ORIGINAL FRENCH ARTICLE: Les raisons de la tempête qui a secoué les marchés
by Pierre Ivorra
Translated Sunday 7 August 2011, by Henry Crapoand reviewed by
Sluggish growth, mounting public and private debt and excessive unemployment all threaten the international financial system.
At the epicentre of the storm currently battering all the world’s financial centres – even if there is a momentary calm – is a terrible concern over the explosive cocktail created by the economies of the big capitalist countries: stagnant growth, huge public and private debt, excessive unemployment and precarity.
The USA are specialists in explosive cocktails. Over the last five years, GDP has grown there by only 1,700 billion dollars, or 12.5%, while the federal debt has risen by 6,000 billion, or 73%. And unemployment has doubled from 4.6 to 9.2%. The European cocktail is spicier still thanks to an uneven development between north and south. Spanish economic growth is stagnant and Italy is barely doing better. In France, the indicators are equally worrisome.
All of this has the effect of raising sky-high the interest rates of the southern European government debts, increasing the gap with Germany, worsening the burden of debt in government budgets at the expense of socially useful spending, and increasing fears of strangulation of those countries most in need: after Greece, Italy and Spain, Ireland, Portugal, Cyprus.
Creditors are worried
The two main creditors to Europe and the USA, namely China and Japan, are particularly worried about the risks to continued growth and the planet’s financial stability. China fears for its huge dollar reserves, accumulated thanks to its boom in exports. Japan, whose growth is weak, warns of the impact on its own exports in view of the soaring value of its currency against the dollar.
So exactly what is Europe doing to help put out the fire and stop it spreading? Will a new special summit be called? What for? Some are suggesting that eurozone countries take out loans on the financial markets, State guaranteed "Eurobonds" which would serve to relieve the devastated country budgets; others suggest increasing the borrowing capacity of the European Financial Stability Facility (EFSF). But heaping debt upon debt is not the solution. There is also growing support for an intervention by the European Central Bank (ECB). However, if the ECB simply buys shares of the Greek, Portuguese, Spanish or Italian public debt from the banks holding it, it will be helping the bankers more than the State issuing the bonds.
Addressing the real causes
To put out the fire you first have to get to the arsonists and stop the incendiary attacks of the speculators by introducing a tax on financial transactions and a specific levy on those financial institutions getting rich at the expense of public budgets, whilst stating clearly where the money from these taxes will go. The current European Financial Stability Fund should also be replaced by a Social Fund for Development and European Solidarity, as proposed by the PCF, the Left Front and the Party of European Left (EL).
In such a way national public debt bonds would be issued and redeemed directly by the ECB at zero interest rate with revenues being fed into the new fund. The Fund would be responsible for distributing the proceeds democratically to each country according to its needs, for the express purpose of developing public services and their potential for new social growth.