Obols or No Balls

While policy-makers struggle to increase the flow of money in stagnant national economies they fail to see that it is not the quantity of the money that is the problem but its quality. The imperialist currencies of dollar and euro were designed to serve the interests of elites, so we should not be surprised that they do nothing to support the livelihoods of citizens of countries the world over. In The Ecology of Money, Richard Douthwaite suggested a sophisticated multi-layered currency world, where different types of money played different roles. Although ignored at the time, this may be just the sort of proposal we need now to resolve the crisis in the global economy, and particularly the crisis in the Eurozone.

The structural flaw with the Euro was always clear to economists: a single currency means a single interest rate, a single price for money across a number of diverse econonomies. The overheating, subsequent bust and unpayable debts in Greeece, Spain and Ireland were bound to result from such a system from the start. For this reason the UK Greens campaigned hard against the Euro proposal as soon as its design and inevitable consequences became clear. Our policy was to support the Euro as a common currency rather than a single currency, and a shift to such a policy remains a viable option for the Eurocrats now, enabling them to save face by claiming that the Euro can survive with its membership intact, while allowing the countries of the periphery to escape ongoing suffocation.

So Greeks would still be able to spend Euros, and the tourism industry, for example, might continue to accept them. But the Greek government would initiate a new currency for the purposes of running its national economy (I would suggest that they not call it the Drachma). Governments need a currency in which they accept taxes, and they need to have control over this currency, Greece could issue Obols to pay the salaries of public-sector workers, and accept the same for payment of taxes. This would immediately liberate the country from the death spiral it is currently enduring. Traders would prefer to have Euros, but a currency which you can use to pay your taxes always has an intrinsic value and would be accepted faute de mieux.

Meanwhile Greek citizens are already finding creative solutions to the desperate shortage of currency: they are creating their own.  The best known example is the TEM (an acronym from the initials of the Greek phrase 'local alternative unit') which circulates widely in the Greek town of Volos.  The currency is a typical example of a community or complementary currency, circulating within a defined local economy. This system, like many LETS schemes in the UK today is run entirely electronically. It has provided a lifeline to many Greeks for whom the Euro is now unattainable. Its success provides evidence of the need to end the national and now international monopoloy over money and shift to a pragmatic policy of creating a number of moneys appropriate to the role that money should play in the economy: facilitation rather than strangulation.
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Greek Economics

This is a shameless advertising post, and like so many posts about Greece it is tempting to indulge in a whole variety of puns. My son asked about the wisdom of translating the book into Greek, when surely economics in Greece is now being written in German.

I hope that the translation of my book on Green Economics into Greek might offer the people some practical ideas for action and policy to go along with the solidarity that we all feel for them, as they suffer at the sharp end of the global financial crisis.

If you know anybody in Greece or have means of spreading the word about the book there that would be wonderful.


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Greek People Take on Financiers

The situation in Greece is giving clear evidence that economics never could be separated from politics, and that the subject should have retained its original title of ‘political economy’. It is also demonstrating the terror that strikes the heart of the elites when people begin to act like democratic citizens and try to influence the policies of their country, particularly policies in the crucial areas of currency, taxation and wealth.

The following summary of the outcome of the Greek elections is based on information supplied by Christina Laskaridis of the Greek Debt Audit Campaign.

The most striking outcome of the elections is the collapse in credibility of the conventional parties, what would be called in the UK the ‘mainstream parties’, i.e. those that support the neoliberal hegemony. In an exceptional situation since the retreat of the generals in 1974, neither of these parties has managed to gain a majority. Prior to the crisis they received around 70-90% of the popular vote; this has fallen to 33%. New Democracy’s vote has fallen from 33% in 2009 to 19% and from 2.3 million votes to 1.2 million. Pasok’s vote has fallen from 44% to 13% and from from 3 million votes to 800,000.

In desperation Greeks have voted for a whole range of other parties, some old and some new, but through this messy situation one thing becomes clear: it is the parties that have resisted the crippling requirements of the EU central authorities that have gained. So the far right party Laos, which supported the Eurozone agreement, saw its support fall from 5.6% to 2.9%, whereas the fascist party Golden Dawn, which resisted the deal, saw a huge increase in its vote (to 7% from nowhere). In total the vote for the far right has risen from 6% in 2009 to 21%.

The real winner from the elections was the Syriza: its vote increasing from 4.6% to 17%. Their support was especially strong in all the big cities (Athens, Thessaloniki, Patras) and in working-class neighbourhoods. Its platform was for an end to the impossible and destructive ‘austerity’ agreement, called ‘memorandums’ by Greek commentators, but a continuation of membership of both the EU and the euro. While this position seems impossible, it is precisely the right position to challenge elite domination of European financial and economic institutions. The other parties of the left, the Communists (KKE: 8.5%) and Antarsya (1.2%) both campaign for Greece to leave the EU.

Again, as in the UK, a growing number of electors are voting for parties that are prevented from entering the parliament. Greece has a PR system (with a twist) but the 3% threshold is now keeping the chosen representatives of 18% of electors outside the parliament. The twist is that the party that garners the most votes in the election is then gifted an additional 50 seats. This means that New Democracy, the party that formerly governed and was roundly rejected now has by far the largest number of seats: 108.

An important lesson from the Greek political situation seems to me to be one about engagement and representation, and it links directly to the nature of the electoral system. The free-gift-of-50-seats rule was presumably instituted to avoid the weak governments that a widely allocated vote can result in, since it creates an in-built majority. Its consequence has been to guarantee that absolute power has shifted between the largest parties of centre-right and centre-left — New Democracy and PASOK — for the past 40 years. This has left many Greek citizens’s views unrepresented and has surely encouraged the corrupt and self-serving nature of Greek politics. Our first past the post system is also partly used to create a pressure towards majority governments, and the corruption and failure to respond to electors here arises from a similar source.
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Can't Pay Won't Pay

It was three years ago that I first used this title in an article I wrote for the Welsh left magazine Celyn (it means holly). Back then I argued that:

‘The implications of the public-spending cuts caused by bailing out the banks on such a massive scale are devastating. Borrowing announced in the budget amounted to £175bn. in 2009/10 and a huge £701bn. over the next five years. If you add in our liabilities for bad debts we have ‘insured’ (since they are already bad debts it seems certain that we are going to have to pay these liabilities) then the total we are in hock for is more than twice the value of all the activity in our economy for a whole year. Just the interest on this borrowing is more than £40bn., about a third of total NHS spending in any one year. Following this year’s budget public spending will fall from 48% of national income to just 39% by 2017-18.’

My conclusion was:

‘So this can be our political demand: an international debt jubilee to relieve the working people from the slavery of repaying mountainous debts for which they are not responsible.’

Although in Britain the majority have accepted the Big Lie about the public debt being our fault and our responsibility to repay, across Europe a movement for debt relief is spreading like wildfire, and expressing itself in the form of citizens' debt audits. In Ireland the process was rather academic and not political, but resulted in a popular call to abandon expensive attempts to support 'zombie banks'. In Greece the audit committee has become the focus of a nationwide campaign for an alternative economic policy. A civil society movement is building in France where it was launched at a meeting of 700 people in Paris in January.

This is the opportunity offered by the debt crisis: the old route of passivity and Danegeld has broken down in the face of the excessive greed of the owners of capital. What stands before us is the prospect of an economy based on equality and participation. The rest is up to us.
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The Iceman Cometh

I probably should have divided loyalties about Iceland's decision to get tough with its creditors. After all, the council I am a member of still has £2m tied up in the interminable legal process that always follows a bankruptcy, public or private. But I can't help rejoicing about the escape by the Icelandic people from the debts that their Viking traders pushed them into.

According to a recent Bloomberg article, Iceland's decision to allow its banks to default has done it very little harm - and a great deal of good:

'The island’s steps to resurrect itself since 2008, when its banks defaulted on $85 billion, are proving effective. Iceland’s economy will this year outgrow the euro area and the developed world on average, the Organization for Economic Cooperation and Development estimates. It costs about the same to insure against an Icelandic default as it does to guard against a credit event in Belgium. Most polls now show Icelanders don’t want to join the European Union, where the debt crisis is in its third year.'

Iceland has suffered economically, with a contraction of 6.7% in 2009, but was back to growth last year and is now growing more rapidly than the Eurozone.

The different with Greece is, of course, that it was part of the vast euro currency area, and so could not make decisions in its own national interest. That, and the fact that Iceland is a tiny economy (GDP of £13bn.) and so its people could never have been good for the debt. Greece, by contrast, has a large and skilled workforce who work harder than the Germans. That makes it good for the extraction of value, as do the tasty public assets which are currently being put into a firesale.
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Defaulty Logic

When is a default not a default? When to call it that might threaten the interests of significant financial players. Greece has arrived at the state of a default that may not speak its name. The announcement that it will add 'collective action clauses' to its sovereign debt removes any question-mark over whether a default is actually taking place. Voluntary agreement by lenders could be called by some other name, but when you explicitly refuse to pay back in full you are certainly in a state of default.

The danger in Greece's default is that it has automatic consequences. These arise as a result of a system of credit-default swaps (CDSs) which Greece's creditors took out to hedge their bets in a risky market. This piece of obfuscatory jargon hides the real nature of a CDS, which is an elaborate financial insurance scheme. Just as the creation of money through banking relies on the acceptance of non-existent money from one institution by the next, so the financial institutions insured each other against the absurd risks they were taking on in lending money to countries, and individuals, who could never afford to pay it back. In this way interconnections were built up that guaranteed that the failure of one would be the failure of all—and incidentally made it inevitable that if we are to solve the problem of any one country or bank we must radically redesign the whole system.

The Greek default has been more extreme than even the most pessimistic observers expected. Creditors are expected to face 65% to 70% losses on their loans, and the new conditions mean that the Greek government will not negotiate but will impose these terms. But the way that they have, without any system of accountability, sucked workers and savers into the web of greed and deceit means that it will be us, rather than bank shareholders, who will pay for the Greek default.
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Repudiating Odious Debt

The frustrating reality of the situation we face in this unwarranted Age of Austerity is the difficulty of turning the anger against the banks and the unwillingness to pay for their corporate corruption into meaningful political action. While it seems unglamorous the answer may be to establish a national Audit Committee.

This idea comes from Ecuador, where President Correa was elected in 2005 to preside over an economy which was oil-rich but whose wealth was being drained whose people were left in poverty because 50% of national income was being spent on servicing foreign debt. The Audit Committee was established to investigate who were the creditors and how they had persuaded the former politicians to take on the debt. Eventually, it found that some 70% of the debt was illegitimate and the creditors were forced to sell at reductions of around 90%.

The story is told in a film called Debtocracy, whose main focus of attention is the debt situation in Greece, where a national Audit Committee has been established. The idea has now spread to Ireland. Exploring the sources of and responsibility for national debt can help to shift the violence in the streets towards a quasi-judicial process and may help to focus political anger, but as London-based economist Costas Lapavitsas makes clear in the film, these are political rather than economic or legal decisions.

The film also helpfully resuscitates the concept of 'odious debt', created by the US in the 19th century to enable it to repudiate the debts it inherited from Spain when it conquered Cuba. It used a similar legal wheeze to renege on Iraq's debts after the 2003 invasion, although it kept this quiet for obvious reasons.
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I Sat Down and Wept

The parallel being drawn between the failure of Lehman Brothers and the potential default of a sovereign nation makes clear the blurred nature of democratic and corporate accountability in the world of 21st century capitalism. Rating agencies are at liberty to value national and corporate debt by the same measures. This is not only irrational but also a deeply political play, since the democratic right of the people of any nation to reject the debt that the banks have loaded onto them has been marginalised.

Fortunately, in the country whose language the word democracy arises from, the people have not given up their democratic rights so easily. Their continued and increasingly violent presence in the streets is the visible exercise of the political reality that makes a nation an entirely different beast from a corporation. Shareholders and board members hold power through the exercise of property laws; politicians only hold power by the will of the people.

Our refusal to allow Lehman and Greece to be compared as though they were equivalent should remain our own commitment to a democratic future in which our rights to have power remain intact. But we need to match this with a demand for our politicians to exercise the power that we have delegated to them as our representatives.

The most infuriating aspect of the Lehman-Greece link is that in the nearly three years between the first default and the second, our politicians have apparently done nothing to restructure the global financial system or to gain a political handle over the banking system. By some combination of corruption, co-optation and lack of courage, the breathing space that was bought by the bailout of banks has not been used to ensure the future stability of the system, never mind its equity.

It was a long time from 1929 to 2008 – several generations in which memories of the previous disasters of capitalist finance faded - but there was really no excuse for policy-makers to remain ignorant of, to literally ignore, the obvious weakness and injustice of the liberal finance system their political retreat had allowed to flourish. Acting in our interests it was their duty to return to a form of global settlement like that reached at Bretton Woods, but with equity and sustainability as two additional guiding principles. Their failure to do so, their pusillanimous determination to allow the market mayhem to continue ruining human lives and planetary systems is a shocking abnegation of responsibility.

As viewed daily in Greece, as in Iceland, as soon to be seen in Ireland, Portugal and Spain, when politicians fail their people so disastrously economic instability rapidly becomes political instability. Few of those alive and voting today remember serious political instability, although it is less than 40 years since the three Mediterranean countries mentioned were all ruled by military dictators. There is so much more at stake here than the investments of finance companies and it is politicians with the vision to grasp that who are so seriously, and tragically, lacking.
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Danny the Green on Greece

An impassioned plea from Danny Cohn-Bendit in the European parliament to rethink the policy on Greece has been posted on YouTube. The link is too large for Blogspot so you will have to cut and paste: http://www.youtube.com/watch?v=dQGkP68AVTI&annotation_id=annotation_971859&f Tweet

Theatre of the Absurd

What are we to make of the late-night performance that took place in Brussels yesterday. The sums of money now being dramatically thrown around are different by an order of magnitude from the national budgets of just a couple of years ago. The €750bn euros this deal represents is a grotesquely large sum for governments to promise on our behalf.

The money is not real. It never existed and the bulk of it is 'guarantees'. What is a financial guarantee? It is an empty performance, a simulacrum to cover the absence of any real value being created by many of the European economies, a sideshow to divert public attention from the reality that our national wealth has been ransacked by the financial market and that nothing of any real value remains.

The ministers also apparently offered to buy bad debts from the market in the first round of 'quantitative easing' by the European Central Bank. The UK has injected as much money as it could possibly borrow to keep markets afloat last year; now only the wealthier economies of Europe can produce money to feed the rapacious wolves of the finance markets. As they do this, that money will be sucked into the stock market, causing the same artificial rally we have seen in UK markets over the past year. Their claim that balancing securities will be sold - to waylay German fears of inflation - will be tested in the coming months.

The curious question that must be asked is how can we be in a situation where everybody is in debt all at the same time. If you accept the standard view of money and accounting that would be impossible since a debt must create a parallel credit. The existence of debt in every economy simultaneously is evidence that money itself is created as debt and that, under such a system, debts accumulate until they feed on the very economies that gave rise to them.

This particular drama has distracted attention from our domestic problems. Now that the wounded prey in the Eurozone have attracted a strong monetary defender the wolves will turn their attention back to Britain, as a more likely source of profit. We are likely to have a greyer, more resigned version of the Greek tragedy in which to play a minor role over the coming months. Tweet

Dollar, Euro, or Ebcu?

The unaccountable power of credit-rating agencies has now come under attack from the EU's most powerful politician, Jose Manuel Barroso, the president of the European Commission. Clearly the speculation against national economies is dangerously destabilising for all the European economies, but behind this attack we may also see a glimpse of the struggle for currency hegemony between the dollar and the euro.

The political purpose behind the establishment of a European currency was to provide an alternative to the dollar, whose role as global trading currency enabled the US to fund its superpower military strength and its unsustainable lifestyle at the cost of the rest of the world's people. The credit-rating agencies, all based in the US, can turn market sentiment against the weaker European economies, thus undermining the currency they share. Hence Angela Merkel's suggestion that Europe needs to establish its own credit-rating agencies.

The European financial crisis is rapidly cycling out of control. We are moving beyond the dealings of young men sitting at computer screens and onto the streets. The anger between some Greek citizens and their government is matched by an anger between different European nations. The EU currency straitjacket is, as was predicted, leading to tension between the vastly different economies it forced together. In currency wars, as in military wars, it is the elites who make the decisions and divide up the spoils, while the poor pay the price.

Green economists have long argued for a political response to this crisis that opens up the question of how money is created. At the global level we suggest a neutral currency, which enables trade between countries without allowing this to accrue benefit to the country that controls the trading currency. If such a currency were linked to carbon dioxide emissions as an environment-backed currency unit (Ebcu) it could also ensure that the global economy stayed within planetary limits. Tweet