Crunch time for Greece - can the Bankers keep their gravy train on the rails?

Today will no doubt be critical for Greece, but also for everyone in Europe.

At risk is the entire system based on the idea that Governments are forced by article 123 of the Lisbon Treaty to borrow money from Commercial Banks.

That system has led to a situation where Europe's governments now owe over €12 trillion, a sum that meant that last year, European Taxpayers paid out €354 billion in interest payments in 2014 alone - over €6.66 trillion since 1995. The country with the largest amout of debt - Germany, with over €2107 billion of public sector debt.

Who lent our governments the €12 trillion? Was it an army of grannies via their pension funds?

No. In France at least, we know that the only players that get to purchase French government bonds (OATs or  "Obligations Assimilables du Trésor") are Banks. Here is the list of the 19 "primary dealers" who work with the Agence France Tresor, which handles France's public sector debt. They are all Banks.

• BARCLAYS BANK PLC
• BNP PARIBAS
• CREDIT AGRICOLE-CIB
• CITIGROUP
• COMMERZBANK
• CREDIT SUISSE
• DEUTSCHE BANK
• GOLDMAN SACHS
• HSBC
• JP MORGAN CHASE BANK
• BANK OF AMERICA - MERRILL LYNCH
• MORGAN STANLEY
• NATIXIS
• NOMURA
• ROYAL BANK OF SCOTLAND
• SCOTIABANK EUROPE
• SOCIÉTÉ GÉNÉRALE
• UBS

Agence France Tresor publishes a list of the most active dealers. Here's the latest one for 2014. Again, only Banks make the list.

1 BNP Paribas
2 Société Générale
3 Crédit Agricole
4 Barclays
5 HSBC
6 Natixis
7 Nomura
8 Morgan Stanley
9 JP Morgan
10 Royal Bank of Scotland

Do the banks that buy the bonds keep them? No. Because they can sell them on to other players including Pension Funds and Insurance Companies. The latest figures for France show that

• 64.3% are held by "Non-resident investors"
• 19.7% by French Insurance Companies
• 9.8% by French Credit Institutions 
• 1.8% by French UCITS 'Undertakings for Collective Investments"
• 4.4% by "Other" French

I don't know precisely who buys and who holds the debt of other European Countries, but there is every reason to think to that a similar mechanism operates everywhere - Commercial Banks buy up Government Bonds and then sell them on to other players.

What did the Banks use to buy the €12 trillion Government Debt? Well, it seems clear that they simply create the "money" out of thin air, as stated very clearly last year by the Bank of England. But amazingly, the Basel Banking Regulations state that lending to Soveriegn Governments that have a rating of AAA to AA- has a risk weighing of 0%, meaning that no capital is required. Here is the list:



It is clear from this that, at least in the case of AAA to AA- rated governments, Commercial Banks can literally generate infinite amounts of government debt. All they need to do is find Politicians that are sufficiently ignorant that they don't know where the Banks get their "money" from to buy the bonds.  Either ignorant, or quite possibly complicit.

This is what is at stake today. Can the Bankers, led my Mario Draghi - president of the European Central Bank, but previously managing director for Goldman Sachs International from 2002 to 2005 - keep the gravy train on the rails.  Doing that will require massive distortion of the truth by the media. So far, at least, that strategy seems to be working.