Out of the euro, and then?
by Rudo de Ruijter,
Independent researcher,
Netherlands
January 2011
The euro is a very practical currency,
but it makes millions of victims. This article contains a
simple explanation why the euro can’t work and exposes the
advantages of a shift to state money.
- No, European cooperation won’t
disappear without the euro!
- And yes, with state money we are
much better off!
The euro has an unsolvable problem.
The countries that have severe debt problems today, if they
succeed in reducing these debts by cuts in public spending,
will predictably slide into debt again.
This is because these countries are
victims of a fundamental flaw in the euro. Before the euro
started, economists have warned, that a single currency can
only work when all participating countries are economically
homogeneous.
[1] [2] [3]
Today there is nothing that can
prevent Greek consumers from preferring cheaper and better
products from Germany. And when Greece imports more than it
exports, its debts increase. The same is true for all less
productive countries in the euro area. They can cut their
public spending as much as they want and privatize all
public infrastructures and services, but the next debt
crisis will never be far away!
Here is why. When consumers in less
productive countries prefer cheaper and better imported
products, the external debt of the country increases, while
the country’s productivity decreases. When the country has
its own currency, it can devaluate it. This will make
imported products more expensive and the country’s own
products more competitive on the export markets. The debt
will decrease and the productivity will increase again.
Devaluations were very common before the euro started.
With the euro, devaluations are no longer
possible and the countries become trapped in debt. But when
countries sign to become part of the euro area, they also
commit themselves to reduce their public debt below 60% of
their gross national product (GNP) and their fiscal deficit
must stay below 3% of GNP. If they exceed these limits the
other countries consider it a threat for the wished
stability of the euro. These other countries will apply
sanctions to force the indebted government to take
appropriate measures (as if a sustainable solution existed)
and if that doesn’t work, the others will supply loans
(which, by the way, will increase the external debts)
accompanied by harsh conditions, like ever more cuts in
public expenses – like dismissal of functionary, cuts in
educational, cultural, social, health care and military
spending - and an obligation to sell public possessions,
infrastructures and services! (Take care when you hear
politicians of richer countries say they are going to
help indebted countries!)
It is not an accident that Greece,
Portugal, Spain and Ireland are most severely hit today.
Economically these countries can’t be compared with
countries like Germany! When a crisis strikes the euro area
it’s immediately apparent that the area is not homogeneous;
there are strong and weak countries. Europe has many very
different countries, with very different economies, having
very different potential for productivity.
In fact, it is impossible to maintain
a single currency in such a heterogeneous area as today's 23
countries of the euro-zone. In spite of the warnings of
economists, politicians pushed for the single currency. For
the advocates it was just a matter of inventing rules and
convincing countries to sign agreements that they would
stick to these rules. Well, you can sign pieces of paper,
but that does not enable what is impossible. Today, twenty
out of the twenty-seven EU-countries cannot meet the
agreed budget rules.
[4]
The differences in productivity are not
just temporary. Intrinsic differences are related to the
local climate, to the geographical situation, to the
fertility of soils, to the availability of water and energy,
to distances to be covered, to the difficulties for
transports and all other unchangeable conditions. They
greatly determine success or failure of economic activity.
Each country has developed its own typical economy, some
relying more on agrarian production, others on industry,
others on commerce or naval transports etc., which means
that a one for all financial policy will never be able to
suit all countries.
Dollar example?
Often the United States is mentioned as
an example of a “success” of a single currency area. One
crucial difference is that they all speak the same language
in the U.S. and thus people can move much more easily to
where successful economic activities take place. In Europe,
international workforce mobility is rather limited, not just
because of the language barriers, but also because we have
old countries with people who are rooted in their traditions
and cultures.
This said, it is very questionable if we
can call the dollar a success of a single currency area.
[5]
Since 1973 the US has imported far more than it has exported
and, with a spiraling and uncontrollable debt, it lives as a
parasite of nearly all countries in the world. It is rather
a proof that a single currency in a heterogeneous area can’t
be done without a massive exploitation of other countries.
Out of the euro?
Understanding that the euro can’t work is
one thing. The next thing is still more important. I will
show that simply going back to our previous national
currencies would be a very bad solution. Sure, we
will need national currencies again, but if we want to avoid
the errors of the past, we need money that is issued and
controlled by the government (which is, by the way, how
most people think it is today.)
To understand why state money is so
important, we need to understand what money is and how
things work. Today’s money is not issued nor controlled by
the government. Instead - and for most people this may seem
unbelievable - nearly all of today’s money has been secretly
(and abusively) created by commercial banks. You don’t
actually have any money in your bank account; you just have
numbers. These numbers represent “an illusion of money”. On
your bank duplicate it says what the banker owes you, but
that money doesn’t exist, a part from a tiny little
fraction. Of course, as long as you can pay with this fake
money, you don’t mind.
[6]
Nevertheless, as I will expose below, it
is this deception in the banking system which allows an
ever-expanding money supply that endangers our society.
Bankers have corrupted all currencies in the world with
their concealed bookkeeping tricks. The euro is no
exception.
The secret of
money
Today, less than 5% of all money is
real money in the form of banknotes and coins. The rest
has been artificially created by the banks and only exists
as numbers in our bank accounts. When you borrow money from
the bank, the banker does not lend you existing money.
Instead, he simply creates a new amount of money by typing
numbers into your bank account. You then have to pay
interest on this new money that was “typed” into existence.
Often, big amounts are involved. Usually, someone who pays
back a loan for a house in 20 or 30 years pays as much in
interest as the amount of his loan. In fact, he pays for two
houses. One for himself, one for his banker!
[7]
At the moment someone buys a house, the
money of the loan is transferred to the seller. The seller
will spend this money on other things. That is how the
money of the loan starts to circulate in the society. All
money in society started as loans. Each banker collects
interest on the money he has created and all bankers
combined collect interest on every single unit of money that
exists. If you have money in your pocket or in your account,
then there is someone somewhere paying interest on that
money to a banker. When a person repays his debt to a
banker, the money that was “typed into existence” for his
loan is then “typed out of existence.”
So, all money is temporary. The total
amount of money in the society consists of what still has to
be paid back from all loans issued in the past. This means,
that the total amount of money in the society is a hazardous
amount. It has nothing to do with the needs in the society
for the normal exchange of goods and services.
Never-ending inflation
Worse, banks supply more loans all the
time, thus creating more money all the time. When more money
is used to buy a same volume of goods and services, each
money unit becomes less worth and prices rise. This is the
well known inflation.
[8]
The director of this inflation is the central banker. By
lowering his interest rate he signals to the banks, that
they must speed up the supply of loans (at lower interest
people will borrow easier and more) and, inversely, by
increasing the interest rate, the growth of the money stock
will slow down.
Bankers need inflation
Bankers need inflation.
[9]
When the money supply inflates, it becomes easier for the
borrowers to earn the amount needed for their debt payments.
This is an advantage for the borrowers, but for the bankers
too. It guarantees fewer defaults.
The fact that the principal of the loan
is worth less when the borrower pays it back doesn’t hurt
the banker. The amounts paid back for the principal don’t
stay in existence. Remember, the banker created the
principle by typing it into existence and he will type it
out of existence at the moment it is paid back.
As for the interest, that is another
story. The interest wasn’t part of the money the banker
created and won’t be typed out of existence when it is paid.
It is the profit for the banker! Yes, due to the inflation
the interest payments become worth less, but don’t feel
sorry for the banker. You may be sure, he has foreseen this
problem and has raised his interest rate a bit in advance.
No possibility for a sustainable society
Inflation has still another very
important aspect. If you don’t want to get poorer, you will
have to work harder all the time to compensate for the loss
of value of your money. That is why inflation causes ever
increasing economic activity. To put it another way, with an
inflationary banking system, we will never be able to
reach a sustainable and well balanced society.
Financial power
The ever-growing money supply creates a
situation where everything can be purchased, even the state.
In many countries financial groups have taken over public
services to turn them into steady streams of profits: gas,
electricity and water supply, public transports, post,
telephone, police tasks, prisons, public health services,
waste collection etc. This is an ongoing process. The
bankers and the financial elite make always more investment
decisions that shape our society, while government makes
always less investment decisions.
This has consequences. Money and profits
now determine what is “good” for our society. But that is
not all. As government offers fewer services to its
citizens, it will lose recognition as a natural authority.
Instead of being an institution that cares for its
population, the government is becoming a skeleton that needs
more and more repression to enforce short term and
shortsighted decisions. Instead of guaranteeing individual
liberties, it now allows and promotes surveillance of all
citizens by private and public organizations with thousands
of cameras connected to interlinked databases. Citizens are
now considered to be potential criminals who must be
fingerprinted and recorded. The KGB was a kindergarten
compared to the quickly expanding electronic surveillance
today.
The euro
The euro is a currency that belongs to
the European Central Bank (ECB) in Frankfurt.
[10]
The ECB is owned by the central banks of the participating
countries.
[11]
In spite of the public looking names of
these central banks (Deutsche Bundesbank*, Banque de France,
etc.), all of them are independent from the
governments and most of them are directed by a private
council.
[12] (* corrected Jan 7, 2011)
In spite of its private character, the
ECB is an official organ of the European Union. By article 7
of the statute of the European System of Central Banks
(ESCB) and by article 107 of the Treaty of Maastricht, the
ECB enjoys complete independence.
[13]
Note that this independence doesn’t come
from any logical or organizational need, but derives purely
from the belief that only independent central bankers can
manage the monetary system correctly. Well, if we don’t
question this belief today, when will we?
[14]
The European government
In 1957 the
European Economic Community (EEC) began. Right from the
start, this institution lacked democratic rule: its
parliament only had an advisory role. EEC’s goals were economic
and political cooperation between France, Germany, Italy,
the Netherlands, Belgium and Luxembourg.
In 1967 a concentration of powers took
place when the EEC, Euratom and the European Coal
and Steel Community became the European Communities (EC). Also, the veto-rights of individual
member states were abolished in many fields. Once this was
done, the bankers stepped in. In 1970 Pierre Werner, an
influential banker from Luxembourg
[15]
, drew the plans for the single currency.
Bretton Woods
Pierre Werner had been one of the
participants at the Bretton Woods Conference in 1944 that
was greatly influenced by the aggressive spirit of the
Second World War. During this conference the principles for
world finance and trade were created. Countries would now
have to peg their currency to the dollar and keep their
exchange rates stabel. That was beneficial for international
trade and finance. In fact, what this principle expresses is
that the ease for international trade and finance is more
important than the ability of countries to adapt themselves
to changes in the international environment. Also, through
this agreement the US was virtually proclaimed “master of
the world”, since all countries would have to adapt their
currencies to the dollar, while the US could do what it
liked!
At the same conference the IMF was set up
as well as the predecessors of the World Bank and the World
Trade Organization. The gentlemen at Bretton Woods clearly
knew that the weaker countries would suffer as a result of
their plans. The IMF, and later also the World Bank, was
given the role to supply loans to these countries. These
loans came with conditions that included severe cuts in
public spending, with consequences for education and public
health. In practice, the IMF and World Bank buried
developing countries in debt. So much debt that they would
never be able to pay back the interest, let alone the
principal. And once the country was in inescapable position,
it was forced to sell whatever it had (in particular ores
and oil), most often to US-corporations.
[16]
Foreign loans
Although the employees of the World Bank
were taught otherwise, loans from abroad are the worst way
to “help” countries in trouble. The only thing they can do
with foreign money is to buy goods abroad and get further
into debt.
[17]
Only when a country really needs a
machine or something else it cannot make for itself, and
when the supplier refuses that country’s currency, is a loan
in foreign currency justified.
Free movement of capital
And what would Euroland mean for the
bankers? The bankers would lose an important source of
income: the provisions on the exchange of the many national
currencies. But they would gain a much bigger source of
income: the free movement of capital. This was a
precondition for the single currency. This would allow the
bankers to easily supply loans in any spot where profits
could be made.
The housing boom in South-Europe
Internationally, bankers have agreed with
a set of rules for themselves, that “limits” the amount of
loans they are entitled to supply in relation to their
capital. The standard is that they should have 8 euro of
capital for each 100 euro of outstanding loans in commerce
and industry. However, when the loans are for housing, they
may lend out twice as much and thus collect twice as much
interest.
[18]
Until recently, bankers thought house prices would always
rise and so loans on houses seemed virtually without risks.
That is how the house construction booms arose in Spain,
Portugal, Ireland and elsewhere. What the bankers forgot is
that when there is not enough economic activity, people
can’t pay for these houses. But to finance economic
activities like industry and commerce, they get half as much
interest...
Help!
Greece is already experiencing what it is
like to have European “friends” who come up with loans while
imposing extreme cuts in the country’s budget. These friends
have so much faith in their solution, that they let the mad
rescue dog IMF in to have its share in the Greek tragedy.
[19]
By the way, this also means that the euro is now “assisted”
by the IMF. Funny, if it wasn’t such a tragic reality.
Ireland, Portugal and Spain are now in
trouble too. As long as they stay within the euro, they
can’t devalue their currency. The euro now works as an
invisible and imposed exchange rate between countries. These
countries have a double problem now. In the first place they
must reduce the debt to the agreed European level and
secondly they must prevent new debts in the future.
The first problem is generally solved by
harsh measures like severe cuts in social, cultural,
educational, medical spending and dismissal of public
employees, with privatizations of public infrastructures
(like Spanish airports) and public services and a steep
raise in taxes. These measures are aggressive and very
unjust for the common people, who have no responsibility
whatsoever in this tragedy. Many people will fall into
poverty. Do they have any chance to get out of it again?
Can things get better?
To have an idea about that, let us look
at the second problem. How can you prevent the less
productive euro-countries from getting into debt again?
Well, you cannot. There is no way to prevent populations
of less productive countries from importing more than they
export. There is even some logic to suppose that they will
prefer cheaper and better products imported from more
productive euro-countries. It is a fundamental flaw of a
single currency in a single market composed by very
heterogeneous economies.
In my opinion, the harsh measures these
countries are taking today are completely useless if
these countries don’t leave the euro.
Bad solutions
One bad solution would be to return to
the situation prior to the euro, and let the bankers create
and inflate the currency of the country again.
Some people think that if the bankers
were not allowed to create fake money by “typing it into our
bank accounts”, inflation would stop. The only thing that
would stop is the money multiplying effect of these
balances.
[20]
It is true that we would have real money in our accounts
instead of empty numbers, but remember: bankers need
inflation. So they would still continue to expand the number
of loans, but instead of creating the money out of thin air,
they would have to borrow it from the central bank. (The
central bank can create money indefinitely.) Of course the
bankers would make their customers pay for this extra cost.
Loans would become more expensive, but the constant
inflation of the money supply would not stop. (Nor would the
inevitable “price inflation” that follows.)
Another bad solution would be to choose a
currency backed by gold reserves. Although such currencies
have been used in the past (in the US until 1971), money
based on gold has many disadvantages. Countries without gold
mines would have to buy gold (which means deliver goods and
services to the gold mining countries) for the only purpose
of disposing of a national means of payment. Each time when
more gold comes on the market, they will be obliged to buy
more of it, to prevent their currency from devaluating
against currencies of countries with increasing gold stocks.
The gold mining industries would, in many aspects, get
supranational power, even more than the Federal Reserve
today. Gold has no stable value. Its pricing can be
influenced by holders of big stocks, like the gold mining
industries and central banks. Even big numbers of small
buyers and sellers, when triggered by fear or greed can
influence its price. All these price fluctuations can form a
danger for any economy that has its money pegged to gold.
Still more than today, gold would trigger conflicts,
oppression and wars.
Any backing of money by commodities, like
gold, silver or others, will severely impact that currency
as well as the prices of the chosen commodities.
The state money solution
Most people think that money belongs to
the state. That is the way it ought to be. Money should
belong to the society and not to the banks. It is the only
way to obtain a fair money system and the only way to
have a government that does not depend on the banks.
Today we have a very expensive monetary
system, with banks that increase their capital each year by
tremendous benefits. The bankers will tell you they need the
capital in case they suffer losses. The losses would be
deducted from the capital. Well, their capital is,
objectively speaking, tremendous, but at the same time it
only covers a tiny little percentage of their outstanding
loans. If the losses are too big, the capital is gone. But
if we take a closer look at the international agreements
between the bankers, they cannot use their required capital
at all. If they deduct an amount for losses, there will be
about twenty times as many loans on their balance sheet that
lack the backing of sufficient capital. So what we have
today are bankers who, instead of bearing their losses,
simply tell the ministers of finance that they need fresh
money, because otherwise they haven’t enough capital!
- State bank
Well, we can end this expensive and
abusive system, by creating a state bank that will be the
only bank in the country to create money. It will create all
the necessary money for the loans in the country, as well as
for the advance for expenses of the government.
Furthermore, the bankers would no longer be allowed to
create bank-account balances that are not covered by real
money. If bankers want, they may operate as middlemen
between the state bank and the population for the supply of
loans. For this, they would receive provisions, no interest.
Also, they may manage the accounts of their customers on
behalf of the state bank. This way, everyone can keep his
bank accounts and except for the conversion into the
national currency, there won’t be any interruption in the
payment system. (And if the bankers don’t want to cooperate,
the state will have to create its own counters, for instance
in tax offices.)
Next to their new function as middlemen
for loans from the state, bankers may still collect
(existing) money to form funds that can be lent out at
interest. Since this is existing money, the loans will not
cause inflation.
- Inflation stop
With this reform the government has the
means to stop inflation. Having the means doesn’t imply it
has to. It is more likely that governments will slow down
inflation only very progressively, when step by step the
“greed is beautiful” philosophy is bent into “care for the
environment and the future.” And whatever form that takes,
we won’t have to work harder all the time just because the
bankers want us to.
- No more public debt
If the government can create the money we
need, the public debt can disappear.
Public debt comes about when the
government spends money before the corresponding taxes have
been levied. Today we pay a lot of interest on the Treasury
bills that the state must issue to pay for these expenses.
Bankers like to invest in these obligations, because they
deliver interest virtually without risks. So, on one hand
our governments had to raise their debts to rescue the
bankers and on the other hand the bankers get paid interest
on these debts!
- Pension funds
Other profiteers from the interest on
government debt are the pension funds that get part of their
income out of it. Our pensionados are paid, for a consistent
part, from this interest, which, in turn, is paid by the
taxpayer. Another consistent part is paid directly by the
premiums from the working population. So, behind the facade
that people put money aside for when they are old, most of
the money that the pensionados get is money that the working
population pays them through premiums and taxes.
In fact, that is quite logical. If you
would simply stock money and release it decades later, the
release would only cause inflation. It would not magically
create the goods and services that are wanted at that
moment. What you can do with your money when you’re old
depends highly on the workforce and productivity at that
moment.
Another part of the income of pensionados
comes from foreign investments, or to put it more clearly,
from the workforce of people in other countries. Ethically
it is like financial colonialism. Nothing to be proud of.
Therefore, it would be much more logical,
to have a state pension fund, managed by the state bank. Or,
to put it another way, the working population must simply
accept they have to take care of the elderly. Citizens, who
want to transfer their pension rights from their private
pension funds to the state pension funds, should be allowed
to do so.
- Interest
Many people consider interest unethical.
However, when a part of this interest is used to absorb the
losses on loans that can’t be paid back, and when the rest
goes into the public means of the country, I don’t see
objections. The latter part of the interest would reduce the
amount of taxes to be levied.
The government could implement a variety
of interest rates according to the fields or types of
investments it wants to privilege. Rather than steering
bluntly one leading interest rate, like central banks do
now, the government could steer loans and investments more
in the needed directions.
Interest is also a useful tool to incite
borrowers to pay back in time.
- Poor and rich
Today, when supplying loans, banks demand
collateral they can seize if the borrower doesn’t pay his
debt. This way rich people can always borrow and invest more
easily and thus become richer more easily. The
ever-increasing gap between poor and rich is a danger for
society. The state bank won’t need collateral. The loans
that it supplies can be compared with a tax debt. When it is
not paid back, it can be handled similarly. Principally, the
poor would be able to borrow and invest as easily as the
rich.
As explained earlier, in an environment
without inflation, it is more difficult to pay back loans.
However, this will be compensated by the fact that the
interest rates can stay lower, because we don’t have to
contribute to expensive and useless capitalizations by
private banks anymore. Besides, when needed, tax policies
can offer further compensations to borrowers.
- Is leaving the euro expensive?
Some politicians try to frighten people
by pretending that leaving the euro would be excessively
expensive, that it would throw back economic development for
many years and so on and so forth. Well, to start with,
countries will not stop trading with a country simply
because it has left the euro and has a new currency. And if
that country switches to state money, then the costs of the
switch are mostly organizational and rather minor compared
with the gained advantages.
All needed money involved in the switch
can simply be created out of the blue by the state bank. All
euros in circulation in the country can be bought by the
state bank through the issuance of new money. These euros
can be put aside by the state bank as strategic reserve and
for the payment of imports.
The government will be able to buy back
the essential infrastructures and public services.
Rebuilding national enterprises from the many fragmented
energy, post, telephone, railway and other services will
surely enable more reliable services. In these essential
services quality and service should be the leading
principle. That doesn’t mean a return to the dusty state
enterprises of the past. State enterprises can be modern and
well managed, and, why not, supply much better public
services than any private, profit chasing company can.
I don’t say that all these changes are
easy. But if we want to create a sustainable society, in
which democracy and freedom will still mean something when
our children and grand’children grow old, this is the path
we should take.
- Overview
The reform, the way I would recommend it,
can be summarized in the overview below. Please note the
observations added below it.
Notes and references:
[1] In
the studies about optimum currency areas we can distinguish
those focusing on the needed conditions and those from after
1970 (when politicians had decided they wanted a single
currency in Europe) focusing on cost and benefits.
Roman Horvath and Lubos Komarek in
“OPTIMUM CURRENCY AREA THEORY: AN APPROACH FOR THINKING
ABOUT MONETARY INTEGRATION” (2002)
“It is possible to distinguish two major
streams of the optimum currency area literature. The first
stream tries to find the crucial economic characteristics to
determine where the (illusionary) borders for exchange rates
should be drawn (1960s-1970s). The second stream (1970s-till
now) assumes that any single country fulfills completely the
requirements to make it an optimal member of a monetary
union. As a result, the second approach does not continue in
the search for characteristics, identified as important for
choosing the participants in an optimum currency area. This
literature focuses on studying the costs and the benefits to
a country intending to participate in a currency area.”
http://wrap.warwick.ac.uk/1539/1/WRAP_Horvath_twerp647.pdf
, page 7.
Friedman put forward the advantages of
flexible exchange rates between countries as follows: As it
is commonly observed, the country’s prices and wages are
relatively rigid and factors are immobile among the
countries. As a result, under the negative demand or supply
shock the only instrument to avoid higher inflation or
unemployment is the change in the flexible exchange rate
(that means appreciation or depreciation of the currency).
This brings the economy back to the initial external and
internal equilibrium. (...) Under the fixed exchange rate
regime there would always be the unpleasant impact on
unemployment or inflation.
http://wrap.warwick.ac.uk/1539/1/WRAP_Horvath_twerp647.pdf
, page 8.
[2] Yrd.
Doç. Dr. Hüseyin Mualla YÜCEOL, Mersin Üniversitesi İktisadi
ve İdari Bilimler Fakültesi, Maliye Bölümü, in “WHY THE
EUROPEAN UNION IS NOT AN OPTIMAL CURRENCY AREA: THE LIMITS
OF INTEGRATION”
Europe is not an optimal currency area.
Although, On January 1, 1999, 11 EU countries initiated an
EMU by adopting common currency, the euro, the EU does not
appear to satisfy all of the criteria for an optimum
currency area. Then, joining the EU is not identical with
joining the euro for both old members and new members.
http://eab.ege.edu.tr/pdf/6_2/C6-S2-M6.pdf , page 66
[3] Paul
de Grauwe, excerpts of speech
“With up to twenty-seven members
instead of the present twelve, the challenge for ensuring a
smooth functioning of the enlarged Eurozone will be
daunting. The reason is that in such a large group the
probability of what economists call ‘asymmetric shocks’ will
increase significantly. This means that some countries may
experience a boom and inflationary pressures while others
experience deflationary forces. If too many asymmetric
shocks occur, the ECB will be paralyzed, not knowing whether
to increase or to reduce the interest rates. As a result,
member countries will often feel frustrated with the ECB
policies that do not (and cannot) take into account the
different economic conditions of the individual member
countries. This leads us to the question whether the
enlarged EMU will, in fact, be an optimal currency area.”
(...)
“If a country is hit by negative
shocks brought about by agglomeration effects, the wage cuts
necessary to deal with these shocks will inevitably be very
large. To give an example: If Ford Motor were to close down
a plant in Belgium and to invest in Poland instead, the wage
cut of Belgian workers that would convince Ford Motor not to
make this move would have to be 50% or more given that the
wage not feasible, then flexibility dictates that the
Belgian workers be willing to move.”
http://mostlyeconomics.wordpress.com/2010/06/21/were-europes-curent-problems-never-imagined/
[4] NRC
Handelsblad, 3 June 2010
“De Europese Commissie heeft op dit
moment tegen 20 van de 27 EU-landen een procedure lopen
omdat deze landen de interne begrotingsregels van de
Europese Unie overschrijden.”
“The European Commission has started
procedures against 20 of the 27 EU-countries because they
transgress the internal budgetarian rules.”
http://www.nrc.nl/economie/schuldencrisis/article2558281.ece/Ambtenaar_betaalt_bezuiniging
[5]
Julius Horvath in “Optimum currency area theory: A selective
review”
Ghosh and Wolf (1994), for example,
conclude the US is not an optimum currency area and
tentatively suggest separate currencies for different parts
of the United States.
http://www.bof.fi/NR/rdonlyres/5C4E3CE4-0386-4FDB-886B-C276040CD183/0/dp1503.pdf
, page 7
[6] In
spite of the apparence, we can’t and we don’t pay with fake
money. With the tiny little bit of real money that is left,
bankers succeed in executing our payment orders. For a
simplified explanation, see “Debit, credit, banco!”, item
“Juggling with payments”
http://www.courtfool.info/en_Debit_credit_banco.htm
[7]
Inflation and interest rates vary very strongly over time.
See overview US rates 1940-1999
http://www.courtfool.info/US_inflation_1940_1999.htm
These rates do not show the extra costs that customers often
have to pay to get their loan, like insurances. Insurances
reduce the risk for the banker, so he has more profit out of
his loan. So even if you pay such insurances to an insurance
company and not to your banker, they form a hidden form of
interest.
[8]
Price inflation leads to dissatisfaction of the population.
That is why a lot of countries use a Consumer Price Index,
which shows more pleasant figures.
http://www.mw.ua/2000/2020/52764
“… the reference value (4.5%) of m3
growth on an annual basis. This reference value for monetary
growth is based on a potential economic growth of 2.0% to
2,5%, an inflation of less than 2.0% in the medium term and
a long-term decline of the velocity of money by 0.5% to
1.0%, per annum.”
http://www.dnb.nl/dnb/home/file/ar03_tcm47-146939.pdf
(page removed / not accessible anymore)
“In 2003, the money supply (m3) in the
euro area grew at a rate of 8.0%, well above the official
reference value of 4.5%.”
http://www.dnb.nl/dnb/home/file/ar03_tcm47-146939.pdf
(page removed / not accessible anymore)
Keep in mind, when politicians, officials
or the central banker talk about “inflation” to the public,
they mean the changes in the Consumer Price Index.
The index is based on a yearly price
comparison of a basket of products, that an “average”
household would need. The content of the basket varies from
country to country and so do the rules to calculate the
index. One country may include the cost of food, fuel and
housing; another country may leave these costs out.
http://bigpicture.typepad.com/comments/2005/09/the_history_of_.html
http://www.goldandsilverexchange.info/consumer-price-index.html
Some countries publish the categories of
products they have in the basket , but the exact products
usually remain secret. Nevertheless, some statistics bureaus
disclose some tricks they use to obtain flattering indexes.
For instance, they change the content of the basket
periodically. Products that rise in price too much are taken
out and replaced by cheaper ones. Or, when the price of a
product remains stable, but quality improves, they count the
quality improvement as a price reduction. So, for the
computer in the basket, the Dutch Central Bureau for
Statistics (CBS) counts a 64 percent price reduction between
1998 and 2003! And down goes the index!
http://www.cbs.nl/NR/rdonlyres/AB3F1E9D-EFED-4FD9-9393-E59F762D5C9B/0/2007gevoelsinflatieart.pdf
graphic page 6
http://www.cbs.nl/en-GB/menu/themas/prijzen/publicaties/artikelen/archief/2005/consumer-price-index-art.htm
So, the content of the basket is adjusted
periodically. The justification is: "when prices rise,
households adjust their purchases too." And what does this
policy means for the index? Well, since the defined
household cannot spend more than it earns, the
price-increase of the CPI-basket is automatically limited to
the increase in earnings. The defined household cannot pay
higher prices.
In a large heterogeneous area like the
euro zone, countries will never be hurt equally by big
shocks like the financial crises or others. It will be
impossible for the ECB to react to such shocks by setting an
interest rate that would suit all countries. For some the
set rate will result in low inflation, for others the same
rate will result in high inflation. This cannot be avoided
in a heterogenous area. The CPI will mask as much as it can.
[9] The
central banker makes sure that inflation always continues by
steering the interest rate.
[10] The
office of the European Central Bank is in Frankfurt. This is
the historical town of the Rothschild. Representatives of
the Rothschild and the Morgan families stood at the basis of
the creation of the Federal Reserve in the US, back in 1913.
(G. Edward Griffin in “The Creature of Jekyll Island”)
[11]
Ownership ECB:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:021:0066:0068:EN:PDF
, article 2.
[12] For
instance, the Dutch central bank is De Nederlandse Bank N.V.
(DNB), where N.V. stands for Naamloze Vennootschap, Nameless
Liability Partnership. This is a common juridical form in
the Netherlands for private companies with stocks. These
companies have the obligation to always mention N.V. behind
the company’s name. In 1929 a special law dispensed De
Nederlandse Bank N.V., from printing N.V. on the Dutch
banknotes, thus letting it conceal from the population, that
the Dutch money belonged to an N.V.
http://www.dnb.nl/binaries/wo0649_tcm46-145952.pdf
The 4 members of DNB’s governing board,
the day-to-day direction, are appointed by the Crown.
http://www.dnb.nl/en/about-dnb/organisation/governing-board/index.jsp
Of the 10 members of the supervisory
board one member is appointed by the government.
http://www.dnb.nl/en/about-dnb/organisation/supervisory-board-and-bank-council/index.jsp
All these members have strong bonds in
the economy.
http://www.dnb.nl/binaries/Raad%20van%20Commissarissen_tcm46-185323.pdf
(in Dutch)
Of the 14 members of the bank council,
one is the member of the supervisory booard who is appointed
by the government. (Nevertheless, he is as independent from
government as all others.)
http://www.dnb.nl/en/about-dnb/organisation/supervisory-board-and-bank-council/index.jsp
Note, that central banking is about
power, influence and increasing the balance sheet, and
generally not that much about making profits. Many central
banks have to hand over the profits to the Treasury.
[13]
Independence of central banks:
http://www.ecb.int/press/key/date/1997/html/sp970513.en.html
[14]
Central bankers have (and want to keep) control over the
money system. One reason is, that they desperately need
inflation, because otherwise the abusive bank system cannot
work. As explained, without inflation banks would quickly go
bankrupt. So central bankers want full controll over the
interest rate. However, for the outside world they pretend,
that governments would not be able to follow a consistent
policy over time. They refer to negative past experiece
where a government created excessive inflation. Central
bankers would be more responsible (!), so they should have
full control over the money system without any interference
of the government whatsoever. Here an example of how they
present things.
Alexandre Lamfalussy, President of the
European Monetary Institute, at the Oesterreichische
Nationalbank, Vienna, 13 May 1997
“Modern economic theory emphasises the
inflationary bias in economic policy, which relates in
particular to the so-called time-inconsistency issue, i.e.
the problem of convincing the public that the monetary
authorities will resist the temptation to stimulate output
growth in the short run by creating "surprise inflation".
Against the backdrop of negative past experience, the public
is unlikely to have much faith in the authorities' promises
to maintain low inflation. Unless these promises are
underpinned by a credible form of pre-commitment, the
equilibrium inflation rate will be higher than needed, with
no better performance in terms of output and possibly even a
deterioration. As a solution to this problem, it has been
suggested that responsibility for monetary policy be
separated from political control and to enshrine this in
legislation. According to this view, central banks should be
given the freedom to formulate and execute monetary policy
in line with their primary objective as determined by the
legislator, to whom they are accountable. Accountability may
involve either a legal obligation for the central bank to
give reckoning for the conduct of monetary policy or a
commitment to explain its actions, for example, in regular
reports and to parliament. This allows central banks to take
a medium-term orientation and not to be distracted by
short-term political motives, an approach which benefits the
credibility, transparency and efficiency of monetary
policy.”
http://www.ecb.int/press/key/date/1997/html/sp970513.en.html
[15]
Pierre Werner was a banker in Luxembourg and a very
influential person. In 1944 had attended the Bretton Woods
Conference that set up International Bank for Reconstruction
and Development (IBRD), the International Monetary Fund
(IMF) and the General Agreement on Tariffs and Trade (GATT).
In 1970 he was also Minister of Finance and Prime Minister
of Luxembourg. On top of that, in 1969, he had presided
EEC’s Council.
http://www.terra.es/personal2/monolith/eu.htm
[16]
John Perkins in an interview on Talkstick TV (link here
below)
"The fact of the matter is our job was to
convince other countries to take very large loans [given by
the World Bank]... Let's say a billion dollars to Ecuador to
build big infrastructure projects: power plants, ... ports,
highways, industrial parks. Things that didn't benefit
anybody except the very wealthy people in those countries
who were quite corrupt, and we corrupted them... 90% of that
billion dollars would come back to the United States to pay
for Halliburton, Bechtel, these types of companies to build
the infrastructure.
Then the country would be stuck with this huge debt, which
over time would continue to be refinanced and get larger and
larger and larger. So that in fact today Ecuador owes more
than 50% of its national budget just to pay down its debt
service which means there's very little money left to pay
for education and health services for the poor people who
are the ones who suffer from these projects. It was their
rivers that were destroyed when we built these
hydro-electric plants, it was their land that was
destroyed...
Now they're saddled with this incredible debt that they
can't possibly pay. And so we go in and demand our pound of
flesh, very much like the mafia... We need Ecuador's oil...
We tell Ecuador, 'Since you can't pay off your loans, what
you need to do is to turn over your Amazon to our oil
companies... What it is all about is building empire. We've
done this in every country around the world that has
resources that we covet, often this is oil in places like
Indonesia, Nigeria, Ecuador, Venezuela, and. Colombia. But
sometimes its other resources, for example in Panama it was
the Panama Canal. "
YouTube:
http://www.youtube.com/watch?v=yTbdnNgqfs8
Joseph E. Stiglitz, in an interview in
2001:
"As the chief economist at the World Bank
from 1997 to 2000, I have seen firsthand the dark side of
globalization; ... how so-called structural-adjustment loans
to some of the poorest countries in the world 'restructured'
those countries' economies so as to eliminate jobs, but did
not provide the means of creating new ones, leading to
widespread unemployment and cuts in basic services..”
http://secret-of-life.org/the-World-Bank-and-IMF
See also: THE IMF AND IRELAND: WHAT WE
CAN LEARN FROM THE GLOBAL SOUTH
http://www.dublinopinion.com/downloads/Afri_Report_on_EU_IMF_Loan_Deal.pdf
[17]
David C. Korten, in “One World--One World Government Bretton
Woods or The United Nations?”
“It was all so simple. The World Bank
trained cadres of young economists, teaching them to believe
that rapid development depends on foreign borrowing to
supplement investment based on domestic savings. Few seemed
to notice the obvious -- that when you borrow abroad you are
borrowing foreign money that is only useful to buy foreign
products, thus increasing your economy's dependence on
imports. You are also building up foreign debts that can
only be repaid by exporting ever more of your domestic
resources and production. Almost inevitably you end up at
the mercy of foreign lenders -- like the World Bank.”
http://www.ratical.com/co-globalize/ifg041400DK.html
[18] The
Basel Accords
http://www.parl.gc.ca/information/library/PRBpubs/prb0596-e.htm
[19] NRC
Handelsblad, 11 February 2010
VVD-Kamerlid Frans Weekers zei dat
Griekenland de problemen volledig aan zichzelf te wijten
heeft. Volgens hem hebben de Grieken de Europese Unie
„jarenlang belazerd en bedonderd" met verkeerde cijfers over
de financiële positie. „Dit is de straf van de markt voor
Griekenland", aldus Weekers.
Liberal party parliamentarian Frans
Weekers said that Greece had to blame itself for the
problems. According to him the Greek “have taken in and
cheated” the European Union with fake numbers about their
financial position. “This is the punishment of the market
for Greece” said Weekers.
http://vorige.nrc.nl/economie/article2481429.ece/Kamer_Geen_Nederlandse_steun_aan_Griekenland
Well, if Weekers had taken a little
trouble to inform himself, he would have known following:
Nikolaos Salavrakos, Member of the
European Parliament in “The
Greek Fiscal Crisis: Is there a way Out?”
“In 1974 Greek public debt was just 22.5%
of GNP, and in 1979, when Greece signed its entry in the
EEC, it was 31.7%. This by 1981 was increased to 36.1% and
by 1989 it was 85.3%. The public debt continued to rise and
thus by 1993 it had reached the astonishing level of 110.1%
of GNP. This was slightly reduced to 106.6% in 2001 and to
102.4% by 2003.[2] Thus, even with the official statistics
of the 2000-2003 period, the Greek debt was still high.
However, Greece entered the EMU from January 1st 2001 as its
twelfth member state. It is obvious that everyone (markets,
politicians, EU Commission) knew that a country was becoming
a member of the EMU with a debt above 100% of its GNP.”
http://www.efdgroup.eu/news/99-the-greek-fiscal-crisis-is-there-a-way-out.html
By 18 December 2010 the IMF has supplied
over 10 billion euros of loans to Greece. Apparently, the
conditions have not been made public.
[20] C.
van Ewijk & L.J.R. Scholtens in “Geld, Financiële Markten &
Financiële Instellingen” (in Dutch.) See item “Money
multiplier”
3 January 2011
Last modified: 26 march 2011
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