Europe’s latest policy on Irish and Greek banking losses: A tale of two swindles too similar for comfort

Greece-IrelandThe Irish and the Greeks are, in many ways, very different people. And yet, caught up in the Euro Crisis, our fortunes have become too close for comfort. Recently, European authorities have devised a creative new method for damaging the people of Ireland and of Greece further. The new method involved imposed changes on the public financing of bank recapitalisations that shift even greater burdens on taxpayers and on the weaker members of our societies. This article examines the changes and answers the pertinent question: Why is Europe doing this?


When the Irish banks imploded, the European Central Bank famously leant on Dublin to bail them out. Thus the Irish government, without the consent of the Irish electorate, offered the bankrupt bankers so-called Promissory Notes which, as every Irishman and Irishwoman knows, bankrupted the nation, brought mass emigration back and condemned the majority to untold hardship.

The Promissory Notes specified regular payments by the Irish Treasury to the bearer of the notes. The payments were steep and to be paid in a few years, thus causing both the liquidity crisis of the public sector and the insolvency of the Irish state. The Irish Banks deposited the Promissory Notes as collateral with Ireland’s Central Bank, drawing liquidity in the process from the latter’s ELA (emergency liquidity assistance program) and repaying their (mostly German) bondholders.

After the change in government, the new Irish government bowed to the ECB’s pressure not to haircut or restructure these Promissory Notes. Instead, Dublin adopted the ‘model prisoner’ strategy: Do as we are told hoping for a reprieve, in the form of a restructuring of the Promissory Notes. For two years the Irish government has been petitioning Brussels and Frankfurt to elongate the Promissory Note repayment schedule. The ECB was adamant that there should be no loss of present value to the bearers of the Notes. It won the day. The Notes were, eventually, swapped for new interest-bearing Irish government bonds (in contrast to the Promissory Notes that had no interest compoment attached to them). Once Anglo-Irish Bank was liquidated, its assets (including promissory notes that Anglo-Irish had deposited with the Irish Central Bank as collateral for loans under the Irish ELA) were turned over to the Irish Central Bank, and so the latter ended up holding some of the fresh government bonds that were swapped for the Notes.

What seems to be happening now is that the ECB is pressurising the Central Bank of Ireland to reduce its assets by selling the government bonds it swapped for the Notes that it used to hold. Why? Because the ECB considers the ELA transactions to have been a form of government financing that it allowed during the crisis’ peak but which it now wants to roll back. But if the Irish Central Bank does sell these bonds to the private sector, this will strike another blow at the Irish taxpayer. Why? Because these bonds come with considerable coupons (i.e. interest) that will have to be repaid over a long period. Had the bonds been retained by the Irish Central Bank, the latter would be obliged to return these interest payments to the Irish Treasury (as profits from monetary operations). Now, it seems that hedge funds and assorted financial predators will take another chunk of Ireland’s diminished income. Moreover, a sale of bonds today will involve a haircut (as Irish government bonds are not trading at face value, despite having recovered significantly in recent months) that will, in due course, burden the Treasury further. And guess who will pay for this burden…


Following the haircut of Greece’s public debt held by the private sector (the so-called PSI) in the Spring of 2012, the Greek government was compelled to compensate the Greek banks. Indeed, the banks had just lost €38 billion from the PSI and they were bankrupt to all intents and purposes. So, Greece’s second bailout (that came along with the PSI) had set aside… €50 billion that the government would borrow from Europe’s ‘bailout’ fund (the EFSF-ESM) in order to recapitalise the banks. In effect, the bankrupt Greek state was forced by Europe to borrow from Europe on behalf of the bankrupt Greek bankers and ensure that the latter receive these capital injections without losing control of ‘their’ banks.

To allow the bankers to keep control of the banks, Greek Parliament had to legislate that if the bankers could show that they could raise 10% of the additional capital, the Greek state would put in the remaining 90% of required capital (money that the taxpayer would borrow from Europe) but have no control over the running of the banks. And as if that were not enough, the same piece of legislation specified that the privateers would receive (with their shares) something called ‘warrants’. Warrants are, essentially, options to buy more shares at the original low share price. Put differently, the state was not only allowing the bankers to remain in control of the banks they bankrupted, but committed itself to passing on whatever increase share prices achieved to the bankers. Tails the state lost, heads the bankers won. Simple!

Naturally, these insanely generous terms, especially the warrants, caused a whirlpool of speculative interest in the banks. Once Chancellor Merkel had impressed the markets that Greece would not be thrown out of the Eurozone, and therefore, that Greek banks would not be declared bankrupt (even if they are!), hedge funds began to recognise the great opportunity in purchasing Greek bank shares and targeting the lucrative ‘warrants’. (Click here for Mr John Paulson’s enthusiastic participation in this racket.)

This week, as part of a complex bill of ‘reforms’ that the government had to pass through Parliament in order to be granted another loan tranche of €9.2 billion (so as to repay part of its unpayable debts), a change in the bank re-capitalisation rules was slipped in in relative silence and in a manner that the vast majority of Parliamentarians failed to notice. The sub-clause allowed the government’s Financial Stability Fund (that owns the bank shares following their recapitalisation last year) to stay out of the new share issues that the banks are indulging in these days. It sounds benign. Only it is not!

By allowing for new shares to be issued at prices well below those that the Greek FSF (i.e. the Greek citizens) paid for the shares that recapitalised the banks last year, the shares that the FSF retains lost value while the FSF’s equity in the banks was diluted substantially. In short, the public was shortchanged, in ways that are not dissimilar to what transpired this week in Ireland.


The common thread between these fresh assaults on the Irish and the Greek people, is the European Central Bank; the truly guilty party here. In Ireland’s case, the ECB imposed further losses on the Irish by forcing Ireland’s Central Bank to sell (at a discount) government bonds that should be held to maturity so as to minimise the cost to the Irish people. In Greece’s case, the ECB allowed for (and, indeed, encouraged) a change in the rules of bank re-capitalisation that increase the effective transfer of wealth from the exhausted Greek public to the bankrupt and corrupt bankers (who, in turn, back Greece’s political and media establishment).

Why is the ECB doing this? There are two main reasons. One is ideological, fundamentalist, pig-headedness. The other is cynicism. The fundamentalist dimension has to do with a pathological fear of debt monetisation (in the case of the Irish Central Bank) and of public ownership of banks (in Greece’s case). Turning now to cynicism, the fact is that the ECB (following the so-called ‘banking union) knows that it will have (from next November) to evaluate the assets of these banks, in the full knowledge that: (a) they are bankrupt, and (b) the ECB cannot say that they are bankrupt as it lacks the capacity to recapitalise them (i.e. it is not like the Fed that can call the FDIC in). So, in order to allow itself room to pretend that the banks of Ireland and Greece are not insolvent, it is pressurizing Dublin and Athens to transfer additional wealth to the bankers. It is that simple…




15 thoughts on “Europe’s latest policy on Irish and Greek banking losses: A tale of two swindles too similar for comfort

  1. Yanis, with regard to “The Irish Banks […] repaying their (mostly German) bondholders” kindly provide verifyable proof that the majority of said bonds were hold by Germans.

    And, even If I may sound like a broken record: it was and still is solely up to the people in Greec and Ireland to stop this charade. Default, leave the Eurozone, get rid of your plutocrats and banksters and other ‘elites’ which brought upon your nations the problems you are in now. Then start all over. Should have been done years ago, should still be done.

    • Ditto, spot on. I’d be particularly interested in the part about a “verifyable proof that the majority of said bonds were hold by Germans.”

  2. You want to know why this persecution of the poor to enrich the banksters is happening?

    Look into UN Agenda 21. & the Georgia Guidestones.

    Pay zero attention to Wikipedias’ lies. That’s the “sustainability” sh1te the “Environmentalist” movement is built on, & you can’t build anything on sh1te.

    Google instead agenda 21 for dummies, & get the truth.

    Briefly as poss, Agenda 21 plans:
    1) The abolition of nations, & the establishment of One World Govt, under Bankster control, free of politicians.
    2) The abolition of most of the World population, down from ~ 7 billion to ~ 500,000,000.
    This means “doing away with 13 of 14 now alive. This means your sons, daughters, grandsons & granddaughters.
    3) The impoverishment of each continent to the same agrarian standard of living.
    4) The abolition of the family.

    It’s basically the Marxist manifesto, with a vast depopulation plot thrown in.
    To the benefit of the Bankster 1%s, their crony corporations, the non-taxpaying multinationals,
    & the mad Marxists, open or undeclared, who are doing the donkey work, & hoping to administer the Mad New World.
    All the Bought & Paid for politicians, the EU fanatics, Common Purpose, & WWF, Greenpeace, Sierra Club, etc etc.

    Go on Youtube & put in Lord Monckton on United Nations Agenda 21. 51 mins.
    Try: & his Essay: Overpopulation, the Fallacy behind the fallacy of Global Warming.
    Google the Georgia Guidestones.

    Happy reading. Fact is stranger than fiction.

    John Doran.

  3. Pingback: Yanis Varoufakis: Europe’s Latest Policy on Irish and Greek Banking losses – Two Swindles Too Similar for Comfort | naked capitalism

  4. But why are you complaining? If your beloved Eurozone is to survive, these or similar shenanigans are necessary. Everything else is “unconstitutional”. So, now that Draghi’s “whatever it takes” happens, don’t tell me that you are surprised at the “whatever” that was taken

    Really, you remind me–ideologically speaking–of the battered wife who bitterly complains of the brutality she suffers, but who abhors the thought of dumping the beast [i.e. your pro Euro stance, just so I am not misunderstood]. A clear case of Stockholm syndrome, my friend.

  5. we was a bunch of pink skined paddy try to use olive oil as suntan lotion.. hehhe and try to find tomatoe greenhouse to pluck to pay for the olive oil. hehhe.. ahh the picture is on the net yet.

    tale of two strumpet city

  6. not yet read all of this article.. but as a paddy i just cant hold me tongue.

    end of last summer in Dublin notice st. fruit sellers, ye know Moore st. and local bar owner or somethink, exchange stree insults in a friendly way.. while queue in bank grow longer and longer an longer.

    still not sure why persons are queueing inside banks.. well i do buh

  7. Why is the ECB & local Irish estate managers doing this ?
    The author clearly does not understand or pretends to not understand capitalism as defined by agrarian Belloc or Industrial CH Douglas.

    In their view the objective of capitalism was to simply increase the concentration of capital claims and nothing else baby.
    The Euro zone is in a British banking union 19th century phase.
    Famine on the periphery is therefore a success for the greater project as it reduces the redundancy of possible problem areas and concentrates power even further up the apex.
    We are witnessing a extreme example of this will to power in front of our very eyes.
    A quite horrid display I might add.
    It is however quite surprising to me that we have not seen a Plantagenet who will evict or exterminate the financial class.
    I guess such a brutal & ballsy King would never rise to power under these present specific 7 cultured (as in petri dish) power dynamics.

    The Gaelic people will never get it.
    They fought the most brutal wars against the mad and cruel Plantagenets and yet the real enemy was behind them as was proven by subsequent Tudor events on the ground…………….
    The lesson for our time.
    You really need a King that’s a bit mad in the head.

    • I guess you think Parliament will save you ………..
      And you call be a silly man !!!!!!!
      Parliament & the executive is the oligarchy – albeit the local oligarchy in Irelands case.
      They will put their stamp on any banking policy put forward or simply remain quiet so as to maintain their own personal wealth claims on this gigantic entropy experiment called Europe.

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