8 Dec 2011

A suggestion for Merkel, Sarkozy, Cameron & Co

I'm keeping my fingers crossed that the European leaders meeting at this very moment will use their brains a bit. In case they've not got any ideas of their own, here's my suggestion that I have just left on the Guardian website, and follows the announcement that the European Central Bank has just lowered its lending rate to 1% (from 1.25%).

Great. So the ECB can now lend money at 1%. But now the priority should be to scrap Article 123 of the Lisbon Treaty which prevents them lending money to the governments that need it.
Essentially, the following scheme should work.
  • 1) Scrap article 123 so that the ECB can lend to Eurozone governments (note that the same change would also allow the Bank of England to lend money to the UK government - could be very useful).
  • 2) Specify that any central bank money can only be used to pay off government debt - not to allow additional spending.
  • 3) Allow governments that request help to borrow ECB money with a limit that corresponds to the amount of government debt. Greece, for example, would be able to borrow a maximum of 329 billion euros.
  • 4) Any governments taking ECB money should be obliged to introduce an FTT that would apply to all transactions (including cheque payments, credit card payments, bank transfers etc) at a variable rate that was automatically adjusted so that the entire outstanding ECB debt is paid off at a fixed rate and with the same 1% interest rate that the ECB is offering to banks.
That way, the entire population would be contributing to paying back the debt in a perfectly fair way. In fact, since financial transactions are typically hundreds of times GDP, the actual rate required to provide enough revenue for the repayments would probably be remarkably low - quite possibly less than 0.5%, even in a country like Greece. The population of any country that is currently being charged excessive interest rates to borrow money would be very happy to have a small FTT to pay if it got them off the hook.

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