Irish people still paying the painful price for folly over banks
Opinion: The continent is being reordered along German lines and wages forced down
One in eight Irish mortgage-holders is in arrears of three months or more, according to autumn 2013 figures. The jobless rate rose from 4 per cent pre-crisis to a peak of 15 per cent. It is falling now – after mass emigration of young people like that in the Great Famine.
British economist Arthur Cecil Pigou once claimed that debtor suffering was insignificant for the economy, as every debt had an equivalent asset. Another economist, Irving Fisher – a fervent speculator until the 1929 crash – contradicted him. Fisher pointed out that debtors are predominantly people with low incomes who use a higher proportion of their money for consumption, while creditors accumulate useless wealth.
Pigou economics will never help the Irish economy back on its feet. To do that, you have to reduce debt. For Ireland that means reducing its legacy debt burden. Across Europe, it means tapping the €17 trillion wealth of the continent’s millionaires to reduce the EU28 combined national debt of €11 trillion.
The euro crisis is not over for the majority of Irish people – nor for the financial markets. Lurking in the accounts of euro area banks are a trillion euro in rotten loans.
The central bank calmed markets with its announcement that it would buy, if necessary, unlimited sovereign bonds from crisis states. Now banks are borrowing money for interest rates of 0.25 per cent to lend at top rates to crisis countries -– or to gamble in the international finance casinos. While European companies struggle for loans for investment, currency speculators borrow cheap money and invest in high-interest countries such as Turkey and Brazil.
As soon as the US federal reserve tightens its monetary policy, however, turbulence is likely in developing countries. European exports to these countries will collapse and the brutal regime of austerity and Europe’s “competitiveness” drive will collapse like a house of cards.
Serious vs investment banking
If Europe doesn’t break the power of banks, the euro will break up. Debts have to be written off before they are shifted to all taxpayers via the European Stability Mechanism rescue fund. Investment banking has to be separated from serious banking. Only ordinary savings, pensions and serious loans should be guaranteed. The ECB should be granted a fixed framework for lending directly to euro member states to end the profitable business with state debt and break the power of financial markets.
We need a Europewide levy on millionaires, a Europewide public investment programme and higher wages – particularly in Germany. The answer to Europe’s biggest problem is this: bail out your people, not your banks.