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By Eric Toussaint
Between July and September 2011, around the world, stocks again suffered a violent shake. The CADTM interviewed Eric Toussaint with the aim of decoding the different aspects of this new phase of the crisis.
European Union: Has the crisis reached its peak?
CADTM: Has the crisis reached its peak?
Eric Toussaint: We are very far from the end of the crisis. If we limit ourselves to taking into account the financial aspects, we must be aware that private banks have continued, since 2007, with an extremely dangerous game that is beneficial to them, as long as there are no accidents, and that is harmful for the majority of the population . The amount of doubtful assets on their balance sheets is gigantic. Now, we must bear in mind that the 90 main European banks, and this must be known, in the next two years will have to refinance debts for the astronomical amount of 5.4 trillion euros (€ 5,400,000,000,000). And that represents 45% of the wealth produced annually in the European Union. | 2 | The risks are colossal and the policy carried out by the ECB, the EC and the governments of the EU member countries does not solve anything, quite the opposite.
It is also necessary to emphasize a central aspect of the risks run by European banks: they finance a significant part of their operations by borrowing short-term in dollars from US lenders, the US money market funds, | 3 | with a lower rate than the ECB. Also, going back to the Greek case as an example: how can you think that European bankers are content with 0.35% in 3 months if they have to pay 1% for the loans granted by the ECB? European banks financed and still finance their loans in the United States through the loans they request from money market funds in the United States. But these organizations are afraid of what is happening in Europe and they are also concerned about the dispute between Democrats and Republicans over the US public debt. | 4 | As of June 2011, this source of low-interest financing was practically exhausted, especially at the expense of the large French banks, which precipitated their stock market crash and increased pressure on the ECB to buy back their shares. titles, providing them fresh money. In summary, we also have here the demonstration of the breadth of the communicating vessels between the economy of the United States and that of the countries of the European Union. Hence the incessant contacts between Barack Obama, Angela Merkel, Nicolas Sarkozy, the ECB, the IMF ... and the big bankers, from Goldman Sachs to BNP Paribas, passing through Deutsche Bank. A break in the dollar credits that European banks benefit from can cause a serious crisis in Europe, and likewise, a difficulty for European banks to repay US loans could precipitate a new crisis on Wall Street.
From 2007-2008, banks and other institutional investors shifted their speculative activities from the real estate market (where they caused the bubble that burst in dozens of countries, starting with the United States) towards the public debt and currency markets (where every day they they change the equivalent of 4 trillion dollars - 4,000,000,000,000 $ - of which 99% corresponds to speculation) and of primary goods (oil, gas, minerals, agricultural products). These new bubbles can burst at any time. One of the triggers could be an increase in interest rates decided by the US Federal Reserve (followed by the ECB, the Bank of England ...). On this side, the FED announced in August 2011 its intention to keep its principal rate close to zero until 2013. But there are other events that may be the trigger for a new banking crisis or a stock market crash. The events of July-September 2011 show us that we are at a time when we need to gather energy to get private financial institutions out of the game and can no longer hurt.
The extent of the crisis is also determined by the volume of public debt of the States and their mode of financing in Europe. European bankers own more than 80% of the total debt of countries in difficulty, such as Greece, Ireland, Portugal, Eastern Europe, Spain and Italy. In volume, the securities of the Italian public debt represent 1.5 trillion euros (€ 1,500,000,000,000), that is, more than double the public debt of Greece, Ireland and Portugal together. The public debt of Spain reaches 700,000 million euros (half of the Italian). The account is easy: the public debts of Italy and Spain represent three times the Greek, Irish and Portuguese public debts. As we have seen in July and August 2011, as each country continued to pay its debts, several European banks almost collapsed. The intervention of the ECB saved them. But the financial scaffolding of European banks is so fragile that an attack on the stock market could knock them out. Not to mention, of course, a banking crash, which is also perfectly possible.
So far, apart from the trio Greece - Ireland - Portugal, mainly, the States had managed to refinance their debts without great difficulties by resorting to new loans, when they came due. The situation has deteriorated a lot in recent months. Already in July and early August 2011, the interest rates demanded by institutional investors from Italy and Spain to refinance their debts, with 10-year loans, had skyrocketed, reaching 6%.
Again, it was the intervention of the ECB, which massively bought back Spanish and Italian securities, which allowed the satisfaction of bankers and other institutional investors, and lowered interest rates. For how long? Well, Italy must ask for about 300,000 million euros between August 2011 and July 2012, since it is the amount of its obligations that expire in that short period of time. Spain's needs are clearly lower, around 80,000 million euros, but it is still a considerable sum. How will institutional investors behave over the next twelve months and what will happen if the conditions for their demands for money from the US market tighten? There are many other events that can exacerbate the international crisis. One thing is for sure: the current policy of the EC, the ECB and the IMF will not lead to any favorable solutions.
CADTM: You have written many times that private debt was much larger than public debt. But here you have focused on public debt ...
Eric Toussaint: There is no question about that. Private debts are much more important than public debts. According to the latest report by the McKinsey Global Institute, the sum of private debts, on a world scale, rises to 117 trillion dollars (117,000,000,000,000), or almost three times the total of public debts whose volume reaches the 41 trillion dollars (41,000,000,000,000 $). Of course, there is a great risk that private companies, and banks and other institutional investors, will not be able to meet the repayments of their debts. General Motors and Lehman Brothers went bankrupt in 2008, like many other companies, being unable to pay their debts.
Bankers, other company bosses, traditional media and governments want to talk only about public debts and use their increase as a pretext to justify new attacks against the economic and social rights of the majority of the population. Austerity and the reduction of public deficits became unique recipes to which privatizations and new consumption taxes are added. To look good, some European governments add a tiny tax on the rich and talk about the financial transaction tax.
It is evident that the increase in public debts is the result of thirty years of neoliberal policies such as: the financing of fiscal reforms, which favored large fortunes and large private companies, through the use of loans; the rescue of banks and other companies by placing part of their debts or losses in charge of the State budget; a further reduction in tax revenues due to the effects of the recession and an increase in some public expenditures with which to help the victims of the crisis. The combined effect of these different factors led to an increase in public debt. It all boils down to a deliberately unfair social policy, the aim of which is to systematically favor one class of society, the capitalist class, while some crumbs are distributed among the middle classes in order to control them. On the contrary, the vast majority of the population paid for the broken dishes of these policies and have seen their rights severely curtailed, even plain and simple mocked. Because of this, I concentrated my answers on public debt since it is absolutely necessary to achieve a positive solution to this problem.
September 24, 2011 - Eric Toussaint - Sixth part of In the eye of the hurricane: the debt crisis in the European Union (6/7) | 1 | Translated by Griselda Piñero Y Raul Quiroz - http://www.cadtm.org
| 1 | See the first part "Greece" http://www.cadtm.org/Grecia,7022, the second part "The great liquidation of Greek securities" http://www.cadtm.org/La-gran-liquidacion-de- titles, the third part «The ECB, faithful servant of private interests» http://www.cadtm.org/El-BCE-fiel-servidor-de-los, the fourth part «A European 'Brady plan': the permanent austerity »http://www.cadtm.org/Un-plan-Brady-europeo-la and the fifth part“ CDS and rating agencies: the provocateurs of risks and destabilization ”http://www.cadtm.org/ CDS-and-rating-agencies-los
| 2 | See Gillian Tett in the Financial Times of August 5, 2011, p. 22, as well as Peterson Institute for International Economics, Europe on the Brink, July 2011.
| 3 | See Daniel Munevar: «The dark little secret of European banks» http://www.cadtm.org/El-pequeno-y-oscuro-secreto-de-los
| 4 | See "US funds cut eurozone exposure" in the Financial Times, July 25, 2011, p.15.