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Wolf Richter: The EU Bailout Oligarchy Issues A Report About Itself

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By Wolf Richter, San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.

On Friday before Christmas when nobody was paying attention, when people were elbowing their way through department stores or heading out for vacation, the European Commission issued its report on bank bailouts in the European Union—a dry document with mind-boggling numbers that left out the most important fact.

The misnamed “2012 State Aid Scoreboard“ provided a sobering number—misnamed because it covered the period from October 2008 through December 2011, and not 2012. It had taken the Commission bureaucracy a year to add up all the numbers, and there were a lot of them to add up. Turns out, the amount that the governments of all 27 EU states had handed to their banks to prop them up or bail them out amounted to €1.616 trillion ($2.1 trillion).

It does not include the bank bailouts of 2012, such as Spain, whose banks are getting their first installment of €39 billion, or Greece [The Price Of “Collective Trauma”: Greece At The Brink of Civil War], or tiny Cyprus whose banks alone require at least €10 billion [The Bailout Of Russian “Black Money” In Cyprus]. Nor does it include any of the ECB’s bailout operations.

Nevertheless, €1.616 trillion is a big number: 13% of European Union GDP. Of that, €1.174 trillion was for “liquidity support,” and €442 billion was for “bank solvency” support, such as recapitalizations and dumping “impaired assets.”

The usual suspects? Um….

In third position, Germany, whose banks received 16% of the total.

In second position, Ireland, whose banks also got 16% of the total. Time and again, we can only shake our heads at the act of insanity committed by the Irish government at the time when it decided to condemn its citizens and taxpayers, current and future, to bail out and make whole the investors in Irish banks—a decision that bankrupted the entire country though it had had its fiscal house in order, until then.

And in first position, drumroll…. the UK, whose rotten banks, now coddled and protected in the City, received 19% of the total.

The Scorecard is short and dry. Nowhere does it say that the citizens and taxpayers of these countries paid not for the bailout of the banks, but for the bailout of their investors, including stockholders, bondholders, counter parties, and other investors and speculators. Guaranteeing deposit or transaction accounts is one thing. But bailing out investors and speculators who’d taken risks and had been compensated for them through yield or the lure of capital gains is quite another.

Socializing the losses and risks that certain privileged investors have incurred—and then allowing them to profit from the bailouts—is of course the purpose of all bailouts. It’s not the bank per se that is important, but its investors. A topic that the bailout oligarchy wraps in silence.

Eurozone banks cause an additional wrinkle: a big bank bailout can take down the entire country, as we have seen, because it cannot print the bailout money itself. So, to keep countries from going bankrupt, the bailout oligarchy shanghaied taxpayers in other countries—even in the US through the IMF. And the bailout of bank investors became transnational.

This is the spirit of further Eurozone and EU integration, advanced by the fiscal union pact, the banking union, and other measures. They’re designed to facilitate these transfers and investor bailouts, to bake them into the system, and make them part of the ordinary procedures buried in a flood of boring press releases. At some point, the people are no longer able to care.

Integration would make it easier to centralize the bailouts on the ECB—and it can print money! Regardless of what the treaties say. But Bundesbank President Jens Weidmann wasn’t enthusiastic. He didn’t “see the big leap into the fiscal union,” he told the Wirtschafts Woche, because it would require the surrender of certain aspects of national sovereignty, for which there was little political will and support from the population.

And he resisted the idea that politically unsolved problems, such as budget deficits, would be shuffled to the ECB. “As guardian of the currency, we must make clear that we’re committed exclusively to our primary goal: monetary stability,” he said. “We’re not the clean-up crew for political failure.”

France’s ability to attract massive amounts of foreign investment has been called a paradox. Because it shouldn’t be able to. Investors should be scared off by labor laws, tax rates, and the threats of nationalizations. Turns out, for multinational corporations, France is a tax haven. But in the era of austerity, it has reached the boiling point. Read…. The French Revolt Against Corporate Welfare Programs For Multinationals

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12 comments

    1. J Sterling

      If none of your famous rich people are publicly flouncing out of the country, you’re not taxing your famous rich people nearly enough.

      If your small neighbor countries are taxing rich people and corporations less, how is that not the same as a tariff? Free trade neoliberals are all about how countries should be prohibited from giving preferential treatment to their own workers; they call it “trade war”. So why is it okay to have a “tax war” that races to the bottom for the benefit of the rich?

    1. Claudius

      As Wolf, mentions in his article this transfer of private debt to public ownership, for no good reason, is no better exemplified than by Irish. And in the Pantheon of fools must sit an incomparably, incompetent and unqualified Irish finance minister, Brian Lenihan – whom, in September 2010, consigned his countrymen a budget deficit of 32% of GDP, when he agreed to bail out the banks, and socialize their private debt by passing it on to the Irish people. An action that immediately resulted in Irish government own bonds being re-rated down to AA- which, from that point onward, further penalized the Irish as the cost of borrowing rose for all.

      Naturally, the ECB and the IMF, immediately rushed to the rescue of the now penurious Irish – to the tidy sum of €85 billion. Though, Lenihan later claimed the ECB forced Ireland into taking a bailout, he remaining blissfully ignorant of the fact that if had he not agreed to back the private bank’s; there would have been no cohesion required of the Irish to be bailed out by anyone.

      In 2011 when he died (though, not of shame) he cut a rather pathetic figure, complaining frequently to anyone within earshot about his “feelings” and how unfair it was on him, politically, and how he had to do it alone. Lenihan’s gross incompetence screwed over his country, but the worst thing he could imagine had happened – he had to fly to Brussels, alone, to sign-off the agreement with the ECB, and no one was there to hold his hand. A sad little man from a political dynasty in Irish politics, Brian Lenihan exemplifies what hubris and incompetence, when conjoined, can deliver unto a nation. Not surprisingly, the Financial Times annual survey named Brian Lenihan as the Eurozone’s worst finance minister for two consecutive years (2010-2011). May he rest in peace, because no Irishman alive today will.

  1. The Dork of Cork.

    Yves any ideas about this ?

    The UK balance of payments & current & financial account is getting me into a twist.

    UK balance of payments 3rd quarter

    http://www.ons.gov.uk/ons/dcp171778_287129.pdf

    Its goods trade deficit is down somewhat from the record Q2
    but is still very high.

    They seemed to have dramatically revised revised their income deficit from Q2

    In the Q2 statement they declared it was a record -5.2 Billion
    In the Q3 statement they declared it was now a mere – 1 billion
    They now state their income for Q3 was +1.2 billion

    Whats a real mystery to me is their financial account.

    In particular
    “other investment”
    Q3 : largest inflow ever recorded standing at 156 billion

    2010 Q3 : 6,469m
    2010 Q4 : 64,029m
    2011Q1 : 51,462m
    2011Q2 : 48,827m
    2011Q3 : -10,485m
    2011Q4 : – 451m
    2012 Q1 : 49,709m
    2012Q2 : -17,211m
    2012Q3 : 156,673m !

    What is this stuff ?
    Reading a IMF paper on Ireland this same ” other assets” stuff has been bleeding from Ireland since the start of the crisis.

    yes in table 5 of the Irish IMF paper
    http://www.imf.org/external/pubs/ft/scr/2012/cr12336.pdf

    under
    Finacial account (billion euro)
    other investment

    Y2008 : + 86.1
    Y2009 : -23.1
    y2010 : -32.2
    Y2011 : -67.6 (-42.5% of GDP)
    Y2012 : -32.4
    Y2013 : -23.7

    This is the bank bonds I guess.

    But notice the sheer scale of the UKs other assets in Q3

    MASSIVE

    1. LeonovaBalletRusse

      Dork, isn’t this evidence that the IMF is the Capital Extraction Syndicate for the Complex of Criminal Syndicates of the “Capitalist” Criminal Global Reich?

  2. from Mexico

    There seems to be no limit to what the merchants of debt will stoop to in order to keep the collosal edifice of debt they created shored up, and to keep all but a select few endlessly toiling away in debt slavery.

  3. diptherio

    “As guardian of the currency, we must make clear that we’re committed exclusively to our primary goal: monetary stability,” [Weidmann] said. “We’re not the clean-up crew for political failure.”

    No, you’re the clean-up crew for economic failure. That’s sooooo, much better. And how wonderful that your primary goal is monetary stability and not some nonsense like using monetary policy to provide the greatest good for the greatest number. I’m so glad that you have such clarity as to your role: maintaining the system which the banksters have figured out how to game, and convincing everyone that the system is “stable,” all evidence to the contrary. And if the natives get restless and demand somebody’s head (or at least career) for eviscerating their entire society…well, that’s not your problem.

  4. Hugh

    The thing to keep in mind about all this is that European leaders, as well as the writers of this report and those who issued it, weren’t insane, stupid, or incompetent. They are all members of the elites employed by the looters, –the rich investors, speculators, and bondholders who benefited and continue to benefit from the ongoing bailouts at the expense of everyone else.

    And characters like Lenihan by no means acted alone. There were parties and governments, a whole political class, that were behind what went on in Ireland.

    Finally, I would maintain that the Fed’s dollar swaps program that had some $10 trillion in activity amounted to a huge subsidy especially to European banks. This program was the largest of the Fed’s emergency programs and gave European banks and markets, through their central banks, a cheap source of US dollars to settle a lot of their positions, which were dollar, not euro, denominated.

  5. TC

    Even if the report were called the “October 2008 through December 2011 State Aid Scoreboard,” it still would have been misnamed. It should have been called the “Insolvent Sinkhole Sovereign Stickup Scoreboard.” Of course, those intent on partitioning Europe and returning the continent to feudalism would not be so well served were such a name chosen. Has anyone started a lottery venturing a guess at the date when London will sink the euro?

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