14 Apr 2013

Ending the Eurozone Debt Crisis - My talk in Montbrun-Bocage

Last night I was invited to talk at a meeting in a place called Montbrun-Bocage, a delightful village about one hour's drive to the south of Toulouse. The theme was 'La "démocratie" est-elle soluble dans la crise? (ou l'inverse?)', and we watched a couple of films about the situation in Greece. It was all very moving. I had the distinct feeling that the Greeks are going through what may happen to all of us if we don't manage to fix the financial system.

It was actually the first time I had spoken about my proposals for economic reform in public (apart from the time when I invited myself to the Toulouse School of Economics to give a talk - but on that occasion, only 4 people turned up - it had been programmed at the same time as the Finance Seminar!).

But on this occasion, there were not far off 100 people there, and they were actually interested in the subject! Wonderful! My thanks to the organisers for the invitation, and all the volunteers who provided a meal for everyone. I had a great time.

I shared the stage for the evening debate with Professor François Morin, an economist from the University of Toulouse. François has published a number of books on the nature of the economy including "Un monde sans Wallstreet", and "Le nouveau mur d'argent: Essai sur la finance globalisée", so it was very nice to find out what he thought about my proposals.

My talk tried to bring together a number of the themes that I have been thinking about recently, and in particular the idea that we could fix the Eurozone crisis for good by making a number of specific reforms.  Firstly, it is essential that the European Central Bank takes on the public sector debt in the Eurozone. By doing this, it would immediately save Eurozone taxpayers hundreds of billions in interest payments every year.  But, it order to pay off those debts, the ECB could impose a financial transaction tax on all Euro-denominated transactions - wherever they occur. Finally, the revenue generated by the tax should be redistributed among the different Eurozone countries according to population.

They are all ideas that I have previously mentioned here. But this was the first time that I had brought them all together, and I tried to update the figures to use the latest data.

The discussions with François and the members of the audience were very stimulating. I was pleased to hear that François agreed with the sorts of numbers I had been using. And I didn't hear of any real problems with what I propose - except for the fact that we should expect to get massive resistance from the financial sector. Not surprising, since the proposals will effectively kill the goose that has been laying golden eggs for the financial sector for 60 years at least - allowing the banking sector to siphon off 3% of GDP from taxpayers every year in the form of totally unjustifiable interest payments.

Still, I'd like to think that this could be the start of something big. I really do think that with the European Elections coming up in 2014, the time could be right to get political parties to take on board some of these radical proposals.

Anyway, I've just uploaded a Youtube version of the talk which last about 32 minutes. It's called "How to eliminate Eurozone Public Sector Debt without austerity". I hope you like it.

There's also a version in French for those of you who want to know how bad my French accent is. You can find it on my other blog under the title "Ma nouvelle présentation Youtube : Comment éliminer la dette publique de l'Eurozone sans austérité".


  1. I suggest there is a flaw in your proposal as follows.

    Let’s say every citizen of the EZ has an equal share in the ECB (which roughly speaking is the case). When the ECB “takes on” all EZ debt, that is a bonanza for perphery countries and of little benefit for core countries because their debts are lower. Then everyone reimburses the ECB via the transaction tax.

    Assuming GDP per head is the same throughout the EZ, that means periphery countries gain at the expense of the core. But it’s actually worse than that because GDP per head is higher in core countries, so there is a double “whammy” there.

    Or to put it another way, I suspect German tabloid newspapers would go ballistic at your suggestion.

  2. Hi Ralph - thanks for commenting.

    Well, I agree with you that some would try and argue that this would mean that "German Taxpayers will end up paying for the lazy people in the south of Europe".

    But, as I argue in the presentation, the time to get out of debt for countries like Portugal, Spain, Cypress and Slovenia will all be SHORTER than the Germans - simply because it is the German government that has the highest level of debt in the EU. And indeed Portugal, Spain, Cypress and Slovenia all have lower per capita government debt than Germany.

    Second, by taxing Euro-denominated transactions wherever they occur, it means that most of the money will be coming from "investors" who are not even in the Eurozone. Look at that figure that I mentioned showing that 40% of all Interest Rate Swaps are denominated in Euros, and 46% of the world trade is in London.

    My bet is that most of this trading is being done by people who have vast quantities of Euros stashed away in tax havens - not Germans.

    In other words, my proposition will be less a net transfer of Euros from Germany to the PIGS, but rather a net transfer of Euros from the Caymans to the Eurozone. Who would complain about that?