Savior of The Euro: EU Public Banking System

Since 2008 the peripheral Eurozone states have been in a continuous recession as a result of public debts that have skyrocketed, further complicating recovery from the financial collapse. In addition to the crisis itself, the debt stricken states requiring financial aid are forced by financial institutions known as TROIKA to implement severe measures of austerity in order to safeguard the greedy banks of Germany and France. In essence the reason for austerity is to prosper the financial sector that created this mess in the first place, and instead of paying for it themselves, they make the people suffer. Instead of increasing privatizations and cutting key safety nets for the poor and the growing unemployed, I propose punishing greedy investors and banks through eliminating them through nationalization and creating a public EU banking sector to provide capital for businesses and mortgages for the people as well as bonds for government.

According to the Guardian in 2011 the public debt in Greece was worth more than 130% of GDP, in addition the balance of payments deficit was worth 9%, this debt was bought by the banks as a mean of increasing profits. Now when they realized that Greece might not be able to return the payments, the bond market is increasing yields on new bolds thus higher debt servicing for Greece. The debt will essentially prosper the banks and investors who are protected by Germany and France since most of them are German and French banks. As a result to this Germany and France wish to keep their money and so impose draconian austerity on the Greek, the Spanish, the Portuguese and the Irish, to save the excessive wealth of the bankers. Greece has cut their pensions by 40%, half of the 1.2 million people unemployed cannot afford health insurance as unemployment and family benefits have been ruthlessly slashed, in addition to the billions of euros cut in health expenditure. Is this fair?

No it isn’t. However there is an alternative to austerity and poverty, an EU public banking sector. If the banking sector was to be nationalized and brought under the hands of the EU then the debt could be defaulted without significant effects on the economy as long as the banking sector is recapitalized by the members of the union and that initial liquidity is ensured. As foxerblog.oanda.com states, the increase of private debt due to the credit bubble and the eventual collapse that followed, has decreased consumption per household by 3.3% and 3% in countries like Denmark and the Netherlands, the numbers are much higher in countries like Greece. If the banking sector was nationalized without compensation this debt can be completely written off as long as the banks are recapitalized through public funding, meaning that private consumption will increase and that public spending will not have to be cut so drastically as all pasts debts from the private sector are defaulted.

Until right now, and probably for the rest of this recession, EU states have favored the banks over the people by making the people suffer through harsh austerity measures. If we nationalize what belongs to the 1% and carry out similar operations via the state, we do not only ensure long term economic efficiency as credit bubbles can be dealt with better, but we also alleviate the pressure on the people and the government and spending can return to reasonable levels. In addition the factors which contribute to the fact that Greece and other southern European states remain in recession, will successfully be overcome. These factors include low demand and consumption, and public and private debt which can be defaulted. The public banking system is the ultimate remedy. Bail out the people not the banks!

Sustainability

middle class too big to fail (Photo credit: Vince_Lamb)

The problem of sustainability rests in modern capitalism itself. Since 1990 atleast one region of the world has been in recession or economic downturn. This is the cause of the market forces placing increasing financial pressure on middle class, working class, students, public workers, and in essence any member of society who are not members of the economic and political elite. These are the owners of banks which are “too large to fail“, receiving billions in bail outs and billions of cheap loans from the Federal Reserve’s measures like quantative easing.

All of this is occurring while governments in the EU and the United States are initatiating cruel austerity measures including pension and salary cuts as well as cutbacks on public services such as healthcare, education and transportation. In the USA the Congress will meet a dilemma from the fiscal cliff, when the bush era tax cuts expire and income as well as payroll tax will increase substantially, while also cutting social security funds. In my view, if capitol will not alleviate the effects of the fiscal cliff it will cause the end of capitalism as we know it.

Instead of a wall street and capital based capitalism in which the economic and politcal elite are deeply intertwined we will see a liberalisation of politics and an increasingly egalitarian and democratic market structure in which trade unions and workers have larger influences over the economic structure than at the present structure. An economy based on production not financial transactions, where the economy is democratically organized by workers, engineers and managers through enterprises; not through top-down power based corporations where the largest shareholder have the most power resulting in economic oligarchy and centralization. We need a decentralized economy and decentralized politcal system in which communities provide social services and determine tax rates, not the federal state who has less of an idea of the local needs.

Freer and fairer trade must also be assured, markets should not be restricted by Reagenite protectionism which is harming global growth and development in the regions with the greatest need in freer and fairer trade. Not a free trade based on WTO, IMF or WB in which the region’s sovreignity and local needs are rejecied. These organizations are opting for an unethical neo-liberal strategy improving the economic imperialism of the protectionist west while limiting potential growth in the underdeveloped areas and sometimes even causing further poverty like in Mexico.

This is my vision for a sustainable and more equal future for the next generations. I am of course an idealist, and these reforms should not happen over night, in fact maybe not even during my own life time, but this should be the direction for which we should lead the economic system, from wall street style elitism to a more democratic and egalitarian economic system providing sustainability for all.