Demands for collaterals are the natural result of the ill advised EFSF policies

2011-08-19

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Finland was the first country to ask for collaterals for the share of its contribution to the second bailout to Greece. It is not a surprise that others are keen to join, with Slovakia asking the same. From the Beyond Brussels report we get the following:

Yesterday Slovak Finance Minister Ivan Miklos announced that they also want collateral for the aid they give to Greece after Athens agreed to provide guarantees for Finland. ”I consider it unacceptable for any country to not have the collateral if other countries have it,” he told reporters. These new announcements from both Finland and Slovakia puts pressure on the bailout package to Greece.</p> In addition to that Austrian Finance Ministry spokesman Harald Waigelin in a telephone interview with Helsingin Sanomat on Wednesday said the following:

The model has to be open to all euro countries. We plan to find out if this is the case</p> For me this is not a surprise. In fact I was expecting this to happen earlier. The reason is that I am certain that the current structure of the EFSF is highly toxic, something which other European states have started to realize. By exposing all of eurozone’s taxpayer money to the Greek debt (and to the debts of the other countries that the EFSF supports or will support) the only thing that is achieved is a domino alignment that allows for contagion.

In an article I wrote less than a week ago I offer the picture of how European taxpayer money is sucked into black holes so here is an extract from what I wrote which suits perfectly the latest events regarding the second bailout to Greece and explains why all surplus countries will eventually ask for collaterals:

By means of the EFSF, all euro member-states have managed to tie themselves to each other without solving the structural rigidities of the euro.</p>

What Europeans have basically done, is that they have forced hardly-pressed countries to bail out (with their taxpayer money) their practically bankrupt partners. These states first undergo austerity “sessions” to save money and then they are called to give a sizable portion of that money in the form of loans to another country. This is counterproductive in two ways. First taxpayer money is drawn out of the economy and is spent (actually wasted) in another country and second the front-loaded austerity measures which are proven to have contractionary effects for the economy, stall the economy, thus putting it into a further recession, which allows space for speculation, with the unpleasant implications this can have.

In addition to this catastrophic practice which makes every country involved vulnerable to contamination, the bailouts themselves are ill advised and produce adverse effects. For instance the first bailout to Greece has had only negative effects on the country’s economy and has completely failed to reduce the country’s unsustainable debt. In fact it has increased it. The need for a second bailout makes that even more tangible.

As for the second bailout itself that was agreed upon on the July 21 Euro summit, it is nothing more that a continuation of the same failing practices of the first bailout. Only that this time a bit of lipstick has been put on the pig’s face to make it look better. The completely inaccurate claim that the “voluntary private sector involvement” will reduce the debt burden is nothing more than a myth that is cultivated upon the false assertion of a 21% “haircut” on private creditors. The debt burden for Greece will increase not decrease. This propaganda is only used to sugar the pill for taxpayers in surplus countries like Germany.

Now the calls that are being heard by many including European Commission President, Mr. Barroso to increase the size of the EFSF to “make it more effective” is nothing more than a claim to take even more taxpayer money to pump it into the black holes of the system. The current architecture of the EFSF as well as the current approach European leaders have adopted vis a vis the crisis, renders ineffective any attempt to increase the size and scope of the EFSF since what actually currently takes place is a reshuffling, re-allocation of the problems. So the problem might move from Greece to Italy and Spain and from there to French banks or to Belgium and then to Cyprus and so on.

What we have been witnessing through all these years of the crisis and what will continue to be the case in the near future is by far the worst possible maladministration of taxpayer money.

All of the above are definitely shared by many taxpayers who see their money being wasted in irrational ventures. That is why states are now asking for collaterals.

The current mentality of channeling taxpayer money into black holes, is catastrophic and will only cause reactions that can place the efforts to save the euro with all it members into jeopardy.

The idea of expensive bailouts (from taxpayer money) that are only used to pay back creditors, without any money being used to stimulate growth, is ill advised, economically illiterate and politically dangerous.

An indebted country that does not grow cannot possibly ever escape from its downward spiral. If the whole strategy to contain the crisis, is not revised, first to see the crisis as a systemic crisis and not as a mere debt crisis, then taxpayer money will forever be required to “save” countries like Greece (their creditors actually). This is something that will understandably meet stiff resistance from taxpayers across Europe.