I am going to make a
rash prediction: Greece
will not leave the Euro.
All that is required
for this is the following: the ECB does what is necessary to keep Greece in the
Euro. If the ECB acts rationally and in accordance with its legal mandate and
obligations, then this is what it will do – it is obligated to ensure the
stability of the Eurozone monetary system, and Greece is part of that system. The
ECB has all the tools necessary to do this. Greece will only leave the Euro if
the ECB acts irrationally and fails to fulfil its legal obligations. To date,
the ECB has acted rationally and has fulfilled its legal obligations.
In order to understand
what has been actually happening here one must first of all ignore the
meaningless posturing of politicians and the “markets”, and look at the real, meaningful
events.
Consider the two most
meaningful and important REAL events that have happened this year:
FIRST MEANINGFUL EVENT:
Earlier this year
the interest rates on Spanish and Italian debt started increasing to dangerous
levels. What happened? The ECB lent lots of money to Spanish and Italian banks
on the condition that they would then lend it to the Italian and Spanish
governments. The interest rates then went down. If the interest rates again
reach dangerous levels, the ECB will do the same thing again. The significant
thing here is that the Italian and Spanish banks did what they were told to do
by the ECB - they actually have no alternative, since they are effectively bankrupt
and thus utterly dependent on the ECB for their survival.
(Previously, I
argued here that the ECB should lend money to governments via the EFSF. Instead, the ECB has lent money to
governments using the private banks as conduits rather than the EFSF, thus maintaining the charade that “the markets”
are doing the lending. I am glad to see that the Mario Draghi followed my advice and put my plan into action, but he found an even cleverer way to implement it!).
SECOND MEANINGFUL EVENT:
Consider the recent
withdrawal of deposits from Greek banks, and other periphery banks. Most of that money is being put in
German banks or other core country banks. The German banks have no one to lend
this money to (they are hardly going to lend it back to Greece!). So what
are they doing with these new deposits? They are depositing them in the ECB to
get some interest. What will the ECB do with that money? It will lend it back
to the Greek banks and periphery banks, in order to replace the deposits lost in the withdrawals,
thus ensuring the stability of the Greek monetary system. Or it will lend it to periphery governments who will then nationalise the banks (The ECB effectively did
the same thing when there was a run on Irish banks a few years ago).
CONCLUSION:
These events
demonstrate two things: the ECB will willy-nilly do whatever is necessary in
order to make sure that neither governments nor private banks in the Eurozone collapse.
It has a legal obligation to do so, since its mandate requires it to guarantee
European monetary stability. German politicians cannot stop the ECB doing this
even if they want to. (A THIRD MEANINGFUL REAL EVENT of the last year was that the German hawks were removed from the ECB board and replaced with political appointees commited to preserving the Euro).
The over all effect
of these policies is the following: private European banks are rapidly becoming
wards of the ECB. Their balance sheets with the ECB are exploding, effectively
putting them under the complete command of the ECB. The ECB tells them what to do
and they do it. They are under de facto control of the ECB.
Now: the Eurozone
banking system is by far the biggest banking system in the world. In other
words, the largest component of “global markets” is gradually being placed under effective
public control i.e. under the control of the ECB, which is a non-profit maximising public institution. The profit-maximising
institutions are being controlled by a non-profit-maximising institution. The
private banks are no longer profit-maximising institutions, since they
effectively destroyed themselves in their quest for short-term profits (in the
run up to the Great Recession).
Thus, attempts by
the “markets” to abolish the Euro will lead the abolition of the markets.
(Incidentally, this
will happen even if Greece
leaves the Euro. If Greece
leaves the Euro capital controls will be implemented all over Europe,
thus abolishing the free international movement of capital i.e. thus abolishing
the “markets”. That would be an irrational thing to allow to happen. Far better
to gradually strangle “the markets” by slowly placing private banks under complete
public control).
Consequently, there
is no need for European populations to elect Communists or Leftists to power in
order to abolish the “markets” since this is already occurring right before our
eyes, albeit in a gradual manner, unannounced by the authorities and unnoticed by the general population.
