Railroading of Greece Is Moving Fast, To "Save Eurozone"

July 17, 2015

Following the Greek Parliament's vote to approve the EU's draconian bailout agreements, frantic steps are being taken to save the Eurozone. Yesterday began with a statement by Klaus Regling, the head of the European Stability Mechanism (ESM), i.e., the bailout fund, that if a bailout is not worked out, the Greek banking system could collapse with serious consequences for the entire Eurozone.

The European Central Bank (ECB) in fact created the Greek banking crisis when it cut Greece off from normal liquidity operations as soon as the new government took power last January. It then exacerbated the crisis by extending only emergency liquidity at levels below what banks needed to function; and finally, it cut them off completely when the government called the July 5th referendum. In a statement to German broadcaster ARD, Regling warned that not only could Greek banks collapse without a third bailout, but that if "the four biggest, systemically relevant banks in a country no longer work, this has grave consequences not just for Greece ... but also for the whole Eurozone."

Shortly afterward, the Eurogroup issued a statement welcoming the Greek Parliament's vote approving the loan agreement. They pointed out that another vote will have to take place on July 22 to pass another set of agreements.

The Eurogroup gave its approval for a "bridge loan" of EU7 billion to be doled out by the ESM. This three-month loan, which Greece could only pay back with more bailout loans, will be used to make payments on July 20 and again in August on Greek bonds held by the ECB. It will also be used to pay the IMF.

Also yesterday, ECB President Mario Draghi announced that emergency liquidity to Greek banks will restart with a miserly EU900 million, almost the lowest amount in six months. Draghi had the nerve to claim that the ECB had been overly generous to Greece. As for debt restructuring, he said, "It is uncontroversial that debt relief is necessary." He also confirmed that the bank will receive the EU4.2 billion payment on July 20, as would the IMF.

Nonetheless, he continued to criticize Athens, saying that doubts remain concerning the willingness and capacity of the Greek government to push through the economic reforms demanded by creditors. Draghi's statement was made after the Greek Parliament's vote earlier yesterday. In a not-so-subtle threat he said, "No matter whom you talk to, there are questions about implementation will and capacity," adding that it was up to Athens to assuage such doubts.