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# taz.de -- Economist about the ECB and Greece: Like setting off a nuclear bomb
> The ECB denying Greece emergency loans would be blackmail, writes the
> economist Martin Hellwig. A crisis like 1931 could be created.
Bild: No money: Pensioners wait for their money in front of the Greek central b…
After the „no“ vote in the Greek referendum, everyone is waiting to see
what happens next. Perhaps not much will happen at all. The Greek
government won’t receive new funding – but then it won’t need much because
the lion’s share of any new „aid“ would serve to pay back old „aid“. …
it’s not paid, then what should be common knowledge since the Latin
American debt crisis in the 1980s will become clear – that without a
bailiff, debt collection is difficult.
The crucial question is how the European Central Bank (ECB) will react. The
president of the German central bank, Jens Weidmann, and the head of Ifo,
Hans-Werner Sinn, have long demanded an outright halt to emergency loans to
Greece. But in fact, even freezing these loans is questionable. According
to the Treaty on European Union, the ECB’s task is „to promote the smooth
operation of payment systems,“ and to do this for all member states
including Greece.
Freezing emergency loans to Greece would cause its banks to close and lead
to massive restrictions on payment transactions. This is not in accordance
with the ECB’s contractual duties.
„But the Greeks aren’t sticking to the treaty either!“ This is an
inadmissible collective accusation. Instead of talking about „the Greeks,“
we have to make a distinction between the Greek government, Greek
commercial banks and the Greek central bank. It’s true that the Greek
government is not willing to stick to the agreements it has drawn up –
credit agreements. But is this sufficient reason to hold all Greek banks to
ransom? The European Banking Union has been in place since 2014 whereby
banks are no longer subject to national supervision, but to the supervision
of the ECB.
„But the ECB’s money is being passed from the banks to the government, and
is supporting this breach of contract!“ This statement is untrue. The money
does not come from the ECB, but from the Greek central bank, which is
liable for any losses. And the money is not used to finance the Greek
state, but to compensate the huge drops in customer deposits. Apart from
this, as a supervisory committee, the ECB has prohibited Greek banks from
increasing its public sector loans – as just one example of how the Banking
Union breaks the ties between states and banks.
## Images that bring to mind the 1931 crisis
Issuing emergency loans in the event of a run on the banks belongs to the
core duties of a central bank. Banks finance themselves in the short term
through customer deposits and by granting mid- to long-term loans. If
depositors panic and withdraw their money, banks are defenceless. Then
either the central banks steps in, or a crisis occurs that causes
repercussions for the economy as a whole.
The photos emerging from Greece bring to mind images of Germany in 1931. On
9 July 1931, the Reichsbank stopped any further aid to German banks.
Following this was a run on the banks by customers. On 13 July, the
Danatbank was forced to close. On 14 and 15 July, there was a state-imposed
„Bank Holiday“ for all banks, followed by a three-week restriction on
payment transactions. As a consequence, economic activity plummeted by
another 20 per cent to 60 per cent of its pre-1929 level, while employment
fell by a further two million.
These experiences in the 1930s were one reason for the massive state aid in
2008. And it makes the ECB’s failure to support the Greek banks any further
all the more disconcerting. The effect this has on a country’s economy is
akin to setting off a nuclear bomb. The damage is incalculable. Its threat
alone has huge blackmail potential. This could possibly be aimed at Germany
too. For our country and our democracy, it would be much more dangerous
than the potential losses that the ECB’s critics are getting worked up over
now.
„But the Greek banks are insolvent!“ When Sinn raised this objection in
February for the first time, his facts were not correct. The Greek banks
had acquired a large amount of own capital in 2013 and performed well in
the ECB audit. But soon Sinn’s statement is likely to come true. If the
payment system collapses, companies whose customers are broke will not be
able to service their debts, which in turn will make the banks go bust.
## The costs of the crisis
According to ECB regulations, only solvent banks are allowed to receive
loans from the central bank. This protects it from losses. But in 1931,
would it not have been better to continue giving loans to commercial banks,
even the clearly insolvent Danatbank? The costs of the crisis for Germany
were so high that the answer to this question should be simple. But back
then, the Reichsbank had to cut off its support because it ran out of the
gold exchange and foreign currency holdings necessary to cover currency.
The rule only to lend money to solvent banks dates back to a time when
central banks had to be ready to convert their banknotes into gold or
foreign currency at any given moment. Concern about their gold and foreign
currency holdings, and the fear of a run on the banks, caused them to be
especially careful. This caution prevented a suitable monetary policy being
devised during the global economic crisis.
In the meantime, a pure banknote currency now exists with no conversion
obligation whatsoever. Central banks can support the monetary and banking
system without concern for their own ability to act. Shouldn’t the
responsibility for the operability of payment systems set out in the
European Treaty take priority over an internal ECB rule that dates back to
the era of the gold standard, and which the treaty doesn’t cover?
Translation: Lucy Renner Jones
9 Jul 2015
## AUTOREN
Martin Hellwig
## TAGS
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taz-Texte zur Euro-Krise auf Englisch
taz-Texte zur Euro-Krise auf Englisch
taz-Texte zur Euro-Krise auf Englisch
## ARTIKEL ZUM THEMA
Democracy and the Greek crisis: Breaking Europe’s Stunned Silence
No longer does anybody in Brussels dare to resist orders from Berlin. Do we
want a Europe run by decree? It’s time for debate.
Schäuble’s role in Brussels: Merkel’s bogeyman
Chancellor Angela Merkel’s manner over the Greek conflict has been mostly
obliging, while her finance minister Wolfgang Schäuble played the role of
bad guy.
After the Euro Summit in Brussels: Thus fails Europe
Thanks to a loathsome alliance, Merkel and Schäuble have been able to
impose all of Germany’s demands on Greece. The result is a regime of
sanctions and coercion.
Germany, Greece and the EU: Europe isn’t that German
What kind of a Europe do we want? Surely one that values solidarity. The
German course of austerity therapy has failed. It is time to correct the
mistakes.
After the Greek referendum: History in the Making
The outcome of the referendum is clear. Now more than ever it’s up to the
ECB, alongside the Greek government, to come up with solutions.
Grexit and the Eurozone: Destroyed confidence
The monetary system is based on confidence, and that confidence has been
shattered. The end of the monetary union is dawning – even if Greece
remains in the euro.
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