Attac Catalogue on Democratizing the Financial Markets
The financial industry contributed over $5 billion in the last 10 years in campaign gifts and lobbying to insure that Wall Street oligarchs have their way in the media and congress. Attac is a global justice network committed to shriveling the financial markets.
ATTAC CATALOGUE FOR DEMOCRATIZATION OF THE FINANCIAL MARKETS
By Attac Austria
[This pamphlet published by Attac Austria in April 2009 is translated from the German on the World Wide Web, link to www.attac.at. Attac Austria is part of the Attac network committed to global justice and the shriveling of the financial markets.]
A) DEMANDS ON THE BANK BAILOUT PACKAGES
BAILOUT MEASURES COUPLED TO ENLIGHTENMENT AND SYSTEM CHANGE
ANALYSIS: With sweeping bailout packages, the US and other governments try to master the crisis and sweep under the rug all the structural failures of the monitoring authorities, financial institutions and the free financial markets in general. All this is done without exciting great attention. With the bailout packages, the governments imply there is no interest in the necessary far-reaching systemic reforms. After mastering the crisis, the financial world should pass over to the uncontrolled chase of profits without calling financial institutions and investors to account or restricting them in their profit mongering. Still bailout measures must be coupled to the watertight enlightenment about past investment strategies of the degenerate financial markets. All abuses in the financial markets must be brought to the surface and explained completely.
In addition, the inequalities must be reduced that produce on one side a concentration of assets and income and on the other the weak demand leading to misallocation, mis-investments and the latest real estate bubbles. The bailout measures will strain the public budgets whether we like this or not. Therefore the danger exists that the crisis will cause a new indebtedness of the state as an argument for more privatization and cuts in urgently necessary measures to protect the environment, especially the atmosphere, social spending and education. For that reason, the financial crisis should be seen in a larger context.
Market radicalism failed on all economic and social planes, not only on the plane of the financial markets. Markets need rules. To avoid future crises and safeguard the interests of the general public, bailout measures must be coupled to a complete system change - away from the inefficient and hardly regulated free financial markets to democratic and effectively regulated financial markets. The cause of the crisis was not the individual failure of banks. Rather crises are an immanent problem of liberalized international financial markets driven by speculation. Therefore far-reaching reforms must be carried out. (See the concrete demands in the second section)
· Measures for transforming the financial systems that aim at removing the systemic causes of the crisis (for example, strengthening international cooperation, regulating actors and products, redistribution from top to bottom)
· The political-economic dogma of the efficiency of completely free markets must be abandoned (for example, as a goal of European Union agreements)
· Bailout measures must be coupled to an actual system change, that is to a turning away from the liberalized and deregulated financial markets. Bailout measures must aim at systemic changes. They should contribute to overcoming the dominance of the financial markets instead of repairing the old financial system prone to crises without bringing about lasting changes.
· Extensive investment programs in the environment, education and the social realm to control consequences of the crisis and permanently reorganize the economy.
THE CAUSAL AGENTS MUST BEAR A HIGH SHARE OF THE COSTS OF THE BAILOUT MEASURES
ANALYSIS: Those who triggered the crisis profited massively with record annual profits from the present system. Therefore they must answer for removing the damages caused by the crisis. They should pay for changing the respective disastrous incentive structure. At the moment, speculators can confidently take high risks since they can count on the support of the public authority in case of a crisis and do not share or hardly share in the follow-up costs of the crisis. This can only be changed by establishing democratic co-operative "good banks" (see below). There are different possibilities of getting the financial market actors to pay. Firstly, capital income should be subject to a high uniform and progressive taxation. Secondly, the salaries of management and the royalties of consultants of degenerate financial institutions should be radically cut and used to revitalize the banking houses. Thirdly, bank institutions should only be cushioned to guarantee the further functioning of the financial sector. Public funds should be used for investment programs.
· Financial investors must share in financing the costs of the crisis
· Taxing capital income and assets in a high uniform and progressive way
· Special tax on assets ("causal crisis agent tax") to finance measures for crisis control. Managers must pay back part of their bonuses
· Reserve in bailout action and allocating funds primarily in public investment programs
· Required publication of board of directors' salaries
· Raising the top tax rate for the top 1$ of the top earners (Gordon Brown)
· Bailout packages must be handled by a group that reports to the parliament
PUBLIC AUTHORITY MUST HAVE A PERMANENT SHARE IN THE BAILED OUT BANKS
ANALYSIS: In bailout actions, the public authority must have a corresponding share in the banks. Every bank dependent on public funds must cede a share to the general public. Nationalized banks must remain public and non-profit. A cooperatively organized house banking system that functioned very well up to the 1980s must be the goal of an alternative capital market offensive (see demand for a public banking sector).
· Nationalized banks must be public and non-profit. The goal pursued by this government-independent management should also be fixed in the basic law. The stakeholders' right to join in the conversation must be assured. In addition, banks may not be under the pressure of acting according to private enterprise logic.
· Banks claiming bailout measures must cede shares to the public authority.
· When banks accept bailou9t packages, they must close their branches in tax havens.
B) DEMANDS TO REORGANIZE INTERNATIONAL FINANCIAL MARKETS
EUROPEAN OR GLOBAL FINANCIAL MARKET MONITORING
ANALYSIS: When actors on the financial markets operate globally, focusing on the national plane does not make sense if there is no adequate international reporting duty. On one hand, ambiguities arise. On the other hand, banks are always one step ahead of the auditors. The bank headquarters has an overview in all countries of their branch offices and can use this knowledge in the case of an audit since a problematic financial assessment is offered from one subsidiary to another or by awarding credits internal to the company. Therefore national audits are toothless to a certain extent. A global financial market monitoring authority would be desirable. As a first step, the EU should introduce an FMA (financial monitoring authority). To us, the European Central Bank is an unsuitable framework for such an institution because it only covers Euro countries and operates without democratic controls. A global FMA could be established under the shelter of a radically democratized IMF or a democratized European Central Bank.
· Introduction of a democratic EU-wide and global financial market monitoring for controlling actors and products
· As long as no EU-wide or global FMA is in sight, the EU and the international community must introduce a comprehensive international reporting duty.
STRICT REGULATION OF INVESTMENT FUNDS
ANALYSIS: To finance their speculative dealings, hedge funds usually accept enormous credits to strengthen their "leverage." They hunt for profit with only marginal investment of their own capital. When the speculations go wrong or are a disaster, several banks are involved. Thus hedge funds represent a considerable stability risk. The argument that hedge funds assume risks that no one is ready to bear and thus contribute to stability is not convincing. The risk does not disappear but only becomes more opaque. The real estate crisis has shown banks cannot protect themselves by selling high-risk credit securities to hedge funds because they buy them indirectly through other securities. The classic speculative business activity of hedge funds must be prohibited or strictly regulated.
Private-equity funds gain shares of businesses with the capital of investors and often with credit ("levers")... In the next phase, the private-equity company actively intervenes in business management, carries out measures for increased short-term profitability and draws money out of the firm in the form of "re-capitalizations." After a few years, the private-equity company alights from the enterprise. Investment funds often settle in tax havens and conduct their speculative businesses from there without democratic controls, regulations on internal capital holdings or taxation on accumulating profits.
The regulations of different states within Europe must be standardized and intensified. Global funds can be regulated effectively on the international plane though they can also be regulated on the national plane.
· Strict internationally-standardized regulation of hedge- and private-equity funds within Europe as a first step
· Legal disclosure of ownership structures, origin of funds, investment focal points, risk-management models, profits, risks as well as the incentive-structure of management
· Liability for misleading information
· Risky investment strategies should be prohibited (for example, short-selling, OTC-businesses), especially for pension funds
· Investment funds should not obtain any credits for their speculative activity. Strict capital requirements should be in effect to banks for grants to investment funds.
· Realized profits of funds must be subject to the investment tax
· Funds licensed in tax havens should be denied access to the EU market (advertising, marketing)
· Funds should be limited to financing new enterprises. These enterprises must also be subject to strict regulation, high transparency rules and strict public control. Financial promotion of small- and medium-sized businesses by strengthening classical financing sources is sensible (for example, special banks). Technology promotion (for example, for renewable energy) should flow directly to innovative businesses, not to their sponsors.
· Strengthening joint-determination of the works council
· Preventing credit-financed special distribution
REGULATION OF DERIVATIVES
ANALYSIS: Derivatives are securities whose price depends on the value of an "underlying" asset (stock index, raw materials, horse race). Derivatives are insurance businesses, for example against possible future price changes. On the other hand, derivatives in reality mainly serve speculation. By means of derivatives, speculators bet on future price changes. The number of derivatives has exploded in the last years. Increasingly complex financial products arose and were legalized. Many of these derivatives have no additional real-economic benefit. They only serve speculation. In the final phase of the boom, ever-more complex products were invented to satisfy high profit demands with a new product. As a result, both the financial monitoring and speculators lost the long-term perspective. In many cases, neither traders nor investors understood the products. However insurance businesses can be carried out with simple derivatives. Therefore current and new derivatives coming on the market should be scrutinized and if necessary prohibited or not allowed by a public authority.
No one knows how many derivatives there are today. The majority of derivatives are traded "over the counter," not in the framework of stock exchanges. Two business partners agree bilaterally on a deal without this being publically intended or controlled. This hides considerable stability risks and therefore should be prohibited.
· Registration of derivatives
· Prohibition of OTC trade, trade with derivatives only in the framework of stock exchanges. Legal protection must be withdrawn from OTC businesses.
· Taxation of trade with derivatives through a general financial transactions tax
CLOSING OF TAX HAVENS
ANALYSIS: The extent of the crisis was considerably intensified by tax havens. Firstly, tax havens are also regulatory havens. There units (businesses, banks, insurances, private persons) are subject to the regulations of tax havens, not to the laws of the land where the business activity takes place. On the eve of the sub-prime crisis, banks and investors established "shadow banking" (conduits off the balance sheet, hedge funds) on a large scale in tax- and regulatory havens (Ireland, Iceland etc) to transfer risks from balance sheets and elude internal capital regulations. The range of awarded toxic credits was expanded. When the speculations no longer fell into place, banks had to accept on their own balance sheets losses of their insolvent branches settled in the havens since they had no access to emergency credits.
Secondly, the extent of the crisis can be wrongly estimated on account of regulatory havens. The hidden risks are not known because of poor transparency (banking secrecy and no forwarding of information). This affects the awarding of credits by banks since fewer credits were granted out of fear of a bankruptcy of the business partner. Uncertainties arise in estimating the costs in case of a bank bailout by the state.
Thirdly, tax havens are an instrument of redistribution in favor of the wealthy and corporations that can utilize these structures. The lost tax funds are not invested by states but by the beneficiaries of the tax havens. This leads to inflation of the capital assets and of the financial markets. Tax havens fuel the tax competition downwards because other countries see themselves forced to comply. Therefore they must be closed.
Closing tax havens is a question of political will. Most tax havens are protectorates of European countries or the US and could be shut down through political pressure like the shutting down of the financial streams of the terrorist suspects after September 11. With non-cooperation of the tax havens, the turnover of capital in and from these countries could be restricted. Licenses could be withdrawn from corporations that maintain mailbox branch offices in tax havens.
· Tax havens must be shut down
· Banks, insurances and businesses that accept bailout packages must close their branches in tax havens
· Licenses should be withdrawn from corporations and banks that maintain mail box branch offices in tax havens if they do not end these businesses
· Abolition of banking secrecy
· More transparency: businesses must disclose their firm's structure together with subsidiary firms with their profits and paid taxes
· Economic sanctions against tax havens and stronger prosecution of tax evasion (by off shore services among others)
· An automatic global information exchange between tax havens and countries of origin must be established
· No exceptions from the EU guideline for the tax havens Austria, Luxemburg and Belgium: automatic information exchange instead of source tax
· Extension of EU guideline to dividends, alienated profits and yields of innovative capital market products like derivatives to businesses, trusts, endowments and non-member countries
· Common minimum tax rates and tax measurements in the EU
· A structural fund must be established with the UN tax authority that co-finances the restructuring of the economy in the tax havens.
WORLDWIDE OR EU-WIDE INTRODUCTION OF A GENERAL FINANCIAL TRANSACTIONS TAX
ANALYSIS: The enormous extent of short-term speculation on the international financial markets leads to volatility, uncertainty and instability, implies higher insurance costs and sets false incentives in business policy. The volume of financial transactions (especially derivatives) has increased disproportionately in the last 10 years compared to the commodity trade... Short-term price fluctuations of exchange rates, raw material prices, stock prices and long-term deviations from real-economic prices lead to inefficiency because false price signals are sent and money flows where it can generate high short-term profits for individual investors instead of where it is needed for meaningful investments. "Herd conduct" determines the conduct of investors as fundamental economic data. Moreover it leads to high costs because of insurance against price fluctuations. The short-term nature of investment strategies reinforces the logic of short-term price maintenance of businesses (shareholder value). The possibility of gaining short-term speculative profits sets incentives to concentrate on financial investments instead of real investments.
One widespread kind of speculation is called "arbitrage." In this business, great sums are moved in short time periods from one investment firm to another and slight price changes are exploited (for example, different prices for products on different stock exchanges) so profits are realized without risk.
Short-term trade increases through greater use of technical "trading systems" and trade through computer systems.
With the general financial transactions tax, different financial products should be taxed including derivatives, stocks and currencies. A tax with a microscopic tax rate on financial transactions would make the bulk of short-term speculation unprofitable. Derivatives with great leverage (that is, with little internal capital) should be taxed higher than other financial products. This would impact speculative transactions even though the tax rate would be trifling. This tax should be extended to the OTC trade. Increasing the tax rate should also be considered.
· Introduction of a general financial transactions tax (including derivatives, stocks and currency trade) worldwide or at least on the plane of the EU through clearing houses. These must be subject to democratic controls.
· The tax rate must be between 0.1% and 0%. One should begin small and then accelerate according to the effects on the markets
· Primary use of tax revenues to fulfill the millennium development goals. A third could go to the EU that had a great interest in the effective collection of the tax. The financial centers could keep a part of that since their resistance would then be less
· A parliamentary resolution on Austria that obligates the government to support an introduction of the tax in Europe.
PUBLIC RATING AGENCIES
ANALYSIS: Rating agencies have the task of evaluating securities and borrowers. They should provide objective estimates on the credit-worthiness of debtors and classify securities according to their risks. New financial products are rated by rating agencies. Market actors must be able to rely on their judgment. These rating agencies are now paid by those whom they evaluate. Therefore private rating agencies have enormous incentives to yield to their customers' desires in their assessments. This conduct caused the current financial crisis since private rating agencies rated the risky "mortgage-backed securities" as safe even though they were not safe. Therefore public agencies independent of profit interests must be created that carry out the rating of actors and products. A simple shared task for the EU could be the "registration" of new products (derivatives) (see the demand for regulation of derivatives).
· Introduction of democratic public rating agencies
· An EU rating agency could take over the registration of derivatives
PUBLIC SMALL-SCALE AND NON-PROFIT ORIENTED BANKING SECTOR
ANALYSIS: Banks have an essential function for the real economy. Businesses partly finance their investments with credits. As the present financial crisis shows, many businesses simply cannot invest when the banking sector is marked by great insecurity and little mutual trust in granting credits. Many analyses show that private banks on account of their profit mongering have an incentive in giving many credits to credit-unworthy businesspersons in economically good times. This has to do with information problems and with the exaggerated positive expectations in the upswing. If the economic turn comes, banks will often continue sitting on their rotten credits and not allocating any more credits to sound businesses. In this way, they reinforce the downswing. This can also lead into an economic crisis as we see now. Therefore the banking sector should have its business activity in the public and democratic authority and be non-profit and cooperative with strict guidelines so public banks have no incentive to grant risky credits. Private banks should be strictly controlled.
Small- and medium-size enterprises have problems obtaining credits through the growth of the banking houses and across-the-board regulation of awarding credits. On the other hand, the European "economic miracle" was based on a partly cooperatively organized house banking system. In the course of the financial crisis, many banking houses had to be cushioned by the public authority. When taxpayers must answer for the losses of banks, they also have the right to a corresponding influence in the bank. This means banks that must be nationalized should remain in public authority and be conducted cooperatively. The general public should have corresponding shares in the banks that were partly bailed out by the state.
For different reasons, the private (big-) banking system has massively contributed to the present crisis:
· Careless allocation of risky credits
· Excessive trade with credits
· Hiding rotten credits outside the balance sheet
· The invention of credit derivatives with the argument of spreading the risk
· The establishment of branch offices in tax havens to avoid taxes and regulations (Jersey, Bank Austria and First Bank, Cayman Islands)
· Intensive pressures on politics to forego monitoring and control of the financial markets...
· Bailed out banking houses should remain public and function cooperatively
· The goal of an alternative capital market offensive must be a public, small-scale and cooperative house banking system
· The democratic right to a free gyro-account and safe savings account
· Inexpensive credit to "real" investing businesses
· Alongside economic credit-worthiness, borrowers should be tested on social and ecological criteria
· Inexpensive credits to the state
· Democratic banks stay away from stocks, funds and derivatives. They do not cooperate with tax havens or guard any banking secrecy because whatever is inconsistent with the spirit of democracy would undermine the financing of community
· Transparency in all business relations creates trust in democratic banks
· Democratic banks are independent of the government. Their management comes about in a democratic way and can be voted out of office at any time. They always owe an accounting to the sovereign and are committed by law to service in the economy and society.
RADICAL REFORM OF THE EUROPEAN CENTRAL BANK (EZB) AND OTHER NEOLIBERAL CENTRAL BANKS
ANALYSIS: The highest and only goal of the EZB is combating inflation. According to the neoliberal dogma, it is independent and free from democratic influence.
On principle, central banks are not suited for fighting inflation because inflation is primarily the consequence of higher costs in production - for example, through higher raw material prices or higher wage costs. In reality, inflation is usually not the result of too much money in circulation, that is from an overly high demand, in times in which the economy and income grow very quickly which hardly occurred in the last years. However the EZB assumes that an overly high demand leads to inflation. Therefore the EZB raises the interest rate with the danger of inflation to break a supposed "overheating" of the economy. In reality, this means the EZB strangles the economy. Low demand lowers the price. Simultaneously higher raw material - or wage costs raise the price... The danger of inflation is often exaggerated. It is hidden that a policy of high interests (besides raising the price of credits in the real economy) benefits owners of great assets who can profitably earn interest on their capital. The argument is frequently made that the real estate bubble is due to the cheap money of the American Federal Reserve. This argument is too one-dimensional since it diverts from the distribution question (and the weak demand) and the poor regulation of financial products and the role of regulatory havens that had a great share in the genesis of bubbles. The genesis of the real estate bubble in the US was allowed because the political will was lacking to stimulate the economy through other measures like strengthening mass purchasing power or targeted investments in future technologies.
The independence of the central banks causes them to stubbornly insist on the goal of price stability, not lowering interests in times of low growth and high unemployment. High employment is not a goal of the EZB. The independence of the central banks is based on unrealistic neoclassical models that show the most independent and conservative central banks have the best performance. Central banks are much too little concerned about avoiding speculative bubbles. They concentrate on the inflation of the prices of goods and services and pay no attention to the inflation of prices of securities. The American Federal Reserve should have warned of the bubbles of the last years (dot-com bubble and real estate bubble).
In a visionary view, the role of the central banks must be reconsidered. They are relatively unsuited for combating inflation. Strictly speaking, they are relatively inefficient in increasing growth and employment. This is connected with the fact that its control mechanism - the interest rate - only has a very indirect influence on growth and employment. In this regard, fiscal policy is much more effective because it directly raised growth and employment. The monetary policy of the central banks should focus on distribution questions. The nominal interest rate should be under the nominal growth rate in the long-term average and be relatively stable. Only a (European) fiscal policy worried about the stabilization of demand and employment. Instead central banks should be concerned about the stability of the financial sector and serve as the "lender of last resort."
· democratization of the central banks by filling the governor's council according to the stakeholder approach (debtors, creditors, KMV-representatives, consumer representatives, employee representatives, government representatives) with the duty of accountability to the parliament
· As long as no fiscal policy is concerned with stabilization of a high employment, the monetary policy of the central banks must also pursue the goal of high employment. If there is a fiscal political control of the demand, monetary policy should aim at distribution justice and stability
· Combating inflation should be adopted by democratic corporatist price commissions
· Central banks must be more concerned about the stability of the financial markets and avoidance of speculative bubbles.
BREAKING SHAREHOLDER VALUE
ANALYSIS: In the past the shareholder was oriented in the expected dividends. The enormous reduction in the time stocks are held shows that shareholders today are increasingly interested in buying and reselling, that is the price increases and no longer primarily in dividend payments. This points the way to the future. Management tries to pursue short-term price maintenance and loses sight of the long-term business structure. They forego costly long-term investments and often try to rev up the price through mass layoffs, wage cuts and outsourcing.
Management is even rewarded since the pay of managers is often coupled to the stock price through so-called stock options, which is even favored by tax law in Austria. Stock options must be prohibited to avoid financial incentives to short-term business policy.
Institutional investors like hedge funds that have shares in business vigorously represent the interest for high short-term profits. They have enormous influence on business policy through their vast capital.
Shareholder value contributes massively to the weak economic dynamic and high unemployment in Europe since it inhibits long-term real investments and rationalizes away jobs.
· Shareholder voting rights must be coupled to the time stocks are held to minimize the influence of short-term interests
· Stock options must be prohibited and a ceiling introduced for manager salaries, bonuses and consultation royalties. Instead of stock options, part of managers' salaries should be coupled to public welfare
· Stakeholders must participate in decisions in business policy: veto rights in existential decisions like mergers, outsourcing and plant closures.
REDISTRIBUTION FROM TOP TO BOTTOM
ANALYSIS: The mammoth concentration of assets in the hands of a few has contributed to the inflation of the financial markets. The wealthy only consume a small part of their income and invest the rest on the financial markets from which they expect a high profit. Through the increasing inequality in incomes and assets, capital seeking ever higher profits streams on the financial markets where prices are overturned on account of the high demand. Despite the crash, the profits realized on financial markets in the last decades were usually above the growth rates of the world economy. Again and again public budgets have become indebted through tax cuts benefiting investors. States lend money, spend bond money and privatize public property from which well-to-do investors profit.
Tax or fiscal policy has a large share in the redistribution from bottom to the top. According to neoliberal ideology, low taxes for the well off lead to higher efficiency. This delusion was empirically refuted since the wealthy prefer to spend the saved tax funds on the financial markets instead of investing unrewarding on account of weak demand of the masses (who must pay an increased share of the tax revenue). Many politicians tend to reduce taxes on high incomes and assets and compensate by raising mass taxes and cutting spending. Redistribution from top to bottom has economic advantages. On one hand, less capital seeking exploitation streams to the financial markets. On the other hand, strengthening the purchasing power of low-income groups would stimulate the economy. Investments in the real economy would be more attractive compared to investments in the financial economy.
· All capital income (asset-related income, profit income) must be taxed equally and progressively
· Property taxes like inheritance and gift taxes must be reintroduced
· Wages must rise
NO PRIVATIZATION OF PENSIONS
ANALYSIS: Through privatization of the pensions - our 3rd pillar in the pension system - capital increasingly flows to the financial markets and artificially inflates these markets. Prices rise in the long term on account of the constant stream of fresh capital. Some time or other - after the complete privatization at the latest - no capital will stream any more. Demand for securities will decline and prices will fall. The foundation for pensions loses value. With the first generation to rely on private pensions, the offer of securities increases. The prices of securities will also fall. At the end of the day, the promises of profits of private insurances cannot be satisfied. As the present financial crisis proves, private pensions systems are very uncertain since crises periodically occur in which private pension insurance institutions go bankrupt and pensioners simply lose their money. Private pension systems are not solidarity systems since everyone pays in for himself and there is no redistribution from rich to poor. That's why they are clearly more expensive than public systems.
· No more privatization of pension systems
· Withdrawal of all state promotion of the 2nd and 3rd pillars, bonuses and tax relief
· Strengthening public pensions, for example minimum pensions of 1000 euro per month for everyone
· Prohibition of advertising for private provisions that destroys the trust between the generations and indirectly makes the public pension system wretched.
COORDINATED EXPANSIVE WAGE POLICY IN THE EU
ANALYSIS: Central banks are unsuited to ensure price stability. In reality, restrictive fiscal policy that can bridle inflation is always to the disadvantage of the economy (see demand for the democratization of the central banks). Inflation rises mainly through distribution conflicts between employers and employees. Therefore a corporatist wage negotiation that functioned well in Austria for a long time could be transferred to the European plane. Employer- and employee interests must meet each other at the round table and find a real wage acceptable to both sides. Then businesses must realize this and not raise the price level. This would effectively combat the inflation coming from excessive wage costs.
Therefore a coordinated wage policy on the European plane is necessary to end the competition of national economies on the plane of wages. At present, countries outdo one another in wage reserve. The wage reserve in one country may promote its competitiveness and thus its exports. All countries lose when each cuts its wages. The European domestic demand fell and produced high unemployment. A coordinated expansive wage policy on the European plane would strengthen purchasing power, stimulate the economy and diminish unemployment. Competitive losses are not acute. Europe is relatively self-sufficient.
Through the greater economic dynamic implied by a coordinated expansive wage policy on the European plane, real investments would be more attractive again relative to financial investments.
Moreover Europe-wide regulations on limiting working hours are necessary so productivity growth is not realized through the rationalization of labor.
· Introduction of democratic corporatist rounds of wage negotiations
· Wage corridor: EU-wide minimum and maximum wages in relation to the respective GDP and obligation to raising wages (in a multi-year cycle) in proportion to productivity
· Structural fund or investment program as balance for countries from Central- and Eastern Europe that will now profit through a low wage level and from introduction of a common wage policy (European minimum wage)
· Reduction of working hours (with wage adjustment)
C) DEMANDS FOR RESTRUCTURING THE INTERNATIONAL FINANCIAL ARCHITECTURE
LIMITATION OF FREE CAPITAL TRANSACTIONS THROUGH CAPITAL TRANSACTIONS CONTROLS
ANALYSIS: Free capital transactions create a power imbalance between the factors capital and labor, especially in nation states with democracies. Free capital transactions undermine nation-state democracy and sensible environmental-, social-, wages-, fiscal- and economic policy. As long as there is no democratic framework that fixes uniform standards for these questions, free capital transactions must be restricted and capital transactions controls must be introduced. In industrial countries up to the 1980s, capital transaction controls were an important political instrument. Malaysia and Chile effectively protected themselves from financial crises.
The EU is not a democratic framework that prevents location competition of its member countries. European nation states are still played off against one another. Therefore free capital transactions must be restricted within the European Union.
· If the democratic framework is lacking that prevents location competition between states, capital transaction controls must limit free capital transactions
· In the EU-goal catalogue, capital transactions may be restricted in favor of more important goals like tax justice and tax execution, financial market stability and independent fiscal policy
· Article 63 of European Union prohibiting any restriction of free capital transactions must be annulled
· A democratic investment control must be introduced within the EU. For example, banks should deposit assets as a reserve with the central bank as a security. Besides a common wages policy, a common investment policy should produce balance of economic development between Euro countries, which is indispensable for the long-term survival of the monetary union.
LIABILITY OF INVESTORS
ANALYSIS: Banks and investo4rs can now confidently expect to be cushioned by the public authority in the case of a financial crisis. The importance of banks is simply too great for the real economy. International investors who invest in threshold countries expect to get their money back from the debtor countries. There private debts are mostly taken over by the public authority. The state then receives a credit from the IMF assuring its solvency. To that end, the state must obligate itself to debt service. In both cases, investors have no incentive to renounce on high-risk speculation since they do not share in the costs of the crisis they caused. The costs are socialized while the profits are privatized.
To change this disastrous incentive structure, investors must share in the costs of the crisis. Debtors must have the possibility of stopping payments to foreign investors or declaring bankruptcy in a countermove to using public funds to revitalize degenerate banks, the public authority must become a co-owner and defend the investments of the population.
· Investors must share in the costs of the crisis
· Debtor countries must have the possibility of freezing payments to investors or declaring bankruptcy
· The public authority must have necessary control in the bailout of the banks.
REFORMING THE WORLD BANK AND THE INTERNATIONAL MONETARY FUND
ANALYSIS: The World Bank and the International Monetary Fund (IMF) are global financial institutions and as such must be subject to a democratized UN. Voting rights must be redistributed. The superior strength of Europe and the US must be reduced in favor of the developing countries. As a first step, a "double majority" could be introduced. Resolutions would only come about when the majority of debtor countries agree.
The IMF has failed in its development mission and should concentrate on its core task. It should make available liquidity when countries fall into payment problems and ensure stabilization of the exchange rates. In addition, the IMF should be transformed into a world central bank and act as the "last creditor."
· The World Bank and the IMF must be subject to a democratized UN
· Voting rights must be redistributed in favor of the developing countries
· A "double majority" should be introduced so resolutions will only be possible when the majority of developing countries agree
· The IMF should concentrate on its core tasks: supplying liquidity, stabilizing exchange rates and functioning as the "last creditor," that is it should be re-developed to a kind of world central bank.
"Disarm the Markets!" by Peter Wahl, Attac Basis Text March 2009
"The Quiet Coup" by Simon Johnson
"Capitalism Hits the Fan" by Richard Wolfe
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