Why Is the Greek Problem Bigger Than the Greek Debt?

by Georgi Stankov, June 20, 2015


The Greek debt is estimated to be about 350 billion € and about 270 -280 billion € of it is held by the ECB. There is no way that this already bankrupt, deep in the depression, created by the enforced austerity policy of the Troika, country can pay back its debt. And everybody knows this. We witness nowadays a classical Greek tragedy in the best Sophocles’ tradition with a predetermined end from the very beginning.

All current negotiations are thus a political and financial farce to hide the bigger truth: What will happen with other bigger EU countries that have the same national debt compared to GDP as Greece but are now hiding behind the shadow of the crumbling away Acropolis. These are Great Britain, Spain, Italy and also France. Greece is the “Gretchen-Question” (Goethe) not only for Germany, but also for the whole EU and its artificial fiat currency: Do you still believe in the Euro? It needs only one exit from the Euro-church – the Grexit –  and the whole religious community of €-believers will collapse overnight.

Greece cannot be saved for the same reason for which the Fed cannot raise its interest rates that are zero since the latest biggest depression began in 2008 and is rapidly deepening this year. It is the existence of gargantuan sums of worthless collaterals, on which the current Orion monetary system is based.

Only two days ago I wrote that the Fed failed one more time at its regular meeting to raise the interest rates because they are linked to collaterals in the form of derivatives with the total amount of $555 trillion.  This sum is greater than 800% of the global GDP.

But what is collateral?

Collateral is an underlying asset that is pledged when a party enters into a financial arrangement. It is essentially a promise that, should things go awry, you have some “thing” that is of value, which the other party can get access to in order to compensate them for their losses.

For large European banks, EU nation sovereign debt such as the Greek debt is the collateral on which hundreds of trillions of Euros worth of derivative trades are based. This story has been completely ignored by the MSM and even the alternative media do not fully grasp the problem. But when I tell you the facts below, you will begin to understand what really happened during the Greek bailouts and what will happen very soon.

Before the second Greek bailout in 2011, the ECB swapped out all of its Greek sovereign bonds for new bonds that would not take a haircut. In the follow-up of the second Greek bailout, the ECB had been allowing European nations and banks to dump sovereign bonds onto its balance sheet in exchange for cash. This occurred via two schemes, called LTRO 1 and LTRO 2 which happened in December 2011 and February 2012 respectively. Collectively, these moves resulted in EU financial entities and nations dumping over €1 trillion in sovereign bonds onto the ECB’s debt (balance) sheet, thus following the footsteps of the Fed with its four QE since 2008 that expanded its debt (balance) sheet to more than 4 trillion $. I put “balance” for “balance sheet” in brackets as there is no balance in the central banks’ portfolio – it is all debt.

From the total €280 billion Greek debt to ECB, some 80% of the money went to EU banks, in particular to major French and German banks, that were the big Greek bondholders, and not in the Greek economy. These banks were de facto bankrupt since 2008, such as Deutsche Bank and Paribas.

In other words, the Greek debt became the debt (balance) sheet of the ECB to bail out bankrupt French and German banks. So, when the ECB swapped out its Greek bonds for new bonds that would not take a haircut during the second Greek bailout, the ECB was making sure that the Greek bonds on its balance sheet remained untouchable and as a result could still stand as high-grade collateral for the banks that had lent them to the ECB. So the ECB effectively allowed those banks that had dumped Greek sovereign bonds onto its balance sheet to avoid taking a loss… and not have to put up new collateral on their already bankrupt trade portfolios.

The truth of the second Greek bailout, which is in the core of the current failed discussions for a third Greek bailout is that 80% of the money went to EU banks that were Greek bondholders instead of the Greek economy. And even if there will be an agreement on a third bailout, the Greeks will see no money but will continue to bleed and pay a terrible price to the Reptilian Troika – ECB, EU and IMF.

The issue has always been about giving money to the EU banks that were using Greek bonds as collateral, to insure that they had enough capital on hand. The current negotiations with the new Greek government have actually nothing to do with helping Greece. Forget about Greece’s debt issues, or protests, or even the political skirmishes behind closed doors. The real story was that the bailouts were all about insuring that the EU banks that were using Greek bonds as collateral were kept whole by any means possible, given the fact that these banks were de facto bankrupt since 2008 as a recent stress test confirmed one more time.

The ECB and IMF are trying to punish Greece without hurting the larger EU banks and even do not hesitate to buy some Greek journalists to hide this narrative by adopting the weird point of view of the IMF female Reptilian Chief Christine Lagarde who announced only yesterday that she will only negotiate with adults, that is to say, the elected government of Greece constitutes only of unripe children. Orion arrogance in the purest form.

But why are the banksters (even the other Fed female Reptilian chief) and the criminal EU politicians making such a big deal about Greece, a country whose GDP is just 2% of the EU? Because whatever happens in Greece will be used as a template for much larger problems such as Spain, Italy, France and GB. Only the latter is not a problem of ECB as it has its own central bank, but the British national debt is equally gargantuan as the Greek and its economy – in a free fall.

Spain and Italy, by comparison, have €1.78 trillion and €1.87 trillion in external debt respectively. That is a heck of a lot of collateral that would be in BIG trouble in the event of a bond crash for either country. And both countries have bond yields that are spiking, which means these states have to pay more money to their debtors at a time when they have none.

Here’s Italy:

Hence what will happen with Greece next week, most probably as early as Monday, will reverberate throughout the world financial markets and not only in Europe or Greece and will trigger what I call the “Ultimate Big Crash” UBC. Because Greece cannot be saved and neither this failed Orion economy based entirely on debt. It is doomed to death – the Big Jubilee – and with this article the Last Judgment has been proclaimed. Sic transit gloria mundi.

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