The European Crisis on Greek government bonds has puzzled the big audiences especially in Northern Europe. Many citizens bombarded by irresponsible tabloids assumed that their governments have lent enormous amount of money to Greece which these people are not willing to repay because they are either too lazy or too corrupt or just showing a mentality of irresponsible borrowing. Even those citizens who support a haircut for Greek debt are in favour of doing so out of charity and not because they have understood the mechanisms.
The truth is a bit more startling. Credit was extended to Greece by multi-national banks in order to make more profit from increased interest payments than it was possible in their own countries. The terms on duration, interest rate and refinancing were so favourable to the creditors that even since 2008 the lending has increased the debt of Greece by a third. Over this period, Greece did not get any fresh money for their real economy which collapsed. Interest and refinancing cost continued to further pile up, and this in a case of a bankrupt country. The situation should have led to a total devaluation of such irresponsible credit claims, however, the creditors had provided this credit, because they speculated that state sovereign bonds in the Eurozone would be rescued by the ECB. They were indeed right. EU, IMF, ECB, and Member State banks bought these bonds at unknown prices even before the 1 trillion euro action that is referred to with the appeasing term “quantitative easing”. They saved their banks from failure and especially from a discussion about moral hazard, because now the public interest turned into a creditor. That all the money was simply given to satisfy private banks became rather invisible to the public.
To help prevent a similar disaster (and media misreporting) in the future, we should think about disclosure laws for banks which oblige them to indicate to whom and for what purposes they have given the money of their savers. This would enable the public to function as an early warning system as it is presently proposed by the ministry of justice in Germany who has allocated money to the consumer organisations to fulfil the role of a “market watchdog” for banks. In this environment, and as a response to the greater need for bank transparency and accountability, it is interesting for Europeans to learn that in the USA the idea of bank responsibility and transparency with regard to lending to low income neighbourhoods (Community Reinvestment Act) also has repercussions for the general responsibilities of banks to disclose their lending practices to the general public. Coalition partner, John Taylor the president and CEO of our sister organisation in the US wrote in an email:
“Among other features of our financial protection law (Wall Street Reform & Consumer Protection Act) passed 5 years ago also called The Dodd-Frank Act was a section about companies in the US having to report when they give money to governments to do oil, gas other mineral exploration. Section 1504, also known as the Cardin-Lugar provision, with bi- partisan support, requires all oil, gas, and mining companies listed on US stock exchanges to disclose payments made to governments around the world for each project. I thought you or some of our colleagues might find this helpful.“
John Taylor, NCRC President & CEO, www.ncrc.org