3 Jan 2012

Michel Rocard and Pierre Larrouturou - Spot on!!

Amazing article in the latest copy of Le Monde by Michel Rocard (previously the French Prime Minister) and Pierre Larrouturou (an economist). It's called "Why is it that states have to pay 600 times more than the banks". They are spot on, but they don't even seem to have realized that the ECB just handed a further 489 billion euros to the banks at 1% (see my recent posts). They also seem to think that governments are also only having to pay 6-8% interest to the bond markets, when in fact, Greece is currently being charged 18% and Portugal 12%.

But never mind. Well done you two!! Anyone would think that they had been reading my blog .....

It's in French, but here's a version that I have translated with a bit of help from  Google Translate (thanks Google).

These numbers are incredible. We already knew that the end of 2008, George Bush and Henry Paulson had put $700 billion (540 billion euros) on the table to rescue U.S. banks. A huge amount. But a U.S. judge recently ruled in favor of Bloomberg reporters who asked their central banks to be transparent about the help given  to the banking system.
After having scrutinized 20 000 pages of various documents, Bloomberg shows that the Federal Reserve secretly loaned to troubled banks the sum of 1 200 billion at incredibly low rate of 0.01%.
Meanwhile, in many countries, people suffer austerity plans imposed by governments that financial markets are no longer willing to pay billions in interest rates below 6, 7 or 9%! Asphyxiated by such interest rates, governments are "forced" to block pensions, family allowances or salaries of civil servants and cut investment, with the result that unemployment has soared and we are plunged into a recession that will soon become extremely serious.
Is it normal that in a crisis, private banks, which typically are financed at 1% with central banks, can benefit from rates as low as 0.01%, but that in a crisis, states are obliged to  pay rates 600 or 800 times higher? "Being ruled by organized money is just as dangerous as organized crime," said Roosevelt. He was right. We're living a crisis of deregulated capitalism that can be suicidal for our civilization. As Edgar Morin wrote and Stephane Hessel in The Way of Hope (Fayard, 2011), our society must choose : metamorphosis or death?
Will we wait until it's too late to open your eyes? Will we wait until it's too late to understand the gravity of the crisis and choose complete metamorphosis before our societies fall apart? We do not have the opportunity here to develop ten or fifteen concrete reforms that would enable this transformation. We just want to show that it is possible to prove Paul Krugman wrong when he says that Europe will be forced to retreat into a "death spiral". How can we give breathing space to our public finances? How to act without changing the treaties, which will require months of work and will become impossible if Europe becomes increasingly hated by its citizens?
Angela Merkel is right to say that we should not encourage governments to overspend. But most of our states are borrowing on financial markets for paying the interest on old debts. In 2012, France must  borrow around  400 billion euros : 100 billion corresponding to the budget deficit (which would be almost zero if we canceled the tax cuts granted over the last ten years) and 300 billion corresponding to old debts, which are reaching maturity and that we would be unable to repay if we did not borrow the same amount a few hours before paying back.
To pay huge interest rates for debts accumulated five or ten years ago is not helping  governments - instead it stifles our economies for the sole benefit of some private banks: the pretext that there is a risk, they lend themselves to very high rates, knowing that there is probably no real risk, as the European Financial Stability Fund (EFSF) is there to guarantee the solvency of borrowers States ...
We must end this unfair system: taking inspiration from what  the U.S. central bank did to save the financial system, we propose that the "pre-existing debt" of our states should be refinanced at rates close to 0%.
There is no need to modify the EU treaties to bring out this idea: while the European Central Bank (ECB) is not allowed to lend to member states, it can give with no limits to publicly owned credit agencies ( Article 21.3 of the Statute of the European Central Bank) and international organizations (Article 23 of the Statute). It can lend money with 0.01% interest to the European Investment Bank (EIB) or the Caisse des dépots, which could then lend at 0.02% to  states so that they can pay off their old debts.
There is nothing prevents us from putting up such funds in January! It cannot be overstressed: Italy has an overall budget surplus. It would therefore be in equilibrium if Italy was not forced to pay its increasingly excessive finance charges . Should we leave Italy sinking into recession and political crisis, or should we put an end to the extortion of private banks? The answer should be obvious for anyone interested in acting for the common good.
The role that the treaties give the ECB is to ensure stability of prices. How can they continue to fail to react when some countries are seeing the price of their bonds double or triple in a few months? The ECB must also ensure the stability of our economies. How can it remain free to act when the price of debt threatens to force us  nto a recession "worse than 1930," according to the Governor of the Bank of England ?
Even if we stick to treaties, nothing prevents the ECB from acting with force to lower the price of the debt. Not only is there nothing that prevents them from acting , but there is every incentive to do so . If the ECB is faithful to the treaties, it must do everything to reduce the price of government debt. Most people regard that as the most serious cause of  inflation!
In 1989, after the Wall fell, it took a month to Helmut Kohl , François Mitterrand and other European heads of state to decide to create the single currency. After four years of crisis, why have our leaders done nothing to provide breathing space for our public finances? The mechanism we propose could apply immediately, both to reduce the cost of financing old debt, or for fundemental investment for the future, such as a European Energy Plan.
Those requesting the negotiation of a new EU treaty are right: with countries that want it, we must build a political Europe, able to act on globalization, a truly democratic Europe already as proposed by Wolfgang Schäuble and Karl Lamers in 1994 or Joschka Fischer in 2000. It should be a treaty of social convergence and real economic governance.
All this is essential. But no new treaty will be adopted if our continent is sinking into a "death spiral" and where people come to hate everything that comes from Brussels. The urgency is to send the people a very clear signal: Europe is not in the hands of financial lobbies. It serves the citizens.
Michel Rocard is the chairman of the scientific orientation of Terra Nova since 2008. Pierre Larrouturou is also the author of "To avoid the crash ultimate "(Nova Editions, 256 pp., € 15)


  1. Bloomberg's article is here: http://www.bloomberg.com/news/2011-05-26/fed-gave-banks-crisis-gains-on-secretive-loans-as-low-as-0-01-.html

    No mention of $1200 billion though.

  2. For more, see here: http://www.larrouturou.net/ - and read "Pour éviter le Krach Ultime" (all in French of course).

  3. a propos de la réduction à 4 jours. Il y a environ 25 ans la FFPE a suggéré à la CES (Conf.Eur.Synd.) que les gens travaillent 4 jours (32 heures), sans interruption, cad que les entreprisens n'arrêtent jamais et utililsent à 100% leurs capacités.Le salaire serait pour les 32 heures, donc avec une réduction.La rotation ferait perdre certains jours fériés à chaque travailleur, mais mettrait toutes les confessions religieuses sur le même plan. Je vous prie de bien vouloir étudier, et chiffrer cette idée, que le membre de la CES n'a pas pris en considération. Merci 

  4. Good morning Simon
    Did post immediately prior to this but don't think it worked. I was listening to radio 4 today program and a short but interesting discussion took place between Evan Davies and some chap from Brussels whose name I did`nt catch concerning the introduction of the FTT in Europe which was stated to be capable of raising €30 Billion. The chap made a good job of explaining the tax and how it would work but fell down slightly when asked what percentage of the profits of the financial institutions who would have to pay the tax would be represented by the €30 Billion. In fact the interviewer seemed far more interested in this figure than the principle of the tax. Do yo happen to know the figure as the interviewer suggested he would like to return to the subject when the figure was known. Keep up the good work and I much enjoy the commentary.

  5. I don't know precise numbers either. Financial corporations are extremely good at hiding profits - even more so than Starbucks, Amazon and Google. So I have no doubt that any official number would be almost meaningless. Don't forget that Commercial Banks can actually manufacture money out of thin air for investing.

    My feeling is that since the level of financial transactions is so enormous (€2 quadrillion a year in the Eurozone, £1.76 quadrillion in the UK) that the potential revenue from a 0.1% FTT is such that you could scrap all the other taxes... as you will know if you follow my youtube presentations. You'd be left with a much cleaner, painless and fair tax system. No cheating by multinationals, a level playing field, and no favours for the financial sector relative to productive industry.

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