When Europe Saves Its Banks: Who Pays?

This is the title of a fascinating documentary produced recently by the Franco-German collaboration arte. Such serious and high-minded programmes are the sort of thing that would once have been produced by the BBC. The questions are deeply political: Who receives this money when the ECB ostensibly bails out countries? Does it really arrive at the poor citizens of Spain or Greece? Unravelling the truth leads to a journey that is protrayed as a thrilling detective story and is certainly a necessary and long overdue piece of investigative journalism.

The documentary is well framed. In Harald Schumann they have a experienced and well informed journalist on the case. He asks the entirely reasonable question: how can we claim to live in a democracy when our money is being given to banks but the banks will not answer questions about how they have spent it. And the politicians and bankers are equally coy about telling us how much money was spent and who received it. This is our money and if democracy is to mean anything we need answers to these questions. He also points out quite rightly that, if banks made bad investment decisions, they should bear the losses. At present they are actually gaining through the injection of public money in return for their bad investments.

The production company advertises the documentary as follows:

'50 billion euros in Greece, Ireland 70 billion, 40 billion in Spain: in the euro area, states are seen being forced one after the other - through astronomical sums - to help banks to compensate losses due to rotten loans. But who are the beneficiaries of such operations? It is asking this simple question Harald Schumann, essayist and brilliant economics journalist, travels Europe. He received a range of frankgly staggering responses. For those who have been "saved" are not - as we are made to believe - in countries in distress, but especially in Germany and France. Indeed, an important part of Payout ends up in the coffers of the creditors of the banks that have been saved. As financiers who made bad investments, they find themselves protected against loss at the expense of the community. And contrary to the rules of the market economy. Why? Who collects the money?'

Leaving aside the content, watching the documentary in either French or German provides a kind of symbolic representation of the beauties and perils of Europe. Culturally we all seem to be on the same side, but linguistically we are so divided. As an English speaker the programme comes across as something of a Tower of Babel, as you are struggling to hear the English speech behind the dominant language voice-over. Do not let this put you off, because the questions asked are the right questions, and the answers will liberate us to behave as citizens of Europe rather than victims of austeria.
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The Iceman Cometh

It is good to know that the personal is still political, because a major international finance story has linked very closely with my own local politics this week.

In the midst of the excitement over David Cameron opening his mouth and saying something you might have missed the news that European Free Trade Court delivered an important ruling on 28th of this month in the case between those huge bastions of the global economy the EFTA Surveillance Authority and the European Commission.

According to the website of the Committee to Oppose Third World Debt,

'The judgement clearly states that it is not the responsibility of the parent nation of a banking company to cover the costs of the guarantees to their banking system, and the safety net structure must be financed by the banks themselves. This implicitly confirms that the normal liquidation process, as applied to Landsbanki (Iceland mother company) is quite correct when a bank, even too big to fail, has greater liabilities than assets. Which would be the case for most of the big European banks if the toxic assets on their balance sheets were counted at their real value.'

The case was brought on behalf of the UK and Netherlands, whose citizens has been the target of aggressive selling by the Icelandic bank as it began to fail. These loans were not covered by national guarantees, meaning that savers were set to lose all their money. You may recall Gordon Brown's use of terrorist legislation to seek to freeze Iceland's assets to force the country to pay debts its banks had incurred that had already bankrupted it ten times over.

This ruling cuts right to the heart of the decisions of governments in all the world's leading capitalist countries to provide massive bailouts to support their banks, arguing that they had a legal responsibility to do so. Surely this strengthens the case for arguing that debts incurred to fund such bailouts are odious.

And the personal aspect? Well before I became elected to Stroud District Council a very unwise investment of £2.5m was made in Icelandic bank Glitnir. That money was recently returned and has been a windfall in the recent budget-setting period. As Green members of the administration we have been managed to argue for half a million to be invested in a hydro generation scheme at our district council offices.
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US Set to Buy up the Pyramids

When Keynes wanted to come up with an example of activity that enables an economy to flourish by requiring the investment of huge amounts of physical labour but without causing the failure of aggregate demand he suggested the Egyptian pyramids. Today, however, Egypt is providing a different kind of lesson that I hope the Egyptian people learn in time: that democracy and indebtedness are not compatible.

Egypt is in the midst of negotiations with the US over the debt of its former regime. Such debt, which enriched Mubarak and his cronies, was one of the causes of the revolution and should now be reupdiated as odious and no longer the responsiblity of the citizens of the newly democratic Egypt. The presence of Christine Lagarde in Cairo offering 'loans' and 'partnership' suggest that this is unlikely to happen, and that Egypt will, like so many countries before it, lose its freedom to an entanglement of foreign debt. The process was begun as soon as Mubarak fell, as reported by Egyptian economist Noha el Shoki in March.

As Nick Dearden of the Jubilee Debt Campaign notes in a recent Guardian blog, the media reports of 'turmoil' in the Middle East are being used to cover the next round of resource theft that will follow the negotiation of dollar loans:

'This allows the US and European governments to portray the $4.8bn IMF loan under negotiation, the "assistance" funds that will shortly start flowing into public-private "partnerships" and free trade zones being planned by the EU, as "gifts" to the Egyptian people. . . . However, many people remain sceptical about the IMF's agenda – privatisation, indirect taxation, removal of subsidies (many of which are corrupt, but some of which do genuinely support the poor) and an economy based around exports. As one government insider said last week: "In Egypt, we call privatisation what it is – stealing." A propaganda campaign aims to convince Egyptians that "there is no alternative".'

The brave Egyptians who spent night after night in Tahrir Square demonstrating for their independence should realise that the battle was only half won. Physical freedom and political freedom mean nothing without financial freedom. Just as we are being subjected to the decimation of our public services to pay off banks and investors whose money was created from thin air, so all the wealth of Egypt will be lost to its people unless they resist the attempt by the IMF and the US to 'lend' it money to finance its development. Tweet

Tunisia's Financial Revolution

The job of Governor of the Bank of England is now being advertised. I a hoping that radical critics of the present elitist and destructive monetary regime will find a candidate we can rally behind. Between Occupy and the New Economics Foundation we should launch a shared platform for the favoured candidate. Alternatively we should send our individual cvs as radical economists, especially those of us who were able to see the crash coming before 2007 and warned accordingly.

It has been disturbing over the past few years to witness how some of the most radical criticisms of government monetary and financial policy have been issuing from the Bank of England. I have been intrigued and encouraged to find that their staff have, in print and in person, shared much of my view of what has gone wrong, and sometimes what we should do to address these issues. When I ask why more radical policies, such as using QE to remove more of our debt from circulation or taking steps to bring about a managed default, are not being implemented the answer is that there is insufficient political pressure to fore the politicians to act. The reasons are political not technical.

Let us contrast this supine acceptance of austerity and social dislocation with the situation in a country whose democracy we consider a mere fledgling compared to our own soaring eagle. In Tunisia the people are struggle to repudiate the debts taken on by the oppressive regime they overthrew in their Arab Awakening. They understand that without control of their financial system they can never have the freedom they crave. President Marzouki is demanding an audit of the debts taken on by the former regime as a first step to deciding which should be honoured, because they benefited the country, and those which only filled the foreign bank accounts of a kleptocrat and should therefore be repudiated.

You can find links to videos where some of those leading the citizens audit campaigns describe what is happening in their countries. My presentation with Jonathan from Jubilee Debt Campaign on the UK is here. I presentation from Patrick about Tunisia is here.

Those of us who support radical policies or vote for parties that do not get represented in parliament have long understood the image nature of democracy in the UK. But we have reached a situation now where the politicians are selling a line about our inability to pay for public servjces that should be open to debate, but in the UK in 2012 the 'three main parties' that is to say the three parties which the edia tells the people are available to receive votes, agree in the the financial conspiracy that services the 99% and sacrifices the rest of us on the altar of their greed, We have grown used to patronising the countries of the middle East with their 'awakening' from the slumber of tyranny. Isn't it time that we rather woke ourselves up and started using our democratic systems to reject the grossly unequal and exploitative nature of our current economic system?
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Renew Calls for Citizens' Audit

For a while now I have been blogging about the importance of a Citizens' Audit. The role of such an audit would be to settle the issue of how we acquired the debts that have left us so vulnerable that the Director of the government's Office for Budget Responsibility has apparently recent claimed that 'Britain is Bust'. At least as important, however, is to question how is the financial crisis and recession redistributing wealth?

The Bank of England  has recently addressed this question in a report on the distributional consequences of their policy of quantitative easing. This policy is often referred to as 'printing money', but in fact it is anything but. Printed money would have to be spent on real output, and hence would inevitably provide some stimulus to the real economy. QE, by contrast, has consisted of the creating of credit in the government's account at the Bank of England, with which it has bought government gilts, or IOUs.

This has fed money into the financial economy and resulted in a boost for financial institutions and traded stocks. As the bank concludes: 'By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds'. This is illustrated in the figure, where you can see clearly the fall in the value of stocks as a result of the credit crunch in 2008, which is reversed as the policy of quantitative easing starts to take effect from March 2009 onwards.

Had we not bought our own debt presumably we would look even more bust than Robert Chote thinks we do already. Hence the QE policy has reduced the cost of national borrowing, keeping the rates of interest charged by our foreign creditors low. The Bank has also kept its own base rate at a historic low of 0.5%, reducing the earnings of those who live from savings, especially the elderly.

What has most incensed the citizens of the UK is that the financiers who caused the financial crisis that has bankrupted the country as still profiting, whereas those who work or have saved are losing the value of their assets and their incomes. The Bank concedes this accepting that 'holdings are heavily skewed with the top 5% of households holding 40% of these assets', i.e. the assets that have increased in value as a result of QE.

These matters are the result of political and policy decisions and yet these decisions are not the subject of political debate. Instead of buying gilts, money could be created by government and used to fund green infrastructure, insulating the homes of the pensioners whose income is now so reduced that they cannot afford to pay their fuel bills, perhaps. The calls for a Citizens' Audit are precisely to enable us to have the information necessary to make these decisions as we should do in a democracy - together and in service of the interests of the majority rather than the wealthy minority.
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Solidarity with Greece

The following is a statement launched by the European campaign for Citizens Debt Audits. They would welcome you support and your use of social media to spread the statement.

In solidarity with the Greek people, against illegitimate debts and austerity measures, let us mobilize!

For joint actions around the Greek elections, and

for large Euro-Mediterranean’s mobilizations in autumn 2012!

The response to the financial and economic crisis is the same everywhere: cuts in expenditure and austerity measures under the pretext of reducing deficits and the repayment of a public debt which is the direct outcome of 20 years of neoliberal policies. Governments in the service of finance and big European capital are actually using this pretext to further reduce social spending, lower wages and pensions, privatize health care, dismantle social benefits and deregulate labour laws, increase taxes on the majority while social and tax giveaways are generalized for the big companies and the highest net worth households. 

Measures of violence against the populations, similar to those tested in the Greek social laboratory for two years, are already being implemented in Portugal, Ireland, Spain, Italy, and in Eastern European countries. Latvia, Romania, Hungary and Bulgaria have inaugurated the same sad litany of austerity measures, with drastic fiscal cuts (significant decrease in wages, closure of schools and hospitals, partial or total axing of social benefits, rise of VAT rates...). All the European peoples are threatened. This political orientation, which results in growing unemployment and poverty, must be radically rejected. Everywhere, companies are closing down and industrial wastelands are created, all for the greater glory of immediate gains. Everywhere, social inequalities are increasing. The public debt grows whilst many countries enter into economic recession. 

Finally, while governments of technocrats are put in place by the creditors flouting universal suffrage and the most elementary democratic rules, new European treaties (ESM, European Stability Mechanism, and TSCG, Treaty on Stability, Coordination and Governance in the Economic and Monetary Union) are adopted to the detriment of democracy, for the benefit of financial markets and behind the people's backs. These treaties grant immunity to senior civil servants, allow for the participation of the private sector in close collaboration with the IMF, impose a limit on deficits and give priority to the repayment of debt, no matter the consequences. 

Faced with such coordinated attacks on our social gains, resistance is getting organized among Euro-Meditarrenean peoples, there are national general strikes and the ‘indignados’ movements are increasingly active. In Iceland the people refused to pay the Icesave debt to the UK and the Netherlands. In Europe as in Egypt and Tunisia, initiatives for a citizens’ audit of public debt analyze how much of the public debt is illegal, illegitimate, odious or unsustainable, and must therefore be cancelled. Paying creditors is stealing what rightfully belongs to the population and payments will continue to be the cause of college and hospital closures, pensions cuts, etc.  The Greek resistance persevered for 2 years and recent election results in Greece show a strong rejection of current neoliberal policies. We here express our firm support of the refusal, by the Greek people in their ballots on 6 May 2012, to negotiate with the Troika and to apply its memorandums and the creditors’ villainous conditionalities.

However the neoliberal steamroller has not yet been stopped, and it is high time for the populations and their organizations to develop mobilization on a more significant scale.

Along with other European and international networks such as the Joint Social Conference, the International Citizen debt Audit Network (ICAN) calls for a common mobilization of all groups and trends within the social movement, without exception, including trade unions, ‘Indignados’ and ‘Occupy’ movements, women’s movements, alterglobalization associations and NGOs, political organizations, leading figures, grassroots citizens, intellectuals and artists.

Aware of the need of convergence of all mass mobilizations, we call for large Euro-Mediterranean’s mobilizations in autumn 2012, coordinating an international level of solidarity with the Greek people, against illegitimate, illegal, odious or simply unsustainable debt and austerity measures, to be organized around the traditional week of global action against debt and international financial institutions which, this year, coincides with the 25th anniversary of the death of Thomas Sankara.

In the same spirit, we call for the creation or reinforcement of grassroots’ committees together with local audit groups in all European countries – they would spearhead resistance against the EU’s attacks and give substance to our solidarity with the Greek people and all harassed peoples.

Together we can !

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Time for a Real Jubilee

I am not sure whether the coincidence of the next critical phase in the global credit crisis with the celebration of the Queen's jubilee is ironic or tragic, but it certainly gives me an opportunity to explore the real roots of the concept of jubilee, a concept whose real meaning could not be further from the spectacle of disempowered British citizens, burdened with the debts of their unaccountable elite, paying homage to the figurehead of the system of unequal power and property relations that oppresses them.

A jubilee is not an arbitrary celebration of any feature of civil society that has simply lasted a certain number of years, rather it is a distinct legal requirement introduced by the ancient Jewish community to ensure that the ownership of land and property did not become too concentrated. In the ancient world, as in ours, bad luck or bad character could mean that some fell into debt slavery, but the inherent spiritual offensiveness of such a status required the possibility of release, and this was realised in the jubilee that occurred every 7 x 7 years.

I am not an aficionado of the Jewish bible so I am relying on the interpretation of the German theologian Ulrich Duchrow whose book Property for People not Profit explores these writings as a prescription for a world of economic justice. His interpretation of the writings of prophets such as Isaiah and Micah was that they were critical of the devastating consequences for the Jewish people of social and economic injustice. The jubilee - the freeing of slaves, the returning of land to its original owners, and the cancellation of debts - was proposed to ensure the stable functioning of Jewish society:

'To sum up, according to the Book of the Covenant, in view of God's solidarity with all his creatures, the needs of real life, including freedom from oppression, write the economic rules.' (p. 18)

I had always assumed that Jesus, who was clearly either a communist or a hippy or some combination of the two, could be called in to support my opinions regarding economic emancipation, but now it seems that he was merely reviving ancient wisdom that had been lost in the decadence of the Roman world.

I have been posting for some time about the contemporary proposal for a debt jubilee, a process that begins with a campaign for a Citizens' Audit. I have now finished a full paper on this proposal, including detail about its origins in international law. You can find the paper on the Social Science Research Network, and I would be grateful if you could use the opportunity of the jubilee to share it with your friends.

So, enjoy your bank holiday. Although many radicals criticise the Windsors for being out of touch, I credit them with enough understanding of working people to know that giving us holidays from labour is a useful way to reach our hearts. It seems unlikely that the members of the elite we have bizarrely elected to run our country would have increased the number of days when we are allowed the freedom to do what we really enjoy: chatting, resting, and drinking. But wherever you are, please use the opportunity of the unusual occurrence of the word 'jubilee' in everyday speech to remind people of what it was really for. If we could resuscitate the concept of jubilee in everyday understanding we would no longer need to rely on the magnanimity of an unelected elite to enjoy a well earned rest from work.
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Not Man With a Plan but Solidarity against Finance

After Bush it was a relief to have in Obama a US President who was witty, urbane and physically attractive. However, in policy terms I think we have to admit that he has been an utter failure. US citizens need a President who can stand up for them, as Roosevelt did in the 1930s, but the US seems like a state utterly captured by financial interests. Although we will never know what happened around the Camp David hearth, we can be sure that the pressure was on Merkel to provide more cash for the vulture financiers.

It has been embarrassing in recent days to see the self-created powerlessness of our 'leaders', as one after another they call for a plan to tackle the exhausting and debilitating crisis. The absence of leadership results from the obvious fact that what is needed is a political challenge to the power of finance, while all our politicians are utterly in hock to those same financiers. The only solution to this crisis is to be honest about the gap between the real economic value of the world's economies and the phoney book value, and then to negotiate an arrangement to bring these back into balance. This would mean huge losses for all those who control the financial value. This is why it never reaches the negotiating table. Instead we have political performances of terror and concern, which are intended to soften us up for the next round of ruthless exploitation and loss of social and democratic rights. I put forward such a plan last summer, and it still seems just as relevant today.

This weekend 20,000 European debt audit campaigners have been camped and demonstrating in Frankfurt, the heart of European financial power and home to the European Central Bank. They have a simple platform of demands: refusal to accept a fiscal pact that puts finance in control and sidelines democracy and the needs of ordinary people; expression of solidarity with the struggles of the people of Greece and support for the political platform of Syriza; and rejection of the way that the debt crisis is being used to usher in the next phase of neoliberalism, that is to say financialisation and the sale, at often low prices, of public assets. Their call is for a thorough audit of all European public debts and state assets so that a real negotiation can take place about what the value of the economics is and how it can be fairly shared.
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