Quietly, without any of the stomping that accompanied Greece's “bail-out”, the European Central Bank has lent European banks more than a trillion euros at ultra-low interest rates, in two tranches, one in December and one in February.
This is equivalent to an outright subsidy to the banks of maybe €120 billion over the coming three years.
Banks borrowing cash cheaply from the ECB, at one per cent interest a year, can then use the same cash to buy Italian or Spanish government bonds at about 5% interest a year.
So long as Italy and Spain don’t go bust, the banks make a net gain of 4% a year. 4% of €1 trillion, multiplied by three years, equals €120 billion.
Part of the object of the operation is to make sure that Italy and Spain, though they will have to make destructive cuts — youth unemployment in Spain is now almost 50% — will not in fact go bust. If banks are buying up fresh-issued Italian and Spanish bonds, and with their easy cash they are doing that, then the Italian and Spanish governments can pay off their old debts by arranging new ones.
Alternatively, banks can use the cheap borrowing from the ECB as a substitute for raising cash the way they otherwise would have done, and gain that way.
Banks, like governments, issue bonds (tradable IOUs). Over 2012-4, €1.1 trillion of those bonds “mature”: that is, the IOUs fall due for repayment. In normal conditions, the banks would replace the old debt by new debt, selling new bonds for approximately the same amount.
In late 2011, there was considerable doubt whether the banks would be able to sell that amount of new bonds, or at least whether they would be able to do it without offering a costly high “coupon” (interest) rate on them. Just before the first ECB handout, the market “yield” (interest rate) on old European bank bonds reached 5.5%, and it looked as if banks might have to offer something like that rate to make new bonds saleable.
If the banks can get €1tn from the ECB at 1 per cent interest, instead of having to pay 5 per cent interest to get the same amount by selling bonds, then, again, their gain is €120 billion.
It is pretty much the same sum as the amount lent (not given) to the Greek government by the EU/ ECB/ IMF “troika”, and lent not for the Greek government to spend as it wishes but for the Greek government to pass on, straight away, to the banks holding its IOUs.
In return for its EU/ ECB/ IMF loans, the Greek government, and Greece’s biggest political parties, have had to sign up to a raft of detailed and intrusive conditions, involving not just budget cuts but also changes in Greek law, guarantees that paying bondholders will come before any spending on Greece's own public purposes, and agreements to have Greek ministries supervised by outside officials.
In return for their trillion, the banks have had to do... nothing.
Their bosses can do with the trillion what they like. They can use it to make big profits and pay big bonuses to themselves. If they use it foolishly and end up making new losses, why then the governments and the ECB will bail them out again.
It is the same story with the British banks and the British government in 2008. The British government put a total of £1100 billion (about €1.32 trillion) into the banks, in cash (share purchases), loans, and guarantees. That is ten times as much as the supposed “bail-out” for the whole country of Greece!
Even those banks that had so many of their shares bought up that they became nationalised had no conditions demanded from them for this money.
Even with the nationalised banks, the Government does no more than beg and cajole them to restrain their bonuses and to lend a bit more to small businesses, and the bankers largely ignore the pleas.
The reason for this is not that the Government favours bankers above industrial bosses. It is that it favours capital above workers.
The difference between banks and most industrial and commercial businesses is that the banks are larger and more central in the networks of capital. When Woolworths went bust, it was no great blow to the capitalist class in general, and it even brought advantages to some of Woolworth’s competitors. There was no motive for the capitalist class as a whole to press the Government to intervene and “bail out” the company.
If a sizeable bank goes bust, that is different. Its collapse is likely to bring down other banks that have dealings with it, and maybe industrial and commercial businesses that have dealings with the banks.
On the other hand, if the banks are kept afloat, and keep supplying credit at least to the biggest industrial and commercial companies, then “bailing out” the banks is also “bailing out” big capital in general.
The government functions as the means to guarantee a smooth run for the banks and big business in the boom periods (“privatisation of gains”); to bail them out in crises (“socialisation of losses”); and to squeeze down workers' pay and conditions in the crisis periods, the better to enable high profits in the recovery when it comes.
On the scale of the sums being funnelled into banks and big business, the social cuts being imposed in Britain and even in Greece are tiny.
On the scale of human life, they are huge.
The issue, which comes first, capital or human life? Subsidise the banks — or expropriate them, and use public control of their funds to redirect investment to social ends?