By Michael Collins
(March 10) Wall Street is headed toward international pariah status thanks to two recent actions by the European Union (EU).
On Tuesday, the EU announced that it was banning Wall Street banks from the lucrative government bond business in Europe. They didn’t express official concern or fire off a warning shot. They simply banned Wall Street from financing government bond deals like the one Goldman Sachs sold to Greece. The Guardian pointed out that Wall Street bond business from European governments has gone down over the last two years. Now the business is gone period. In effect, the EU has labeled Wall Streets business tactics as too dangerous for their governments to handle.
Then on Wednesday, the President of the European Commission said that the EU was considering a ban on government debt speculation through Credit Default Swaps (CDS). President José Manuel Barroso announced that, “the Commission will examine closely the relevance of banning purely speculative naked sales on Credit Default Swaps of sovereign debt.” While not an outright ban, the threat of banning CDS on national debt would be a major loss for the world’s financial speculators, particularly those in the United States and Great Britain.
Greece is turning into a battle royal between the global financial elites and the average worker in the industrial West. This started out as a more limited struggle, pitting the finance ministers and central banks of the European Union against the Greek unions, but the fight has unexpectedly broadened with news of the surreptitious involvement of Goldman Sachs in helping Greece avoid borrowing constraints.
The picture painted in the Western financial press makes the unions the villain in this play. The unions are described as greedy, lazy, too quick to strike, and insensitive to the burdens they were imposing on the Greek economy. To cope with union threats and extortion, various Greek governments had no choice but to borrow excessively, and well beyond the European Union target range that allowed domestic budget deficits to be no higher than 3% of GDP. As of last year, Greece’s budget deficit was 12.7% of GDP.
The sheer level of these deficits – the highest in the European community – has spooked international investors and the ratings agencies like Moody’s, which have dropped the Greek sovereign credit rating and threatened further demotions if nothing is done. This, along with the prospect of default on their government debt, has thrown Greece into a crisis and into the hands of the EU commissioners and finance officials who are contemplating a bailout.
Another way to look at this is to ask yourself who knows how much has really been borrowed by various governments around the world?