To protect themselves, the creditors went so far as to include a clause guaranteeing that Greece will have to honor its obligations even if the agreements are proven to be illegal!
by Olivier Bonfond , Renaud Vivien
Under the Securities Market Program (SMP) which lasted between May 2010 and September 2012, the ECB purchased Greek bonds for less than their face value on the secondary debt market, i.e. the “second-hand” market where debt securities are sold and bought based on supply and demand. Much like the vulture funds, the ECB paid € 40 billion to buy Greek bonds from several private banks and is now demanding that Greece fully repay their face value, that is, € 55 billion plus the interest.
Another inherent feature of the vulture funds’ strategy is that they systematically refuse to partake in debt restructuring schemes. This is also true of the ECB, which ruled out any participation in the 2012 Greek debt restructuring. It even exerted pressure to prevent a debt reduction in 2010 although the debt was already unsustainable.
As stated by Panagiotis Roumeliotis, a former representative of Greece to the IMF, during a hearing before the Greek Parliament, the Frenchman Jean-Claude Trichet, then President of the ECB, “was among the ones who led the case against a debt restructuring by threatening to starve Greece of cash. In reality, Mr. Trichet was bluffing in an attempt to save the French and German banks”.
The goal was to give them the time to be repaid thanks to the loan extended by the Troika and to get rid of their Greek bonds on the secondary market through the SMP. It is worth recalling that in 2010 the bulk of Greece’s debt was in the hands of only 7 banks (3 French and 4 German banks); that was before the intervention of the Troika, now renamed “the Institutions” – namely the IMF, the ECB, the European Commission and the European Stability Mechanism.
The report of the audit commission established that over 80 per cent of the € 240 billion in loans granted by the Troika in 2010 and 2012 went directly back to repay around twenty private banks. A significant share of the money never even reached Greek soil and simply passed through an ad hoc account opened at the ECB. By allowing these banks to remain immune from the bursting of the private-credit bubble they themselves had created, this bailout of private creditors by public institutions generated an illegitimate debt for the population.
A third similarity with the vulture funds: the ECB took advantage of the weak position of the debtor State to “negotiate” agreements that were clearly unbalanced. The so-called Institutions imposed upon Greece Memoranda which violate the rights of the Greek people and exacerbate the debt burden. Even worse, they did it knowingly. In an internal confidential document, the IMF wrote in March 2010 that the Memorandum it was about to sign would have dire social consequences and lead to a further increase in the Greek debt.
Moreover, the agreements signed since 2010 include abusive clauses revealing that Greece was forced to relinquish significant parts of its sovereignty. British law, which is very protective of creditors (and is given priority by the vulture funds), is now applicable in case of dispute. Under these agreements, the State also commits itself to fully forgo its immunity. In other words, Greece renounced any means of defense against its creditors, who – just like the vulture funds – can seize any assets belonging to the State as a form of repayment. To protect themselves, the creditors went so far as to include a clause guaranteeing that Greece will have to honor its obligations even if the agreements are proven to be illegal!
Illegality is indeed an issue. The austerity measures embedded in the Memoranda directly violate several provisions of Greek, European and international law. These violations engage the responsibility of the Institutions, including the ECB, whose acts violate the rules of the European Union and its own statutes.
For instance, the SMP is conditioned on the implementation of austerity measures, which is clearly a breach of its statutes and the principle of “independence” of the ECB, enshrined in article 130 of the Treaty on the Functioning of the European Union (TFEU). In engaging in such political blackmail, the bank blatantly oversteps its mandate, unlike the vulture funds, which are solely driven by profit.
Recently the ECB also abused its power by stifling the Greek banks in order to force the Syriza government to yield. Yet, as a central bank, it is supposed to be the lender of last resort and take steps to avoid any instability or bank run. Thus in that capacity it should have provided the Greek financial institutions with the necessary funds. All these actions and pressures by the ECB are irregularities that nullify Greece’s commitments towards the institution.