Why are Philippine funds being used to bail out irresponsible European banks?

Jun 25

The Philippine government’s decision to extend a $1 billion loan to the International Monetary Fund (IMF) to supplement the Fund’s war chest of $456 billion to contain the economic crisis in Europe has been justified as assistance to countries in dire need of financial help. It will do no such thing. The IMF funds may be nominally earmarked for Greece, Spain, or Ireland, but they will actually flow to the big banks that made loans to these countries. A supply-driven crisis As in the United States, the financial crisis in Europe is a supply-driven-crisis, as the big European banks sought high-profit, quick return substitutes like real estate lending and speculation in financial derivatives for industrial and agricultural investment. German and French private banks hold some 70 per cent of Greece’s $400 billion debt.  German banks were great buyers of the toxic subprime assets from US financial institutions, and they applied the same lack of discrimination to buying Greek government bonds. For their part, even as the financial crisis unfolded, French banks, according to the Bank of International Settlements, increased their lending to Greece by 23 per cent, to Spain by 11 per cent, and to Portugal by 26 per cent. Indeed, in their drive to raise more and more profits from lending to governments, local banks, and real estate developers, Europe’s banks poured $2.5 trillion into Ireland, Greece, Portugal, and Spain.  It is said that these countries’ membership in the euro deceived the banks into thinking that their loans were safe since they were implicitly backed with the economic power of the Eurozone’s most powerful economies, meaning Germany and France.  Not only was this a lame excuse for not looking into a debtor’s financial health, which every bank is obligated to do.  More likely, a country’s membership in the euro provided the much-needed justification for unleashing the tremendous surplus funds the banks possessed that would create no profits by simply lying in the banks’ vaults. Rescuing the banks The so-called rescue funds are pretty much like the $700 billion Troubled Assets Relief Program (TARP) that injected money into the United States’ top financial institutions to keep them from crashing into bankruptcy in 2008.   Like TARP, the European bailout funds...

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