How and Why the Banking Crisis Was Allowed to Put Sovereign Nations and the EU at Risk
Sometime in 2001/2002, EU Finance Ministers met in Lisbon and decided to deregulate the EU's banking system, so as to compete with the Greenspan - led deregulation taking place in the U.S.
This, in my opinion was the beginning of the end for the Euro. This was when the bankers' lobby started to wrestle control of how Europe was and would be run. It was the beginning of the profligate interbank lending and cross-collaterallisation of loans, as well as the invention of all types of weird and wonderful derivatives that because of their complexity needed close scrutiny. The type of scrutiny EU Governments decided at their meeting in Lisbon was no longer needed.
The reaction to the current crisis, therefore has been banker - led / the ECB, rather than sovereign government - led /the EU and EC.
The decision by the Fianna Faíl - led Government to guarantee €440 billion of private bank debt on Sept. 29th 2008 was about the worst decision in human history, but it was a 2-year guarantee and was due to run out on the same date in 2010. As we now know, under pressure from the ECB, it was decided that the Guarantee would be extended indefinitely. ECB policy at the time and still was that no Eurozone bank would be allowed fail and the cost of recapitalising any Eurozone bank would be the sole responsibility of the sovereign nation in which that bank was licenced.
The reaction of the sovereign bondmarkets in Sept 2010 was to immediately begin a run on Ireland and we were promptly priced out of the sovereign bondmarkets. The excuse by the eejits running the country at the time was that some utterances from Merkel about burden-sharing in 2013 were the cause of the rise in bond rates. The real reason was, as just last week Alan Ahearne confirmed, and as I had been saying at the time, the sovereign bondmarkets decided that giving their money to a country, so that country could use it to bailout private banks and bondholders was not a wise investment.
The same thing has just happened in Spain and this time there was no utterances from Merkel about burden-sharing, to use as an excuse.
Now the obvious question. If as the ECB believes saving all of the Eurozone's banks with Sovereign money is such a good idea and will solve the crisis, why are the sovereign bondmarkets not piling into these sovereigns?
The sovereign bondmarkets obviously do not think that these banks are worth saving, or can be saved at all.
In my humble opinion Europe's and the Euro's problem is the ECB. An institution who's independence was meant to avoid political interference has had that independence hijacked by big banks and especially the big banks in Germany. Hence the massive, forced transfer of sovereign wealth to big German banks, funnelled through the private banks of Ireland, Spain, Greece and Italy.
The smaller nations in the Eurozone have to ask themselves this question. Do you want to be a member of a Union, in which the main player in this Union would openly persecute you, in order to save their Banks?