Credibility lost: Troika on the verge of losing all confidence within the Eurozone

Following the 2008 Credit Crisis and subsequent bail-out programs that were meant to not only save insolvent European banks, but also insolvent sovereign governments, the entity that would become known as the Troika emerged as one of the most powerful organizations in the Eurozone.

The Troika not only had support from most of the biggest economies in Europe (France and Germany), but the relationships between the triumvirate of the IMF, European Commission, European Central Bank with Germany's dynamic duo of Chancellor Merkel and Finance Minister Schäuble, gave the un-elected financial body unprecedented power that allowed them to force austerity on some EU nations, and even insert technocrats in positions of leadership into a few others.

But in today's fast paced world, economic changes are no longer measured in terms of decades, but instead in just years or even months.  And this means as well that support given to an institution in the past can quickly cease when their policies become detrimental to the very peoples that had provided them the authority to engineer an agenda that before was in that nations best interest.

Within the span of a week, two legs of the Troika were revealed to have been planning subversive agendas that are completely shattering confidence in their authority, and in their capacity to function as the primary arbiters of monetary policy.  On April 2 Wikileaks revealed a transcript between two high level IMF officials where they were discussing the option of purposefully creating a credit event in Greece as a means to coerce them back to the bargaining table in the hopes that the Southern Eurozone nation would institute even greater austerity measures in exchange for more bailout money.

This morning we got another confirmation of how supernational organizations “plan” European crises in advance to further their goals, when Wikileaks published the transcript of a teleconference that took place on March 19, 2016 between the top two IMF officials in charge of managing the Greek debt crisis - Poul Thomsen, the head of the IMF’s European Department, and Delia Velkouleskou, the IMF Mission Chief for Greece.

More to the point, the IMF officials say that a threat of an imminent financial catastrophe as the Guardian puts it, is needed to force other players into accepting its measures such as cutting Greek pensions and working conditions, or as Bloomberg puts it, “considering a plan to cause a credit event in Greece and destabilize Europe.”
— American Thinker

Not surprisingly, IMF head Christine Lagarde was quick to deny this once the leaks were disclosed, but the cat was out of the bag and Prime Minister Tsipris believes he can no longer trust the international bank to look out for Greek interests in future negotiations.

However, there is perhaps an even more important event that is now in play, and it involves Mario Draghi and the European Central Bank's (ECB) plans for expanding Quantitative Easing to the next level.  On April 8, the German publication Spiegel dropped a bombshell when it published news that the long-standing honeymoon between Germany and the ECB may now be over, and that the ministry of finance is fully prepared to take the central bank to court should Draghi decide to move forward with a monetary policy of direct payments to individuals in a new phase of QE.

Helicopter Mario

Helicopter Mario

Most dangerous for Draghi, however, is the displeasure from the German Finance Ministry. A few weeks ago, Finance Minister Wolfgang Schäuble warned the ECB head that his ultra-loose monetary policies could “ultimately end in disaster.” The fact that Schäuble said anything at all is rather surprising, as were the words he chose. Out of respect for the ECB’s independence, finance ministers tend not to comment on decisions made by the central bank.

But Schäuble believes Draghi’s course is calamitous. He is concerned that the unchecked creation of money could lead to new bubbles on the financial markets. Furthermore, negative interest rates have a negative impact on the profit margins of commercial banks — and part of the ECB’s mission is ensuring the stability of such banks. Schäuble believes that Draghi’s policies create misguided incentives for the governments of euro-zone member states.

To be sure, ECB independence is also of vital importance to Schäuble as well. But that is no longer the case when the bank’s policies exceed its legal mandate. It is a boundary that Schäuble believes Draghi and his people have crossed, which explains why the minister does not have a bad conscience about abandoning traditional reserve. “We have to initiate this dialogue about monetary policy,” says a Finance Ministry official.

Were the ECB, as Draghi has indicated it might, to open the monetary policy gates even wider — with, for example, helicopter money — the German finance minister would view it as a breaking point. Such a policy would see the ECB bypass the banking sector and distribute money directly to companies, consumers or states, all of which would stand in violation of the central bank’s own statutes. Should it come to that, sources in the German Finance Ministry say, Berlin would have to consider taking the ECB to court to clarify the limits of its mandate. In other words: the German government and Draghi’s ECB would be adversaries in a public court case.
— Speigel

Europe is at the end of a crossroads, and on the cusp of seeing the grand continental experiment of a solidified Union shatter into a thousand pieces.  And what began in Iceland back in 2009 when the people stood firm and rejected Troika mandates for debt paybacks has accelerated in the past couple of years to places like Spain, Greece, Italy, and even Britain, where populist movements have helped put political figures in place that are dedicated towards ending their nation's ties to the Union.  And all that remains is for the largest economies to see the writing on the wall, and it looks like events this week have made that scenario one major step closer.