Dark clouds in the horizon

The eurozone banks are borrowing heavily from the European Central Bank. Current borrowing amounts to €1,31 trillion. They take the money at negative interest rates, which means that they are paid to borrow. The negative rates are now around minus 1 per cent. By doing so, the ECB is telling us that the funding needs are enormous and that the crisis resulting from the pandemic is very deep.

The picture shows me three more things.

One, that we have too many private banks in the eurozone. Some countries, with small economies, have an incredible number of banking players. Tiny banks are particularly vulnerable to shocks. They represent an additional financial risk at a time of many hazards.

Two, most of the borrowing has been applied by the banks in the purchase of government bonds. That means the ECB is using the commercial houses – and paying them a fee – to finance exceptional and current government expenditures. Public debt is growing fast and in a non-productive way. Its growth goes hand in hand with the tremendous levels of debt of the enterprises and of the poorer segments of the population. Overall debt, in some countries of the zone, is reaching unsustainable levels.

Then, my third point. Conservatives and extreme right parties and movements in richer eurozone States are getting ready to challenge the policy options of the ECB, particularly their easy money funding programmes. These challenges will combine political activism with legal proceedings. As an example, the ultra-nationalist and extremist German party Alternative for Germany has announced today they will move a legal action against the ECB’s emergency programme. It would be a mistake to underestimate this decision. That goes along the recent ruling of the country’s Constitutional Court on a comparable matter. And it must be seen in conjunction with the position that The Netherlands, Finland, and a few others have taken, asking for conditionalities to be added to the Von der Leyen rescue plan.

As I see it, all this contains the seeds for further divisions in Europe. This time, the division might mean severe rupture. It is the future of the Union that is at stake.

Greece: calling a spade a spade

Today´s prevailing position on Greece´s fate, in the European political and financial circles that have power, was rather clear: it´s time to call a spade a spade.

This basically means, as I see it, that those leading circles have come to the conclusion that the Greek situation has reached a decisive point. And the decision is to let Greece go its own way. It makes no sense to advocate for a solution that the other side does not accept.

I tend to agree. Default is painful but it is not the end of the road. Argentina and other countries have gone through that experience. Even California did. Default can actually be the beginning of a new cycle.

On the markets side, it looks as if the default possibility is now perceived as inevitable but with a manageable impact.

In the end, those who will be seriously affected are the poor people in the streets and villages of Greece. Unfortunately it´s always like that.

Criminal banking

Six major international banks have been fined by the US authorities over huge criminal manipulations of the foreign exchange markets. The banks caught in this huge fraud and well thought-out conspiracy to steal from the clients are: Barclays, Citigroup, JP Morgan, Royal Bank of Scotland, Union des Banques Suisses (UBS), and Bank of America. The overall fines amount to USD $5.6 billion.

Since 2008 a number of very serious malpractices and criminal actions have been uncovered in some international banks. The crisis and a closer scrutiny of the banking system have shown that many of these institutions have been unethical and unlawful. Violations of the law and the interests of the customers have been common practice. The Financial Times reports that in the last seven years banks have been fine over USD $160 billion because of their illegal activities.

It is a matter of huge concern. It is also a major worry that no top banking executive has yet faced a court of justice and be personally sanctioned with a prison term for his or her actions. The system fines the banks and lets the bankers enjoy their bonus. And by the way, the bonus paid during the last seven years or so by the banks the US has just punished come to a total very similar to the combined amount of today´s fines.

People´s power is based on information and access to social media as well

The big banks are all under serious scrutiny. Their public image is at present very shaky. Every day we get news that more wrong-doings have been uncovered and that new huge fines have been decided against some banks. Very soon the public opinion will start asking questions about the bankers, not just the banks. People will expect individuals to be brought to the book.

At a time of mass access to information and widespread use of social media as a communication tool, one has to realise that all those in position of power, be it political, economic or financial, will be very exposed to the public eye. This is a new age of transparency. And in many aspects, it´s a new way of creating mechanisms of power control. Change is indeed taking place. Power is being challenged.