Johan Van Overtveldt
Belgian website’s banker mole reveals stunning truth
Yesterday, the Belgian website Trends led with an investigative article using a mole inside the Bank of Greece. The allegation – put forward by prominent economics writer Johan Van Overtveldt – is that the Bank has run out of money from other sources, and is simply printing its own euros to keep the other Greek majors afloat.
Johan Van Overtveldt is a director of Belgium-based economics think-tank VKW Metena and a regular columnist for publications such as Knack, Trends, De Tijd and The Wall Street Journal Europe. His main areas of focus are history of economic thought, macroeconomics, industrial economics, international politics and terrorism.
Thanks to Slogger Gemz, there is a translation of the article below:
‘We will call him Dimitriou, from the name on the picture of the waiter who serves us in one of the hotel restaurants in Syntagma Square. After a brief introduction Dimitriou pressed me by the the hand and informs me of the success of the Greek edition of my book.
It is noteworthy that he immediately takes me to a table which has a clear view of the restaurant’s entrance. Dimitriou is not really nervous, but he knows that he is doing something that he ought not do. That is to say, speaking off the record with a journalist about the Bank of Greece. It is one of the central banks that form part of the system of the ECB.
Dimitiriou describes to me his job function at the Bank of Greece. It is just under the directorate of the Bank, a high position let us say. Central to his story, is the ELA program. This stands for Emergency Liquidity Assistance, a kind of emergency program where national banks that are part of the ECB system can fall back on in case of an unexpected emergency.
Ireland uses this mechanism a lot, and for the last few months, the Greek use of the ELA facility has grown substantially. By the end of November this amounted to some €43bn. On the 8th of March the Greek parlament voted that this utilization could go up to €90bn, and according to Dimitriou this will be used. Besides this, Greek banks have called on €73bn in liquidity from the ECB through normal channels* [*Klaus Kastner speaks of this at length].
Dimitriou tells his story of the ELA and of the Greek bankruptcy: “The normal way of things is that banks with liquidity problems offer assets to the ECB. In exchange euros are transferred to the bank in question. This so-called collateral could be anything: bonds from the bank’s portfolio, outstanding loan packages, and so on. The ECB investigates the value of this collateral and on the basis of this will take 70% to 90% of the value into account. The problem is that Greek banks have nothing more to offer the ECB. With the €73bn already taken up by the banks, these banks are at the end of the road. Given the continued flight of capital [out of Greece] the banks are having to cough up more of their remaining liquid funds. This is now happening through the ELA mechanism.”
Dimitriou knows that the capital flight from Greece is around €60bn, and this is the puzzling part, around a third of the Greek GDP. [!!] How does this square with the ELA mechanism? Dimitriou looks me straight in the eye and says in a soft voice “Greece is printing its own Euros. The bank of Greece credits the accounts of Greek banks that would have been shutting their doors but for the emergency funds. All Greek banks are effectively bankrupt, it is that simple. These zombie banks can only survive through these ELA injections. Within the ECB system the only collateral for the euros created within the ELA mechanism – is the guarantee of the Greek state. I do not know what you think of this, but my humble opinion is that this guarantee is as good as worthless. You can change all sorts of declarations about the whys and wherefores of these operations, but believe me, the basic fact is simple: only by allowing the Greek central bank to print euros [create euros] can you avoid the implosion of the entire Greek financial system, with all the consequences that this would have for the eurosystem as a whole”.
The second rescue package that was given to Greece with the debt allowance of €100bn is an eye-catcher is just another fix? Dimitriou says “Yes; first and foremost: how long will this take to become fully operational. Every day the Greek banks are continuing to bleed. Secondly: more than 60% of the aid to Greece does not even come into the country, most of it goes to [private] banks in other countries. Thirdly: how does this aid package help the Greek economy to grow? I simply cannot see this, you know. It wins a little time, in my estimation six months at most and that is being optimistic. In the meantime, the instructions of the government and from the top of the Bank of Greece are quite clear: keep pumping from the ELA well!’
This is the first evidence I have seen of straightforward money-printing going on. Other indirect methods are of course being used throughout the eurozone, but the imputation of this piece is that this action in Athens is either unauthorised – or Mario Draghi is turning a blind eye to it.
the pretence that Greece can any longer remain in the eurozone?
And the answer – as I posted a few days back
– is that (as this article confirms) Greece is running up an ever-bigger debt at the ECB; if it leaves the ezone, that will become one whopping great bad debt.