Thursday, March 28, 2013

Dijsselbloem is right!


Jan Joost Teunissen

Just a few days ago, I was disappointed by Jeroen Dijsselbloem ... and now I am excited and would like to give him a compliment, even a great compliment!

He challenged the financial sector, telling them that from now on it would not be the taxpayer who would pay for the risks they have taken, but themselves and that the party - where profits were private and losses borne by the community - was over!

Naturally he received a lot of criticism for his surprising stance, both as leader of the Euro group and as Minister of Finance of the Netherlands. The criticism came, not surprisingly, from people who had set aside a lot of money in the Cypriot banks. And it came from politicians who said that, okay, he was right to finally tackle the financial sector, but he should have done this silently and not openly and publicly as it would stir emotions in the financial markets and among savers who would no longer trust that their money was safe in the banks. Thus it could prompt a widespread run on European banks when the next banking crisis emerged in another European country. And if that country were a large country, then the whole euro system might tumble. It would not be the first time that a chain reaction would damage the world financial system. This young and inexperienced Dutch minister of finance has behaved incompetently and irresponsibly. He should be replaced as soon as possible by someone more experienced who is familiar with financial markets and knows what one can say and do, and what one cannot say and do!

Since late Tuesday evening I have followed the harsh and emotional attacks on Dijsselbloem. What was actually the criticism? No more than that he had sown anxiety among people who work in the financial markets or among people who defend the markets through thick and thin. And, obviously, among savers who have put more than 100,000 euros in the Cypriot banks that are now being "cut up" or dissolved.

Dijsselbloem’s new policy is clear: "Shareholders, bondholders and big savers: from now on, you will have to contribute to the rescue or restructuring of a bankrupt bank."

Good, I think, finally there is the beginning of a change of policy vis-à-vis the financial sector! It's high time!

The only exception I would make is for people and companies in Cyprus that are "unreasonably" affected by the new policy of Dijsselbloem and his colleagues. If a business customer of a bank has all his money in a bankrupt bank, it seems unjust that he will lose an important part of the money that exceeds 100,000 euros. If I would still be in the position that Fondad would have over 100,000 euros on a business bank account and I would have established Fondad in Cyprus instead of the Netherlands, I would now protest and say that our work was made impossible if our bank was dissolved and we had lost a significant portion of our revenues.

For the rest, I have nothing but praise for the initiative by Dijsselbloem, and his openness about it. Without that openness, without the media echoing his words, the financial sector could have continued to lean backwards and let the taxpayer pay for its risks, revenues and losses.

I hope Dijsselbloem’s initiative will be the beginning of a democratization and socialization of the international financial system, in which governments and politicians take back the reins instead of, as they have done way too long, giving the financial sector free play. The current crisis in Cyprus, in Europe and in the rest of the world, gives good reasons for such democratization and socialization.

Friday, March 22, 2013

Cyprus, Dijsselbloem and the Need for Democracy

Jan Joost Teunissen

In the case of Cyprus, the error of Jeroen Dijsselbloem, the Dutch finance minister and head of the Eurogroup, as well as of his European colleagues, is that they forgot about democracy. You cannot abolish democracy, even though in the cases of Greece and Italy it appeared that you could replace democratic governments by technocratic governments. Also, Dijsselbloem and his colleagues underestimated the anger and the fear of savers like you and me, as well as the "investor sentiments" of the people operating in the financial markets.

Of course, in principle Dijsselbloem is in favour of democracy. But then he, and his colleagues, should have welcomed that in
Cyprus democracy - the parliament - has triumphed and not the technocracy.

More democracy in economic policy making in European countries is urgently needed, if only because its citizens are rapidly losing confidence in their leaders. Yes, they have chosen them, but not because they trusted their leaders to do a good job but because they had no alternative.

More democracy in economic decision-making and more protests of undignified citizens, are also urgently needed to remind policy makers that they should think better about how to address the crisis of Cyprus, and of the euro. And, last but not least: both the protests and the rethinking should help to change course!

Economic policymaking is too narrow-minded, as it is not embedded in a broader vision of what is at stake in society. Over the last decades, it has lacked that broader embedding and, instead, has left much of the thinking and acting to the players in the financial markets, especially the bankers. This has not only given way too much space to idiotic things that brought our economies to the brink of bankruptcy, but also led to recurrent crises in Latin America, in Asia, in Russia, until eventually the system was hit in its heart, that is, the U.S. and Europe.

One pretends that small countries such as
Greece, Portugal and Cyprus are the problem, but they are not. The problem is the capitalist system with the dollar as the key international currency and the unbridled financial markets with their agents operating in it to enrich at the expense of others. That is the problem.

Not the poor but the rich are the problem!

Greece or Cyprus are the problem, but the United States and the maintenance of the dollar as the key currency of the system, are the problem! And let’s not forget that from the sixties onwards, sensible plans to reform the system have been proposed and even discussed by policymakers in endless meetings (eg in the early seventies by the so-called Committee of Twenty, a predecessor of the current G20). But no action was taken. Instead, an international monetary and financial system was maintained in which the United States and the U.S. dollar play a dominant role.

As we all know, economic policymaking is a matter of balancing political interests and choosing a policy that underpins political interests and keeps them intact - or changes them!

We also know that economic policies support a distribution of power between people and groups, or, to mention an old-day distinction that still applies: between labour and capital.

"The" economy is the result of human action and the power of people and groups who participate in it, and that is almost everyone. Consequently, economic policymaking is not "neutral" or "technical" as technocrats want us to believe, it is political.

What policy makers, politicians, entrepreneurs and journalists present as "sound" economic policies is equivalent to satisfying the needs of people working in the financial markets. In this way, economic decision-making has become dependent on "investor sentiments" and short-term horizons of the people who work in the financial markets.

It is not only the 'day traders' whose capricious behaviour they respect, but also those who make investments decisions for pension funds and other institutional investors.

By adopting "neoliberal" policies, governments have become the slaves of bankers and other powerful people in the financial sector. They have little impact on what is economically happening within countries and between countries. This explains their powerlessness to solve the euro crisis and other crises.

The financial markets not only have a too dominant role in the current world capitalist system, but they are also a major cause of the emergence and persistence of the crisis, both the international and the European crisis.

If one wants to address the crisis in
Europe and the global financial and economic crisis in a more serious way, one should begin by reforming capital markets rather than labour markets.

We need more, rather than less, democracy in economic policymaking. This applies both for individual countries and for the joint international approach to the euro crisis and the international crisis.

Dijsselbloem and his colleagues should welcome the fact that the parliamentarians in
Cyprus and the people who elected them, took action against technocratic decisions made by the Eurogroup and the government of Cyprus.

Without noise, resistance and protests, there is no democracy. Dijsselbloem, as a former parliamentarian, would or should agree with that.

Thursday, March 7, 2013

Flaws in the Austerity Debate - Remember Triffin

With a friend who belongs since long to the Fondad Network (John Williamson)  I had a discussion on the austerity debate (see, for an interesting article, "Paul DeGrauwe and the Rehn of Terror" by Paul Krugman).  

 In one of my letters I said:

"Following up on the austerity debate, I see a serious neglect of the world system aspect of the crisis in most analyses, in both the euro crisis and the international crisis. Rather than focusing on the way the crisis has emerged and developed, the debate focuses completely on the worrisome level of government debt, "inflexible" labour markets, and insufficiently regulated and supervised banks -- to name three features that experts, politicians and journalists discuss endlessly.

This framing and narrowing down of the discussion is fair enough if its purpose is to focus on certain aspects of the crisis. But it is not fair if its purpose is to prevent a broader and more fundamental analysis of and response to the crisis.

A second flaw in the debate about the (euro) crisis is that most experts, politicians and journalists reduce the debate to policies that they see as adequate responses to the crisis. So they present austerity as the solution to the government debt problem, "reform" of labour markets (i.e. reducing wages and making it easier to fire workers) as the solution to the problem (what exactly is the problem?) of inflexible labour markets, and better regulation and supervision as the answer to the problem of having to bail out banks.

I have long hoped for a more serious discussion of the crisis that would have departed from how the crisis emerged and developed in the international capitalist system. As you know, it started in some weak, sensitive parts of the system, spread to other parts of it, and ended up in creating, among other, the euro crisis. A serious analysis of the crisis would have suggested other responses than the current ones. Current policy responses are basically geared at crisis management instead of crisis resolution and crisis prevention.

I find it depressing and a shame that most analyses are superficial, flawed and misdirected. In such way it will be difficult, if not impossible, to resolve the crisis and prevent future crises. 

Finally, I think that we should analyse the crisis not only from an economic point of view but also from a political and (socio) psychological point of view. Otherwise, we will not come up with proper responses." 

The picture above is of Robert Triffin and me, taken during an interview I had with him in 1985 at his room at the University of Louvain-la-Neuve. I have written several articles about Triffin, when he was still alive and active, and after he passed away in 1993. In my bio as member of the board of the Triffin Foundation you can read a little bit of how important Triffin has been for me, and still is. 

Monday, March 4, 2013

The Irish example

The Swiss newspaper Le Temps of today summarised it nicely:

L’Irlande finit par assainir sa situation économique
L’ancien tigre celtique pourrait se passer du soutien européen fin 2013. La croissance reste cependant atone et le chômage massif.

“Ireland succeeds in curing its economy – The old Celtic Tiger will be able to do without European support at the end of 2013. However, growth remains sluggish and unemployment massive.”

For those of you who read Spanish, this article, written by Vicenç Navarro, may be interesting. It argues that Spain should not follow the Irish example.