Monday, February 9, 2015

Sanders to Yellen: The Federal Reserve Needs to Stop Abetting the ECB's Destruction of Greece

When Syriza won the parliamentary elections in Greece two weeks ago, Senator Bernie Sanders soon after came out with a statement:
The Syriza victory in the Greek elections tells us that people around the world will no longer accept austerity for working families while the rich continue to get much richer.  The top 1 percent of the world’s population will soon own more wealth than the bottom 99 percent.  This is wrong and unsustainable from a moral, economic and political perspective.
Since then, he has used the greater authority that comes with being ranking "Democrat" on the Senate Budget Committee to put pressure on the IMF and the Federal Reserve to reject the damaging austerity imposed on Greece and support the new government's push for recovery.

A week and a half ago, he sent a letter to IMF Director Christine Lagarde, inquiring about how US funds have been used to force austerity on the Greek population, threatening the political stability of Greece and the financial stability of Europe and the world.
January 29, 2015
Dear Ms. Lagarde,
This week, the Greek people elected a new government and invested that government with a mandate to reverse the failed austerity policies of the last six years. It is an important election, not just for people in Greece but for people all over the world struggling with declining spending on their own human needs even as they see rising profits for the financial sector.
Nowhere is this contrast more clear than in Greece. The costs of austerity in humanitarian terms are clear. One in four workers is unemployed, and the health system has been cut by 40%. Homelessness has spiked by a quarter, and HIV cases have increased by 200%. Hospitals are missing basic equipment such as surgical gloves, and pharmacies are running out of medicines. Malaria, once under control, is returning because Greek cities cannot pay for mosquito spray.
The humanitarian cost is severe, but it is important to note that these cuts have failed to address Greece’s debt problems. Despite these cuts, or rather because of them, the Greek economy is smaller than it was just a few years ago, and the debt to GDP ratio is higher than it was when austerity measures were first implemented. As a result, failed austerity policies are leading to a heightened risk of financial contagion, which should be a key concern of the Fund. Should failed austerity policies continue in Greece, Spain, and Italy, the international banking system will have its resilience severely tested.
Finally, the most significant cost is political. The severity of these austerity measures has created a dangerous political vacuum. The neo-Nazi party Golden Dawn has gained seats in the Greek Parliament, and is waiting in the wings should the current government fail. The resurgence of the anti-democratic right is not isolated to Greece. Extremist parties all over Europe are gaining as austerity measures are imposed on nation after nation.

With a new Greek government in place, we have an opportunity to stop the slide of Greece, the Eurozone, and the global financial system into chaos. The people of Spain, Italy, and Portugal are watching to see if this situation can be addressed in a manner that can point toward a pathway to broad based economic recovery into their countries. The International Monetary Fund, as a multi-lateral institution and one member of the “Troika” negotiating with the Greek government, has an important role to play. As ranking member of the Budget Committee, I am concerned about the IMF using United States government resources to impose austerity on a people that cannot take any more of it and risking severe financial contagion and political instability in doing so. I also believe that with the right leadership and choices, the IMF can help resolve this painful situation in a way that recognizes reasonable losses to creditors while aiding the Greek government in reducing tax evasion and corruption.
There is substantial debate over whether the American government should increase the amount of U.S. resources available to the IMF for lending to foreign countries. Without wading into this debate for the moment, I would like to understand how our commitments are being used in this case, and whether those commitments are being used to induce financial contagion and right-wing political extremism through excessive austerity or to aid in helping Greece and the rest of Europe achieve a manageable debt load and a sustainable economy.
With this in mind, I would appreciate a meeting with you and a briefing by the team at the Fund that is handling the Greek situation. My senior policy advisor, Matt Stoller, will be in contact with your office to follow up and arrange a briefing.
Bernard Sanders
United States Senator
This past weekend, he sent a letter to Federal Reserve Chairwoman Janet Yellen urging her to "make it clear to the leadership of the European Central Bank that the United States and the Federal Reserve object to actions that affect our national interest and risk U.S. and global financial stability through unnecessary and counterproductive implementation of deflationary policies." The Federal Reserve provides substantial sums of money to the ECB and thus is complicit in what it does.
February 8, 2015
Dear Chair Yellen:
As you know, the Greek people are suffering from a severe economic depression. Due to deflationary-inducing austerity policies, the Greek economy is 25% smaller than it was just a few years ago. Unemployment, youth unemployment, homelessness, HIV, suicides, and even cases of malaria have increased. While the humanitarian crisis is severe, budget cuts have failed to address Greece’s debt problems. The country’s debt to GDP ratio is higher than it was when austerity measures were first implemented. The situation threatens to create a Eurozone-wide deflationary spiral, it elevates the risk of financial contagion, and it undermines vital U.S. interests.
Several weeks ago the Greek people voted for a new government. The government canceled the privatization of key public assets, raised the minimum wage, and restored electricity to the needy. This government is seeking to restructure its relationship with the European Union to encourage economic growth in Greece and to escape from a deflationary cycle.
Recently, the European Central Bank (ECB) announced that it will no longer accept Greek official debt as collateral for loans to financial institutions in that country on the grounds that the new government is not following the dictates of the previous, failed policies. This move had an immediate destabilizing effect on the U.S. and world markets, and further moves could provoke a run on the Greek banking system in the days or weeks ahead.
The United States cannot stand idly by while the European Central Bank undermines the new democratically elected government of Greece, induces deflation and risks financial instability. President Barack Obama was right when he recently noted, with regard to Greece: “You cannot keep on squeezing countries that are in the midst of a depression. At some point, there has to be a growth strategy in order for them to pay off their debts to eliminate some of their deficits.”
It would be a terrible mistake for the world to forget what happens when a democratically-elected government, as was the case in Germany in the 1920s, is unable to relieve the severe economic suffering of its people. We must remember that waiting in the wings should this recently elected Greek government fail is the neo-Nazi Golden Dawn party. We cannot allow fascism to come to power in a European country due to our unwillingness to reverse harmful austerity policies.
As you know, the Federal Reserve has in the past provided substantial sums of dollars to the European Central Bank through what is known as a ‘swap line’. During the financial crisis, the Federal Reserve engaged in 271 transactions with the ECB, with an aggregate amount of dollars extended totaling more than $8 trillion. Currently, the Federal Reserve has a standing credit arrangement with the ECB on which the ECB can draw at any time. These swap lines, as they stand, tend to make the United States implicitly supportive of the policies that have so destabilized and damaged Greece. But they also give us a reason, indeed an obligation, to object when a partner Central Bank departs from its commitment to financial stability.
Therefore, I am writing to ask you to make it clear to the leadership of the European Central Bank that the United States and the Federal Reserve object to actions that affect our national interest and risk U.S. and global financial stability through unnecessary and counterproductive implementation of deflationary policies. Our staffs are already working to set up a conversation on this vital question, and I look forward to speaking with you soon.

Bernard Sanders
United States Senator

You should thank Senator Sanders for being vocal on this issue and understanding that the fight against damaging austerity policies is a global one.

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