{"id":30132,"date":"2015-02-09T15:48:07","date_gmt":"2015-02-09T05:48:07","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=30132"},"modified":"2015-02-09T15:48:07","modified_gmt":"2015-02-09T05:48:07","slug":"greek-bank-deposit-migration-another-neo-liberal-smokescreen","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=30132","title":{"rendered":"Greek bank deposit migration – another neo-liberal smokescreen"},"content":{"rendered":"

\t\t\t\tThere was a news report on Al Jazeera on Friday (January 5, 2015) – Greece’s left-wing government meets eurozone reality<\/a> – which contained a classic quote about the supposed incompetence of the new Greek Finance Minister. A UK commentator, one Graham Bishop was quoted as saying “If you’re a professor of macroeconomics and a renowned blogger, you probably don’t understand precisely how the banking systems works”. Take a few minutes out to recover from the laughing fit you might have immediately succumbed to on reading that assessment. As if Bishop knows ‘precisely’ how the system works! The context is the current news frenzy about the deposit migration out of Greek banks as a supposed vote of no confidence in the anti-austerity stand taken by Syriza. Having voted overwhelmingly for Syriza, Greeks are now allegedly voting against the platform by shifting their deposits out of the Greek banking system. A close look at things suggests that is not going on and it wouldn’t matter much if it was.
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Bishop makes money by promoting the European Union and the common currency. He advertises himself as the 33rd “Top 40 British EU policy ‘influencers'”. <\/p>\n

He previously worked in the financial markets. He was the UK representative on the European League for Economic Cooperation (ELEC) and at a meeting in Brussels on March 21, 1997 was on the record as supporting the proposition that (Source<\/a>):<\/p>\n

\n… the UK will not join EMU from the beginning, but will join probably later, after 4 or 5 years, for instance in 2002.\n<\/p><\/blockquote>\n

That was plain wrong.<\/p>\n

He also contributed to a 1997 Report published by the Centre for European Reform (CER) – Britain and EMU: The case for joining<\/a> – where he claimed that the Stability and Growth Pact (SGP) would “ensure that states cannot become liable for each others’ debts”.<\/p>\n

He also thought that if Britain joined the Eurozone, the financial sector in London “should be able to capture a substantial share of the euro market” which would be “a prize indeed for Britain joining EMU”.<\/p>\n

Interestingly, Financial Times columnist Martin Wolf also had a chapter in that Report where he concluded that “early entry into European economic and monetary union would be best for Britain”. He also noted that “both the benefits and costs of EMU are commonly exaggerated”. I guess he doesn’t agree with that now.<\/p>\n

In a 2006 Report – The Governance of the Eurozone<\/a> – which was produced by a team including Bishop, the Foreword stated:<\/p>\n

\nIt is hard to remember that EMU was the driving force of the European project less than a decade ago. Maybe we take the success of EMU for granted. Maybe we underestimate the success of EMU in preventing one generation from placing the burdens of debt and inflation on its successors.\n<\/p><\/blockquote>\n

That was a good call! Not!<\/p>\n

In 2008, before the crisis revealed itself, Bishop contributed to a volume – 10 Years of the Euro: New Perspectives for Britain<\/a> – published by a group who wanted “to help place the case for Britain joining the Euro back upon the political agenda and to provide the beginnings of an ongoing forum for its promotion”.<\/p>\n

Bishop praised the Eurozone’s decision to strengthen the SGP after the 2004 crisis involving Germany and France and its fiscal austerity.<\/p>\n

He said that “The sustainability, let alone credibility, of British fiscal policy is now being seriously questioned – with good reason”. So he was part of the bandwagon that lead to austerity being unecessarily imposed on Britain which worsened the recession.<\/p>\n

He wrote:<\/p>\n

\nBudget deficits have to be financed – either from domestic savings or from foreign inflows (assuming that the Bank of England’s banknote printing works at Debden will not be compelled to work overtime!) … the UK seems close to a vicious spiral in its public finances … Given the insufficiency of domestic savings and the imminent risk of a spiralling crowding out of private sector credit demands, the role of foreign inflows is vital.\n<\/p><\/blockquote>\n

So you see that the ’33rd top influencer’ was part of the throng predicting disaster for the UK government – none of which actually ever occurred, nor ever would have given that the UK is the currency issuer.<\/p>\n

To solve the alleged ‘crisis’ Bishop said that:<\/p>\n

\nUnder these circumstances, the creation of an anchor for sterling may require the certainty that this will never happen again. That would point to the abolition of sterling and its replacement by a currency that has already established a solid track record – the Euro.\n<\/p><\/blockquote>\n

So top call! (-: (smile inserted for Americans who might think I was serious – and that was a joke too!).<\/p>\n

Bishop should go on the speaking circuit with a cast including Jean-Claude Trichet who consistently praised the success of the Eurozone as unemployment was rising and growth rates were falling. After nearly 8 years of crisis, the level of GDP is still struggling to reach 2007 levels.<\/p>\n

If the UK was a member of the EMU, it would be locked into a prolonged crisis like all the Eurozone nations, including a poorly performing Germany. As it is, the Conservative government tried its hardest to replicate the sort of madness that was going on in the Eurozone.<\/p>\n

I think I would rather be a “a professor of macroeconomics” who apparently doesn’t “understand precisely how the banking systems works” than be the ’33rd top influencer’ who thinks the Eurozone has been such a success that currency-issuing governments like the UK should seek to be part of!<\/p>\n

In April 2011, he wrote an Op Ed piece for the – European Payments Council<\/a> – newsletter – More Europe is Needed, Not Less<\/a><\/p>\n

The EPC is a private organisation comprising banks and peak banking associations which lobbies policy makers on behalf of the commercial banks in relation to developments to the payments system.<\/p>\n

The newsletter introduced the Op Ed by claiming that the:<\/p>\n

\n… recent pressures on the single currency resulting from the fiscal situation in several EU Member States.\n<\/p><\/blockquote>\n

You can see their bias.<\/p>\n

I would say that the “fiscal situation in several EU Member States resulted from the decision to adopt a single currency” and then refuse to create a single federal fiscal authority and, in its place, impose absurd fiscal rules on the fiscal operations of the Member States.<\/p>\n

In other words, the reverse causality.<\/p>\n

Bishop’s argument is that to solve the crisis (remember he was writing in 2011), European integration had to be extended. He praised the endeavour of EU politicians in launching the “Europe 2020 Strategy … [which] … sets out a vision to achieve high levels of employment, a low carbon economy, productivity and social cohesion”. His foresight was lacking.<\/p>\n

By 2015, there is virtually no hope that the targets set out in that strategy will be realised. It has been sabotaged from within – by the flawed policy framework introduced to deal with the crisis.<\/p>\n

But, relevant to today’s topic, Bishop also praised the – SEPA (the Single Euro Payments Area<\/a> – and claimed its impact “far exceeds payments, cash management and related services”.<\/p>\n

The SEPA started in February 2014 (for Eurozone nations) and replaced the national-level payments methods with an integrated and standardised payments system for the EU as a whole, which makes it easy to transfer euros from one bank to another. The aim was to create a EU-level payments system and eliminate the national clearing markets.<\/p>\n

SEPA means, for example, that a firm no longer needed multiple bank accounts across the national spaces in which it sold or procured. It meant that all payments (in or out) were standardised and transaction costs were thus reduced.<\/p>\n

Bishop claims that the SEPA:<\/p>\n

\n… establishes an effective ‘referendum veto’ to be exercised by citizens whose national governments might contemplate leaving the euro. In SEPA, citizens are empowered to embed the freedom and the choices associated with the single market so deeply in the economy to make it impossible for any EU government which adopted the euro to abandon the common currency …<\/p>\n

With SEPA, any citizen who fears that his homestate is about to leave the euro to implement a major devaluation can protect themselves by transferring their liquid funds into a bank in another euro country – in an instant and at negligible cost. In effect, this is a free option for all citizens and amounts to an instantaneous referendum on government policy. Such an outflow of retail liquidity from a banking system would cause its rapid collapse.\n<\/p><\/blockquote>\n

The inference is that the institutional arrangements governing banking in the Eurozone would impose such costs on people that they become locked into the broader monetary union irrespective of how well it performs. That sounds like insanity to me but is consistent with the litany of decision-making mistakes that the European elites have made.<\/p>\n

But is he right?<\/p>\n

Well, I am just a professor of macroeconomics who doesn’t know how banking operates but here is a different picture.<\/p>\n

Bishop’s allegations were directed at the new Greek Finance Minister, who I can assure you knows quite a bit about the way banking operates. But he can defend himself.<\/p>\n

But the accusations are in the context of the flurry of news in the last few weeks about the allegedly ‘massive and crippling’ outflows of bank deposits from Greek banks as a sign that depositors are scared of Syriza’s decision to stand up to the unelected Troika.<\/p>\n

Following Bishop’s claims, if there are such outflows then this must mean the Greek voters – that is, people who vote! – are delivering a vote of no confidence in Syriza already – even before the election.<\/p>\n

Funny thing that despite that apparent vote of no confidence, Syriza were convincingly elected on an anti-austerity platform vowing to restore some degree of self-determination to Greek socio-economic outcomes. I have written before about why I think they will struggle while remaining within the Eurozone.<\/p>\n

The following sequence of recent blogs traced my thinking on the issue:<\/p>\n