bring a slight gain of time without a recovery of the financial sector and the state budget. Instead the snowball system threatens to bring even more state- and bank-bankruptcies at the end. The sums now necessary to bailout the stricken banks would eat up 45 percent of ESM capital.
Cyprian banks alone need 23 billion euro. The hook is that neither system-relevant banks nor corporate headquarters of the Global Players that could destabilize the world financial system are in Cyprus. Rather there are presumably more mail-box firms and accounts of Russian magnates than inhabitants on the Mediterranean island. Russia has long been engaged in Cyprus to a greater extent than the EU – even if the Russian government first set Cyprus on the blacklist of tax havens in 2008 while the OECD sees everything there in the green.
The bank debts in the EU are much greater than the state debts. According to calculations of the IFO-Institute, these debts amount to 9.2 trillion euro in the crisis countries. [3] This sum will be added to the past obligations of the ESM according to the latest resolutions in Brussels. Assets of investors, hedge funds, insurances and banks – that are now governmentally protected – face these bank debts. The taxpayer is liable instead of politics insisting these assets be made liable. The public treasuries support property assets whose owners didn’t have their headquarters in the EU and not only dubious investment banking. This means European taxpayers are responsible for those who don’t pay their taxes in a member country of the Union.
The close interlocking of banks with the shadow-banking system whose order of magnitude surpasses many times over the visible banking system makes the game with debts and assistance more dangerous than all numbers known to the public. However European politicians counter possible loss-risks with the appeasement that ESM guarantees are guarantees and so-called possible obligations, not direct payments. The possible sums are staggering. The state debts of the five crisis-candidates Italy, Ireland, Spain, Greece and Portugal amount to around 3.3 trillion euro.
Thus enormous sums could come to the creditors that would increase proportionately if several states and a series of banks went bankrupt… With such a breakdown, all the calculations presented up to now would be rubbish in one blow.
In short, the ESM only functions as long as none of the participants throws in the towel. That is a feature of snowball systems. Snowball systems last until too many parties want to see their share. In such a case, the system collapses all of a sudden.
The European governments persistently evaded all these questions in the last years. Instead they wore themselves out in trivialities and distributed tranquilizers - like introduction of a financial transactions tax. While it may be socially commanded, this instrument hardly makes today’s financial sector more secure. Firstly, the banks will hardly be dissuaded from their risky transactions on account of the comparatively trifling additional costs. Secondly, the volume of financial transactions may not decrease to a great extent if the proceeds of a financial transactions tax are cancelled.
An enclosure of speculative transactions is an urgent necessity as a fundamental structural reform of the financial sector. The present bank socialism must be ended as quickly as possible. The problem of the ESM is that the water will reach its neck – with a breakdown of one or several debtor states. No other creditor can leap in the breach as a so-called lender of last resort.
There is only one way out of the misery. To solve the continuing financial crisis, banks must be allowed to go bankrupt – instead of being supported with public funds when they commit fraud. Otherwise the vicious circle of indebtedness which presently keeps the European Union on its toes will not be broken. Only in this way can we win the end-game around the euro. Otherwise the motto is: Save yourself if you can!
Read more: European Bank Socialism : Indybay
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