The European Central Bank has expanded its programme to support banks with loans that are at record-low levels because the ECB believes that the eurozone economy could shrink by some 12% this year because of the coronavirus crisis.
Record low rates mean that the ECB is actually paying the banks to borrow from it – the loans have negative interest rates!
The ECB is backed by Eurozone taxpayers and is not some alien from another Cosmos. The ECB was created by our governments and not by Mr. Trump or the Man on the Moon.
The amount paid out by the ECB to the biggest Eurozone banks is in the order of ONE TRILLION Euros… this amount of money is so big that you must see it as a number:
€ 1 000 000 000 000
That means every household is lending some €6000 to the big banks for a few years with negative interest rates!
… and the banks are not even using this money to lend to the real economy… in bad times they use it for trading (another word for speculation) and lending money to house buyers, and for corporate mergers and real estate development, rather than to companies for investment in new equipment and software.
Christine Lagarde, the new ECB president, has said the eurozone was facing an economic situation that is ”unprecedented in peacetime”, with a “profound deterioration in labour conditions”, also noting that consumer sentiment was in “freefall”. All exciting words that paint an economic disaster which she can stop in its tracks.
We, the taxpayers need to know how all this money that is going to banks will stop this economic distater. There appear to be no real controls on where the money is going. To talk about being“fully committed to doing everything possible within its mandate to support every citizen of the eurozone”, is nonsense because that action does not support every citizen. It is nowhere near to achieving such an objective. Savers are losing huge sums from zero returns on their deposits, and house prices like share prices have been hitting record highs that benefit just a few wealthy people.
And does she mean when she talks about governments that must have “ambitious and co-ordinated fiscal stance (that) is critical”? I am not aware of any coordination by the ECB with the Eurozone governments.
The banks are receiving huge benefits which they can use for share buy-backs, huge salaries, large dividends and financial speculation.
Let’s take one recent example – this week the CEO of the French Société Générale Mr. Frédéric Oudéa announced an ‘extraordinary’ crisis when his traders at the bank managed to lose around €250 million in what can only be described as speculation in trading equities. The bank also announced a loss of another €240 million when they lent money to a crooked oil trader in Singapore.
It should be recalled that the above CEO only received €3 million in pay last year and the rest of the board were given around €1.5 Millon each for doing excellent work… not bad for running up such losses. Many other banks in the Eurozone are also posting losses while paying out big dividends, purchasing their own shares and giving their top management teams €1 million and more in annual pay…
… and we are already hearing than our banking friends are refusing for cut back on any of the above payouts…
It is the same with the big companies – none of the bosses there have announced pay cuts but they have announced their demands for taxpayer support!
So the big question that we must ask our governments and our central banks is why are you not demanding that ECB should be taking equity in the banks in exchange for the support? We need to share in the profits and not just the losses if the ECB believes this support will be successful.
We need much more and should expect much more from our money that is being stuffed into the big pockets of bankers and companies for free!
It is possible that the new groups of wise men advising our governments on Viris Exit Plans will propose such solutions, but your correspondent cannot help feeling that they will not make any such proposals…
Photo: The Seven Vices, also the Seven deadly sins: Greed (Avaritia) by Brueghel, published by Hieronymus Cock