One of my
comments in yesterday's guardian went down very well - 130 recommendations in less than 24 hours. I just wonder how people will react to
this one
that I have just posted in response to the Editorial called "G20
summit: Slumping to the occasion". I must admit, I'm rather pleased with
it.
Indeed. The leaders at the G20 failed completely to come up with any ideas to solve the current crisis.
So, here's one.
The governments of all the EU countries are massively in debt. Download the numbers from the Eurostat website
and you'll see that while the Greek government owes 329 billion euros,
it's only 8th out of 27. They are easily beaten by Germany (2,061
billion), Italy (1,842 billion), France (1,591 billion), the UK (1,353
billion), Spain (642 billion), the Netherlands (370 billion) and Belgium
(341 billion). Together, the EU governments owe 9,837 billion euros,
which interestingly, is almost exactly equal to the 14 trillion dollars
that the US government owes.
Paying the interest on this massive
amount of government debt is costing European taxpayers in the region of
400 billion euros a year. That money goes straight to - guess who? Yep,
the banks. Not surprising that they can pay themselves obscene
bonusses.
Even worse, the fact is that a very large part of the
nearly 10 trillion euros that the European governments owe is money that
the banks didn't have to lend. They just created it out of thin air by
the miracle of fractional reserve banking. See the positive money website if you can't believe this.
But the nice thing is that the
creation of this money from thin air can be reversed by paying off the
debt. When you do this, the money (and the debt) just disappears. Again,
this is beautifully explained by the people at positive money.
So,
what needs to be done? Well, the European Central Bank, which has just
lowered its key interest rate to 1.25%, should lend all the European
governments the money to pay off the 10 trillion euros in debt, and get
them to agree to pay it off over 10 years at a fixed interest rate of
1.25%. The governments hand the money to the banks, and "puff" the debt
and the money disappears. Even the Germans shouldn't complain, because
the ECB would not actually be putting much real money in the system. Of
course, if the UK government wants to hang on to its 1,513 billion in
debt so that they can keep paying mountains of money to their friends in
the City of London, they are free to do so.
The money that the
ECB lends could be paid back using classic methods, but I think that an
even better way would be to use this as the occasion to impose a
Financial Transaction Tax across the whole European Union (as Barroso
want's to do). With transactions in the EU running at something like
3000 trillion euros a year (a bit of guesswork there, on the basis of
the BIS numbers, which are only available for 7 EU countries), it is
very likely that a very modest FTT of 0.1% would be enough if it was
applied to all financial transactions. 0.1% of 3000 trillion is 3
trillion. And the total debt is "only" 10 trillion. A few years should
be enough.
Oh, and the IMF could do the same thing for Obama and his 14 trillion dollars of debt.
Simple, no?
ALTHOUGH I AGREE WITH YOU, I would like to clarify a few things:
ReplyDelete"While the Greek government owes 329 billion euros, it's only 8th out of 27. They are easily beaten by Germany (2,061 billion), Italy (1,842 billion), France (1,591 billion), the UK (1,353 billion), Spain (642 billion), the Netherlands (370 billion) and Belgium (341 billion). "
The issue is debt as percentage of GDP. There, grece is first by a long way.
"With transactions in the EU running at something like 3000 trillion euros a year (a bit of guesswork there, on the basis of the BIS numbers, which are only available for 7 EU countries), it is very likely that a very modest FTT of 0.1% would be enough if it was applied to all financial transactions. 0.1% of 3000 trillion is 3 trillion. And the total debt is "only" 10 trillion. A few years should be enough."
ASSUMING THE TRANSACTION VOLUME DOES NOT CHANGE (which is not realistic).
Hi Jonathan! Thanks for the comment.
ReplyDeleteHey, you're the second person to comment on my blog in a year (!). I'll be sending you the cheque in the post ;-)
You're right that normally the tables are written as % GDP. And we are supposed to believe that something terrible happens when a country goes
over about 80% (i.e. exceeding the Eurozone convergence criteria). Thus, it's apparently fine for Germany to owe 2 trillion, but terrible for Greece to owe 329 billion. This is totally arbitrary. In fact no country should let themselves get into so much debt.
And of course, the ratings agency have clobbered the Greeks for letting their debt go over the magic number. But don't forget that it was Goldman Sachs who were paid $300 million to fiddle the accounts.
Imagine a young couple earning, say, 4500 euros a month. They have a GDP of around 55000 euros. Would you say that is good for them to owe 80% to
the banks? Would something magic happen if they went from 80% to 140%? Would it justify the banks increasing the interset rate from 1.84% to 17.78%?
No, the banks effectively told the EU to set an 80% convergence criterion, but it's obviously arbitrary. And the only sensible solution is to pay everything off (as your Grandad would tell you!)
On the second point about the value of 0.1% being enough to pay off the 10 trillion in a few years being based on the assumption that the transaction volume doesn't change, you're right. That's why I said "a few years". It would take only 3 years if the volume didn't change, 6 years if there was a 50% reduction, and so forth.
The problem is that until someone has tried introducing a global FTT, when it comes to estimating how much transactions will drop, your guess is as good as mine (or maybe I can say that my guess is as good as yours).
That's actually one reason why I think that Greece could be the perfect test case. They have a real problem with tax evasion (as we all know). So this would be a great place to try it out!