Practical solutions for resolving the financial crisis

By Mary Ryan

There has been much commentary in the press and media recently regarding the financial crisis in Ireland and other European countries. The debate seems to oscillate between extremes, essentially between one of burning the bondholders and defaulting on the national debt at one end; and at the other, to loading a massive private banking debt onto the backs of the taxpayers, theunemployed, the disabled, the youth and grinding them into the ground and pushing for national bankruptcy and sovereign default. The latter option continues even if we get a 1% or 2 %  reduction in this IMF / ECB bailout loan. There have been no practical, fair and sustainable options put on the table or discussed in the press. The debate in the press and media keeps regurgitating the same stuff over and over again, promoting one extreme option or another, and different gradations of both extremes.

I offer a different option, an entirely different perspective, one which derives from the successful experiences of the Brady Bonds which bailed out much of South America in the 1980s and 1990s and the Marshall Plan which bailed out Europe in the 1940s and 1950s and the London Debt Agreement of 1953 which rescued and bailed out the German economy in the 1950s. The lessons learned from these past bailouts should have been learned and could be successfully applied to resolve the present financial crisis.

The EU leaders, including Angela Merkel, Sarkozy, David Cameron, Enda Kenny and others need to move away from a position of confrontation and blame and finger pointing to one of taking responsibility and working together as friends, partners and allies in a new, more structured and coherent way to resolve the current European banking and debt crisis. A new way, a pan-European solution which respects the rights, dignity and sovereignty of each nation is desperately required. There were many parties to the property and financial bubble which engulfed Europe, and produced the mess which we are all in, and the truth of the matter needs to fully explained to the voters in Germany, France, Belgium, Britain, Holland, Spain, Portugal, etc. etc.

The Marshall Plan

We must look upon our predicament as one akin to the aftermath of a world war. This is the sheer scale of the problem we all face. At the end of World War two, Europe was both devastated and bankrupted from the war. The Marshall Plan helped lift it out of the mess, and provided the basis for a large and sustained increase in aggregate demand, economic growth and incomes, and a boom which lasted for thirty years. The taxpayers were not crucified through austerity measures to pay for the mess. Yet during the1940s many conservatives in Europe and the USA called for austerity measures to pay off the war debts, and they rejected the Marshall Plan.

The austerity measures they proposed were similar to the ones being proposed today. At the time their views were supported by leading academics, professors and economists in Europe and North America. Even these learned people are capable of incredible stupidity. Thank God, the Marshall Plan was implemented despite vigorous opposition to it at the time. The Marshall Plan totalled $13 billion at that time and did not have to be repaid, and it was supplemented by technical assistance worth a few billion dollars, and by additional   post-war aid totalling $12 billion, and loans by the (American backed) export-import bank to European industry totaling several billion dollars. European and American taxpayers were not crucified by debt, tax and austerity measures to pay for this!

Yet today, we have a similar situation - where there is a desperate need for a Pan-European bailout plan, similar to the Marshall Plan, yet the  only agenda being put forward is one of austerity measures designed to crucify and grind down the taxpayers, the unemployed and vulnerable of Ireland, Greece, Portugal and other European countries. It is a truism that humanitydoes not learn from history. The Marshall Plan should serve as an example ofa different way to resolve our current crisis in Ireland and the EuropeanUnion.

Germany

This idea of punishing and enforcing austerity on people, particularly innocent parties is a negative and self-defeating ethos which does not serve the interests of Germany or any other European country or the European ideal of brotherhood, progress and peace. Germany has conveniently forgotten that under the London Debt Agreement of 1953, its debt was reduced by 50% and the remainder restructured over 40 years. This generosity in combination with the Marshall Plan and other aid programmes helped Germany recover from the war, and enabled Ludwig Erhard to implement expansionary economic policies in the1950s and 60s. These expansionary economic policies improved the competitiveness of German wages, prices and industry while stimulating demand via a combination of deregulation, targeted government spending and infrastructural regeneration.

These same expansionary policies and accompanying economic growth were only made possible by removing most of the parasitical national debt burden and restructuring the remainder. All of these measures were far better than imposing austerity and massive national debt on Germany. There is a need for Germany to remember that it itself has been the recipient of generosity, aid and debt forgiveness, debt write-offs and debt restructurings.

There exists a reflexive relationship between the shifting of the financial burden onto the backs of taxpayers, the unemployed and vulnerable in Irish society on the one hand and the collapse of consumer spending, the bankruptcy of many businesses, the large and growing number of unemployed  and those forced to emigrate, the rise in mortgage arrears and foreclosures, the continuing collapse in property prices, the continued  instability of the banking system on the other hand. This relationship is bi-directional and is undermining all attempts to stimulate property prices, the same property prices which impact on the balance sheets of NAMA, the banks and the government and attempts to reduce unemployment. It has produced and will continue to produce negative outcomes and much unnecessary suffering and hardship.

This reflexive relationship is poorly understood by many economists, politicians, ministers, regulators, leading businesspeople and commentators in the press and media. This is evidenced by the fact that these ‘intellectuals’ have been supposedly ‘stress testing’ the banks while simultaneously undermining them through misguided and foolish economic policies focused on deflation and austerity which have the effect of destroying them. This reflexive relationship has not been discussed in any newspaper or any television channel, which suggests either an unwillingness to engage with or a lack of understanding of this relationship.

One of the foremost experts on reflexive economics is George Soros. His books outline this aspect of economics and he has successfully applied its findings over time to identify the weaknesses and outright stupidity of governments and make money out of it; he is a billionaire, which says a lot for his practical knowledge and acumen. I have used a synthesis of reflexive economics and the lessons of the Marhsall Plan, Brady Bonds  and the London Debt Agreement of 1953 to devise a new means of resolving the financial crisis in Ireland and other European countries. It proposes a pan-European solution, involving Ireland, Portugal, Spain, UK, Italy and Greece which will not involve punishing and grinding down the taxpayers of these EU countries.

One can view the proposals at the following website: www.goodwillbank.com.

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