Greek Central Bank Governor – “The standard of living will fall by 50-60%”

As is typical of Greece’s central bank governor Provopoulos, today he threatened Greek citizens with “catastrophe”. Specifically…

Provopoulos, the Greek central bank governor threatens Greeks with a 50-60% drop in living standards while also saying “too big to fail” banks are desirable and that they should be made even bigger.

” Imported goods and oil will disappear. The army and the police could not operate their vehicles. The standard of living will fall by 50-60%.”

As I have highlighted before this is not the first time the central bank governor, Provopoulos has tried to make the Greek people feel confident in their future.

The threat came in this article in Euro2Day. His statement came in an interview about the Greek banking sector and how the Greek banks need recapitalisation.

He stated that the Greek banking sector needed a 50 billion Euro cash injection. This is in the context of a Greek government which is losing around 1 billion Euros a month, a country which has a 1 billion Euro a month trade deficit and a Greek government that has signed up to repay 50 billion Euros of bailout money by 2020. And all this for a country with a yearly GDP of around 200 billion Euros.

Provopoulos stated ” Besides, there are 50 billion recapitalization, which are available to meet the needs of the banking system”  – This was the reason he gave for Greek citizens being compelled to pay the “emergency” property tax or have the electricity cut off.

You have to ask the question, what is the point in a bank?

Banks are supposed to lend money and to give people somewhere safe to put their cash while earning a little bit of interest rather than putting that cash under the mattress.

What we now see in Greece is Greek banks refusing all loans regardless of collateral and we see savers losing money to inflation by putting their money in Greek banks.

And in addition to the failure of these two key services , Greek taxpayers are being forced to pump billions into these banks. Banks which do not give loans and which do not reward their savers.

Banks in Greece have reached a level where their only use is to allow people to transfer money from one place to another. Surely there must be a cheaper alternative  An alternative which does not involve Greeks paying an extra 500 Euros a year in an “emergency” property tax which is enforced with the threat of a person’s electricity being cut off if they do not pay.

And you have to ask. How systematically important can the Greek banks be if their only function is moving people’s money around? I expect PayPal to get a bailout at any moment.

Back in 2008 it was agreed that it was bad that there were banks that were “too big to fail”

I think politicians around the world were in agreement that taxpayers should not be put in a position in future where they were forced to take on the loses of reckless gambles by bankers.

And yet today we have the Greek central bank governor saying the following

Proceeding the [merger] deal [between] National Bank Of Greece & Eurobank Mr. Provopoulos said that there is an issue on the part of the troika of the impending merger of the National Bank by Eurobank. “They do not like to have such a large bank with a market share of around 40%,” he said and stressed that he disagrees with this view. 

This is text-book Greek political, Orwellian DoubleThink.

In 2008 it was abhorrent that Greek taxpayers should be forced to pump billions into banks because they were too big. And yet today politicians are saying that making these same troubled banks even bigger is the answer to avoiding the “too big to fail” problem in future.

When listening to the words of central bankers it is important to understand their role if their words are to make any sense. Central banks have two key responsibilities.

1. To allow government to borrow money. 2008 has shown banks it is far easier to obtain large quantities of cash by threatening governments with economic collapse in order to get taxpayer bailouts than it is to have to deal with each taxpayer individually and deal with the risk of these taxpayers defaulting if the economy tanks.

Bailouts mean the banking sector only has to deal with one borrower ie the government. And that this borrower has no danger of defaulting as it is the only borrower that has the legal “right” to collect its money with the use of physical force.

2. To protect the major banks. The central bank has the power to create inflation in order to cover the borrowing needs of its customers ie the major banks.

With these two things in mind the words of Provopoulos, the Greek central bank governor make complete sense.

He knows it is much easier and safer for the banks he represents if they get their revenue through government in the form of tax increases. As stated above this means only having to deal with one borrower and a borrower that can use physical force in order to get paid.

Provopoulos is pushing governments to give his banks money so his solutions will always run along the lines of banks being to big to fail and government being the only entity large enough to save them.

In Greece the inflation option has been limited with the Euro which has put more pressure on central banks to extract money from government.

So in Greece today we see the Greek central bank governor pushing for the following.

1. More taxes

2. More bailouts

3. Make the too big too fail even bigger

4. For the government to cut their spending in the Greek economy by 1 billion Euros a month at a minimum

5. For the Greek government to pay back 50 billion Euros in debt by 2020

6. Do nothing to address the 1 billion Euro a month trade deficit.

And all this from an economy worth 200 billion Euros.

The trade deficit, government cuts and loan repayments on their own come to a total of 242 billion Euros less in the Greek economy by 2020. And this in an economy that is only worth 200 billion Euros a year.

Unless the banks in Greece are going to make up for the 242 billion Euros in the form of loans to the private sector the central bank governors threat of the quality of life of Greek citizens falling by 50-60% looks less and less like a threat and more and more like a prediction.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s