I’d like to start (perhaps controversially) by thanking Goldman Sachs for helping to get the Robin Hood Tax campaign off the ground. Of course, they didn’t mean to, indeed what they did rather backfired, but still credit where credit’s due. You see, on our first day, we launched a short video, starring the actor, Bill Nighy, as a banker. It was written by Richard Curtis of Blackadder and Notting Hill fame, and is both funny and informative in equal part.

Thousands of people saw it and were able to vote ‘Yes’ or “No’ at the end, indicating if they were in support. By lunchtime, the voting pattern seemed clear: ‘Yes’ votes outnumbered “No” votes by ten to one. But at the end of the afternoon the ‘No’ votes rapidly shot up so both counts were neck and neck. I phoned our IT department.

“Is there a problem”, I asked, “This doesn’t look right”. “We know”, they said, “We’re checking it out now”. Sure enough something was wrong. Very wrong! It turned out the sudden surge of ‘No’ votes were all coming from one IP address. A Goldman Sachs address. “Can you prove this?” I asked, at the end of the day on learning the news. “Oh yes, we’ve captured the IP address”. “But this is gold”, I said, “This is a much better story than our launch”.

And so it proved to be, with the front page headline in the Guardian two days later, reading: “Goldman Sachs, Goldman Sachs, clicking in the votes”. I particularly enjoyed it when one of the presenters on the Today programme sang this headline to the theme music of the classic Robin Hood TV series. We could not have bought such publicity. Our Facebook group grew to more than 100,000 in days (it now stands at nearly 300,000) – the Robin Hood Tax campaign had arrived with a bang!

Why this, why now?

But let’s back-track, what is the Robin Hood Tax, what are we trying to achieve, why is what we’re asking for so important and relevant now, and what’s the likelihood of success?

We want to see a tax on financial transactions, but not the type of transactions you and I do – we’re talking about taxing transactions involving bonds, derivatives and multi-million pound deals in foreign exchange. Such huge volumes of money are traded everyday that even a very small tax, as low as 0.05%, would raise £20 billion of additional income in the UK alone. This could be used to save jobs and protect front-line services at home and help poorer countries hit by the economic crisis and in the fight against climate change. And whilst assisting people in the developing world may not be so popular in the recession we now find ourselves in, it is important to remember that poorer countries did nothing to cause the financial meltdown but as things stand they will pay for it with lives lost whilst we pay for it with livelihoods ruined. Our commitments, particularly to their health needs, must not be forgotten or relegated.

But raising additional money is not the only purpose of the Financial Transaction Tax. Some readers will know the proposal began its life as the Tobin tax (named after the Nobel prize-winning economist, James Tobin). His idea was a tax on certain financial transactions to help regulate the market by “putting sand in the wheels” of the financial system: essentially, reducing the amount of purely speculative activity, where the profit margins are often very small, so even a low tax would disincentivise trading.

A relatively new phenomenon called ‘high-frequency algorithmic’ trading means Tobin’s insight is now more relevant than ever. In some markets, more than 50% of the trades are now executed with no human involvement at all through the use of high-speed programmes that, for instance, buy and sell shares in fractions of a second. In a now famous incident a few years ago, a US trading firm went bust in just 17 seconds when an employee accidentally switched on the algorithm. It took the firm about an hour to realise they were out of business. This kind of trading activity is clearly playing with fire. A point not lost on the German Finance Minister, Wolfgang Schauble, who has come round to the view that both for its regulatory impact and for its revenue-raising potential, the FTT is now an idea whose time has come.

Even extremely unexpected voices, such as John Fullerton, the former MD of JP Morgan, have now become advocates. In a recent article he wrote: “More money, improved market resiliency we desperately need, and a reallocation of capital to productive long-term investment that fuels sustainable growth, creates jobs, and in the process reduces government deficits makes a Financial Transactions Tax a win-win-win.”

Feasibility

Taxing financial transactions is a no-brainer technically. The process is automated – tax is collected when deals are settled.

Critics say ‘but the banks will pass the costs on to us’. Well, tell me when did you last trade bonds or derivatives? Ordinary people don’t do these transactions. Banks and hedge funds do. The primary incidence of this tax will, therefore, fall on them.

Other critics say ‘but the banks will take flight and leave the UK’. And however tempting it is for us to say: “well, bye then”, we do need our banking industry, so is this a serious threat? No, it’s nothing more than blackmail. Banks can’t just up sticks and go to say Singapore. They need to operate in a country that can underwrite their activities should anything go wrong. This leaves them very few options. Realistically, only the US or a major European country, none of whom (certainly in current economic circumstances) would entertain taking on the liability of a major British bank. So these are empty threats designed to scare decision-makers and should not be taken seriously.

Finally, there’s ‘but you need all countries to implement the FTT or they will simply move trading somewhere else to get around paying the tax’. This is also totally untrue. It depends completely on the design of the tax. In fact, over the last few decades, in more than 40 countries, either on a permanent or a temporary basis, FTTs (often on equity trading) have been implemented. One of the most successful is the UK’s very own FTT on share transactions, which at 0.5% raises about £4 billion a year. Well-designed, you cannot simply re-locate trading. As a result the tax-take is high and the London Stock Exchange is one of the most robust in the world.

Transition and progress

Interestingly, although the Robin Hood Tax campaign initially put great store on the taxing of currency transactions (because at $4 trillion a day it is the world’s richest market and still outside of the reach of the taxman), this year has seen us put far greater emphasis on countries replicating the UK’s very effective FTT on shares, advocating that this can then be extended to bonds, derivatives and ultimately foreign exchange. This change in approach has proved extremely compelling, making a nonsense of the UK Government’s position “that the measure has to be global to work” since it evidently works extremely well on a unilateral basis.

This seemingly subtle shift has locked in place a powerful foundation to our activities in 2011 paying a dividend over the last few months of significant political progress most particularly in Europe. In March, MEPs voted overwhelmingly in support of the FTT. Jose Manuel Barroso, the President of the European Commission, has now tabled FTT legislation. Germany has made it clear that even if the measure is vetoed (say by the UK) they will push it through at the Eurozone level anyway. Finally, Bill Gates, in his role as adviser to the G20 on where to harness new sources of development finance, has come to the view that the FTT will work and is timely; and can bring his not inconsiderable influence to bear at high level with various Governments in the coming weeks.

President Sarkozy, host of the forthcoming G20, in a recent speech in Paris broke new ground when he said: “With Angela Merkel, we defend the idea of a tax on financial transactions. Our goal is for Europe to set an example of what can be done, and for others to align themselves with this initiative at the G20 Summit in Cannes.” So are we finally passed the tipping point?

Passed the tipping point?

Not surprisingly, our friends in the financial sector have become rather agitated by the way in which events are now unfolding. They’ve been used to living on ‘easy street’ for more than 30 years and their party may be about to be rained on. A few weeks ago the Robin Hood Tax website came under sustained cyber attack with 80 million hits to one page which brought the site down. Will the Sheriff of Nottingham stop at nothing to kill off Robin Hood? Whereas on the first day of the campaign we knew the attack came from Goldman Sachs, such was the sophistication of this assault that we havn’t a clue who unleashed it. But clearly we’re upsetting somebody. And perhaps that’s not surprising! After all, this is turning out to be an unusual period in history with the status quo and vested interests being challenged in ways thought unimaginable at the turn of the year. From the fall of regimes in the Arab Spring to the loosening of Murdoch’s stranglehold on British public life, actual change has at last proved to be possible. The power of elites can be taken on. If the cause is just, we can win.

And this cause is just. The banks have got to pay their fair share, especially given that they caused this terrible mess in the first place. Gandhi said about campaigning: “First, they ignore you, then they laugh at you, then they fight you, then you win”. Well, I guess, if they’re starting to fight us, we must be on the home straight. With the G20 in November, with its host, France, advocating for the FTT, the winning line appears to be in sight. For all their wealth, power and connections, let’s not let the banks and the hedge funds squirm off the hook at the last second. Now is the time for the financial world finally to pay up!

David Hillman is coordinator of Stamp Out Poverty – one of the founding members of the Robin Hood Tax campaign, a coalition of more than 100 UK charities, trade unions, green organisations and faith groups. To play your part in the campaign, please visit: www.robinhoodtax.org.uk

The economic crisis has led activists in countries such as Greece and Ireland to look to developing countries for models of how to fight an all-powerful, self-serving financial system that forces ordinary people to pay the price for its failures. From Dublin to Harare, the call for ‘debt audits’ is being taken up as a vital first step towards educating and mobilising people against an unjust financial system that benefits the few at the expense of the many.

Here, Nick Dearden introduces the history and significance of the campaign for debt audits, then Alan Cibils from Argentina, Maria Lucia Fattorelli from Brazil and Andy Storey from Ireland discuss their own experiences of debt audits and debt defaults, and examine the lessons for economic justice activists.

The first wave of the banking crisis is over. Banks successfully passed their losses onto the public and their profits are once again ‘healthy’. They are now looking to governments to repeat the same trick for them. Greece, Ireland and Portugal are suffering ‘structural adjustment’ policies so that public money keeps flowing to the institutions whose behaviour created the global economic crisis.
Across Europe, and particularly in Greece, people are fighting back – but not simply over the question of ‘who picks up the tab’. They are engaged in a struggle for democracy in its true sense, for an economic system based on a radically different set of values. And they are using models developed by social movements in Southern countries to begin the necessary process of education and empowerment.
Answering tyranny with knowledge
One idea that has fuelled the imagination of activists in Greece and Ireland is for a ‘debt audit’, to throw open their countries’ finances to public examination and analysis. A launch conference was attended by hundreds of people in Athens in May and has united a good portion of the notoriously fractured Greek left. The call has subsequently been taken up by activists in Ireland, with further interest in Spain, Portugal and even the UK.
Sofia Sakorafa is a dissident Greek MP, a former member of the Greek government who quit her party after refusing to sign up to the first ‘bailout’ package in 2010. She believes ‘the answer to tyranny, oppression, violence and abuse is knowledge’ – that public understanding of how the crisis came about, what Greeks are paying and to whom, will help to convince people of the moral bankruptcy of the current financial system and re-ignite a sense of ownership over their economy.
Sakorafa is clear that this is a battle for different values: ‘Beyond speculating market games, there are more valuable concepts. There are people, there is history, there is culture, there is decency.’ The crisis will not be solved by the odd piece of legislation but by a transformation of how individuals and communities relate to power.
The history of the debt audit
The idea of debt audits arose from Southern campaigners with decades of experience in fighting against the capture of their societies by Northern financial interests. After all, the problems of Europe today are a repetition of an old story. Controlling the financial system at national and international levels was a key concern of John Maynard Keynes after he observed the impact of the ‘rule of the banks’ in the Great Depression in the 1930s. Keynes believed in policies that would encourage the ‘euthanasia of the rentier’ through government intervention and control of finance.
As that system of control broke down in the 1970s, the world economy has experienced crisis upon crisis, from the Latin American debt crisis of the 1980s to the currency collapse in Indonesia and Thailand in 1997 and Argentina’s economic crisis in the early 2000s. For the financial institutions based in the North, debt has provided a means of extending the control of the financial sector. People have responded to each instance of crisis by fighting back – usually not with specific policy proposals for a softer form of financial control, but by calls for repudiation of their country’s debts and kicking out those international institutions imposing austerity.
On one level the argument for a debt audit is simply a call for transparency. If these debts are ‘ours’ then the least we can expect is to know what we are paying. But their impact goes much deeper. In the words of Irish activist Andy Storey, an audit can ‘remove the mask of financial power which pulls the strings over our economy and therefore our society’. It is particularly important in a country that has been through dictatorial rule, in unveiling how international lenders propped up the illegitimate regime. But even in European societies, it digs deep into the connections between power and finance, unveiling how and in whose interests an economy works.
Most debt audits have been done on a shoestring budget, using what information can be gleaned from freedom of information and other research. The Brazilian Citizen Debt Audit was the first such initiative in 2001. In 2006, President Correa made Ecuador the first country to hold an official audit, declaring ‘my only debt is to the people’. Despite the presidential backing, the audit was a mammoth task, which encountered constant resistance from civil servants unwilling to disclose the secrets of former regimes.
In 2008, the audit commission reported that debt had done ‘incalculable damage’ to Ecuador’s society. It uncovered numerous illegal, useless and extortionate loans that had bled the country of resources. Correa essentially defaulted on the most dubious of this debt – a set of bonds. Even the Economist called Correa ‘incorruptible’ when public spending rose as a consequence.
Activists, however, wanted him to go much further in repudiating debts. This is one of the problems of state-sponsorship of such mobilisation processes, which has also led to disappointment among activists in Argentina and Brazil as promises have not translated into broader economic transformation. Smaller official audits have been initiated, but not carried through, in Argentina and the Philippines, with more promised in Nepal and Bolivia.
Meanwhile, activists in Zimbabwe are working on an audit to show the role that lending from the IMF and World Bank, as well as Northern governments, played in the creation of crisis in that country. Once Zimbabwe is judged to have transited Mugabe’s regime, the country faces a barrage of new IMF loans with accompanying control of the economy. The debt audit is a first step to challenging this control.
Some look on debt audits as ‘reformist’ – surely the truly radical answer is for a country to simply stop paying its debts? Actually it’s not so simple. A default is not automatically progressive – look at those of Mugabe in Zimbabwe or al-Bashir in Sudan. Repudiation and default might be the best option, politically and economically, but it is not without pain. A country’s population will need to proactively take on the hardships and isolation it is likely to experience. A thorough understanding is an essential prerequisite.
People can’t be led to support a default in the mistaken belief that ‘everything will return to normal’. Things may get worse. As 28-year-old Icelander Thorgerdun Ásgeirsdóttir said after he voted to turn down the British and Dutch terms for repaying his country’s debt, ‘I know this will probably hurt us internationally, but it is worth taking a stance.’
Such an understanding is also necessary if a default is to become a genuine first step towards wider change. Argentina pulled off one of the biggest defaults in history in 2001, after years of following faulty IMF advice. Economically it worked – the economy began recovering quickly. But many activists lament the failure of the Argentinian government to build on this by creating a different form of economic development. In spite of rapid growth, poverty remains at 30 per cent, inequality is high and the majority continue to suffer from a debt-led form of ‘development’.
Audits in Europe
Clearly debt in Europe has many differences from debt in the global South. Little European debt today was run up by dictatorial regimes, and the payment of that debt will not lead to the levels of hardship experienced by truly impoverished countries. But issues of wealth and power redistribution, of who controls our society and who foots the bill for that accumulation of power, are the same everywhere.
What does the Greek audit hope to uncover? Greek academic and activist Costas Lapavitsas has said he is not certain that the bulk of Greek public debt is legal, ‘given especially that it has been contracted in direct contravention of EU treaties which state that public debt must not exceed 60 per cent of GDP’ – something the creditors were fully aware of. Some Greek debt was massaged by Goldman Sachs to hide the true extent of Greece’s liabilities. According to Lapavitsas, the bailout package itself was not contracted in accordance with normal parliamentary oversight.
We in Europe are living in a society in which financial interests have captured our governments, control our economies and eat into every aspect of our lives. They have even captured our very notion of democracy – overruling the fact that true democracy cannot really exist in a society of vastly growing wealth differentials, where bankers pull all the strings. Struggles for political democracy cannot hope to succeed separate from struggles for economic democracy. Debt audits are means of seeing democracy in a more holistic way. Their adoption could help pave the way for a genuine break with the failed economic policies of the past.
More information: Jubilee Debt Campaign www.jubileedebtcampaign.org.uk
Campaign for the Abolition of Third World Debt (French and English) www.cadtm.org

Life after default

Alan B Cibils looks at some lessons from Argentina on dealing with debt default
The current crisis in the eurozone periphery has many of the same ingredients that led to the Argentine debacle of 2001–2002: repeated bailouts making already unsustainable debt loads even more unsustainable, the IMF’s mistaken prescriptions for spending reductions, and financial market intransigence. So it may be helpful to look at the lessons from Argentina’s debt crisis – and eventual default in 2001 – to see what worked and what should be avoided.
Default is a viable option
Argentina’s experience shows that defaulting was not the disaster many predicted. Indeed, the default stopped the economy’s four-year free fall and helped put an end to unviable exchange rate and monetary policies, freeing up resources for more socially productive uses. Whether Argentina then made the best use of these resources is debatable. However, it is unquestionable that default was the correct and most efficient option given the circumstances.
The IMF does not possess the know‑how or the theoretical framework to deal with financial crises
The IMF’s ‘one size fits all’ approach to economic policy and crisis resolution has failed repeatedly and catastrophically around the world, as it is failing in Greece, Portugal, Ireland and Spain. IMF-promoted public spending cuts only deepen the recession, as any introductory macroeconomics student knows. Asian and Latin American nations have learned this lesson well. Their massive foreign reserve accumulation serves as insurance against ever having to follow IMF advice again. While reserve accumulation can be costly, it is less costly than following the IMF’s advice.
Default should be approached holistically and not exclusively as a financial issue
Ideally, the opportunity of debt restructuring will be used to perform a thorough debt audit and establish what portion, if any, of accumulated debt society should have to pay. Despite well-documented irregularities and fraud, which greatly contributed to debt build‑up, Argentine officials chose not to perform a debt audit, therefore legitimising the corrupt dealings of the military dictatorship and the Menem and De la Rúa administrations. Indeed, President Cristina Fernández de Kirchner stated in 2010 that there is ‘no such thing as illegitimate debt’, thwarting efforts by activists and opposition politicians to conduct a much-needed debt audit.
Debt restructuring should not be geared to pleasing financial markets
For a debt-restructuring process to result in a sustainable debt load, it must be based on an economy that grows thanks to strong internal markets. For this to take place, it is fundamental to have productive investment and an equitable distribution of income. This is the opposite of ‘Washington consensus’ (neoliberal economic) prescriptions.
Recovering the ability to conduct independent exchange rate and monetary policies is key to economic recovery
In the Argentinean case, replacing the fixed exchange rate regime with a more flexible arrangement and regaining control over the national currency resulted in six years of record economic growth. The current European rules, designed according to orthodox economic prescriptions, allow no room for the expansionary policies needed in a recession. If these rules persist, there will be no option but to exit the arrangement and return to a national, sovereign currency.
The good news is that there is life after default. Indeed, life emerges after default. However, it is crucial to break with neoliberal economic constraints if sustainability and a better distribution of the fruits of society’s efforts are the objectives.
Alan B Cibils is chair of the political economy department at the Universidad Nacional de General Sarmiento in Buenos Aires

Lifting the lid on the loan sharks

Nick Dearden interviews Brazilian activist Maria Lucia Fattorelli about debt audits in Brazil and Ecuador
What progress have you made with debt audits?
Since 1988 the Brazilian constitution has included an obligation to hold an official debt audit, but it has never been carried out. In 2000 we organised a popular plebiscite and more than six million people voted to stop paying the debt until the audit was held. We took matters into our own hands and set up Citizen Debt Audit, which aims to conduct research, educate, mobilise and examine legal arguments.
In 2009 we achieved the creation of an official commission for investigation of the debt. We were also invited to take part in Ecuador’s debt audit commissioned by President Correa in 2007.
What did the citizen audit and parliamentarian investigation find in Brazil?
The parliamentary commission found that the international ‘debt system’ continuously generates new debt to pay previous debts. New debt is always much bigger, despite the huge servicing payments. Our research proved that the main component of Brazil’s large debt has been high interest rates, which means that it hasn’t represented a real benefit to the country.
The government transformed Brazil’s ‘external’ debt into ‘internal’ debt, but it is still owed mainly to foreign banks. It is growing fast and the repayments accounted for 45 per cent of the national budget in 2010. That’s why, despite being the seventh largest world economy, Brazil still has more than half of its population living in poverty.
Despite its severe diagnosis, the commission didn’t recommend a full debt audit. However, eight parliamentarians joined with activists to present an alternative report, which went much further in exposing the illegal and detrimental impact of Brazil’s debts – even finding that some clauses in the debt contracts breached the constitution.
What did the audit find in Ecuador?
The audit exposed the manifold problems of Ecuador’s debt history. In particular, much of the debt was run up by a small group of large international banks aggressively pushing debts onto Ecuador in the 1970s, then restructuring those debts in the 1980s, under pressure from a cartel of creditors comprising the largest banks, the IMF and Northern governments. Debts that were worth very little were restructured at their full value, with abusive interest rates and illegal terms.
The proof of so many illegalities allowed President Correa to suspend interest payments and then agree to pay only 30 per cent of the face value of its ‘bond debt’. It demonstrated that a country can suspend payments and achieve positive results when backed by a properly documented audit report.
How were the results used by government and civil society groups?
In Ecuador civil society is well organised and the audit has led activists into campaigns for greater economic justice – pushing for new financial architecture such as the Bank of the South, control of capital flows and popular tribunals to adjudicate on economic justice and ecological debt.
In Brazil, the government has not taken advantage of the investigations and continues to ignore the call for a debt audit partly because the electoral campaigns of the major candidates are funded by financiers and partly because of the power of financial markets to blackmail governments.
The campaign against debt became more difficult after Lula became president. For 20 years he had opposed the debt but as president he retained the privileges of the ‘debt system’. In fact, things became even worse after Brazil repaid its IMF debt in 2005. Most people took this to be the end of the matter, when in fact it was a very small part – only 2 per cent – of Brazil’s debt.
Besides, our debt simply changed hands. To pay off this debt in advance to the IMF, Brazil took on new and more expensive debt. While IMF interest was 4 per cent, the new debt bonds carried interest of 7.5–12 per cent for external bonds and 19 per cent for domestic bonds. Once again this damaged the country to the great profit of creditors.
It seems that there is a big risk that the state can co-opt the auditing process. How can these lessons be built on in future audits, especially in Europe?
The only remedy I see to prevent it is to empower civil society. That’s why it is so important to start right away on a citizens’ audit, involving as many organisations as possible – because debt problems affect the lives of everyone. As people begin to understand the ‘debt system’ and the results of the audit, it is more difficult for governments to co-opt the process.
Very similar means to those now being employed in Europe have been used to create ‘public debt’ in Latin America since the 1970s. The experiences of debt audits in Ecuador and Brazil have proved that in the last 40 years this kind of debt in bonds has been used as a mechanism to transfer public resources into the private financial sector.
Everywhere public finances have been usurped. We can’t keep paying illegal debt with our jobs and our lives.
Maria Lucia Fattorelli was a member of Ecuador’s debt audit commission, an advisor to the commission of public debt in Brazil and coordinator of Citizen Debt Audit.

The tiger that didn’t roar

Ireland has undergone one of the largest fiscal adjustments in the rich world since the start of the economic crisis, with e20 billion in tax increases and spending cuts. But the public response has been muted. Andy Storey reports
On Easter Monday 2011, the Irish justice and human rights group Action from Ireland (Afri) launched a satirical version of the 1916 proclamation of Irish independence at Arbour Hill cemetery in Dublin, where the leaders of the Easter Rising are buried. Actor and writer Donal O’Kelly read out the new proclamation on behalf of the bondholders to whom Irish people’s money has been pledged through the 2008 bank guarantee that obliged the Irish government to pick up the tab for the losses of Irish banks:
‘We declare the right of senior bondholders to the ownership of Ireland, and to the unfettered control of Irish destinies, to be sovereign and indefeasible . . . The senior bondholders are entitled to, and hereby claim, the allegiance of every Irishman and Irishwoman.’
The proclamation was signed by ‘financial speculators unknown to you’ and O’Kelly’s wearing of a face mask symbolised the shadowy, opaque nature of the creditors to whose upkeep Ireland’s future has been mortgaged.
Remarkably, there has been limited public outrage in Ireland over this scandalous socialisation of private debt. This is despite the fact that more than €20 billion of ‘fiscal adjustment’ (tax increases and spending cuts) has taken place since the crisis broke. In the words of the Irish economist Karl Whelan, this is ‘the equivalent of . . . €4,600 per person . . . the largest budgetary adjustments seen anywhere in the advanced economic world in modern times’. There will be an estimated €6 billion in further spending cuts and tax increases in 2011, and an annual average of approximately €3 billion for each of the next three years.
Unemployment is in excess of 14 per cent (446,800 people), with more than two fifths of it long term in nature. Emigration is estimated at some 60,000 per annum. And the economy, not surprisingly, is mired in recession, with investment down from more than €48 billion in each of 2006 and 2007 to a little over €18 billion in 2010. Capital, as Irish sociologist Kieran Allen puts it, has gone on strike.
So why are the people not out on the streets in revolt? A key role has been played by the absence of leadership from most of the trade unions, whose long history of cooperation and dialogue with the government has blunted whatever appetite for struggle they once possessed. A hegemonic media insists that ‘there is no alternative’, amidst fear generated by the threat of unemployment and even homelessness – one in five households suffers from ‘negative equity’ (their house is worth less than the mortgage). Moreover, many people vested their hopes in the February 2011 election, when the government that oversaw the crisis was ousted, only for its successor to pursue exactly the same policies of debt repayment and austerity.
How then can the necessary outrage be generated? One contribution would be to lift the mask behind which the financial speculators are hiding and to unveil the reality of their scams and predations. The central point is to untangle the web of secrecy around the debt and work out who lent what to whom, when and for what purpose. There is an expectation that at least some of the debt would be found to be ‘illegitimate’ and could, therefore, be repudiated.
Afri and some other organisations (the Debt and Development Coalition Ireland and the trade union Unite) have launched a debt audit in Ireland. A small team of independent academics – with expertise in economics, finance and related disciplines – is trawling through the books to see if they can answer various questions. The most basic is: to whom is the bank debt (for which the state has assumed responsibility) owed?
We already have our suspicions. One estimate is that a 50 per cent write-down on the debt of the EU peripheral states would wipe out €850 billion of capital in German and French banks alone. To stop that happening, money is being channelled from European taxpayers and the European Central Bank through Ireland, Portugal and Greece to the financial institutions of Germany, France and elsewhere. This is the logic of the so‑called bailouts.
Andy Storey is a lecturer in the school of politics and international relations, University College Dublin. For more information on Afri’s work on the Irish debt audit, see: www.afri.ie

Organised by an unprecedented cross-section of Greek civil society, the international event launched the call for Greece (and now Ireland) to open their debts to the people of those countries for a public discussion as to how just and legitimate those debts really are. Campaigners from Brazil, Peru, the Philippines, Morocco and Argentina told Greek activists to ‘stand on their shoulders’ and not go through 30 years of devastating recession at the behest of international institutions like the International Monetary Fund.

The burgeoning European movement in opposition to debt repayments and austerity is making concrete links with groups from the global south, and it expresses a confidence and rationalism a million miles away from the governments of Greece and Ireland, which have followed policies which are punishing ordinary people in order to repay reckless bankers.

It is simply not possible that the policies being inflicted on Greece, Ireland and now Portugal will reduce the debt burden of those countries – the very opposite will happen, as was seen from Zambia in the 1980s to Argentina at the beginning of the last decade. Similar policies to those being inflicted on Europe saw Zambia’s debt-to-GDP ratio double in the 1980s as the economy shrank. Argentina defaulted on its massive debts in 2001, after a 3-year recession brought about by IMF policies. Like Ireland today Argentina was told it had partied too hard, even though the debt had been run up by a disastrous set of privatisations and a currency peg foisted on the country by the same IMF.  Its economy started recovering within a month of the default.

So why are these policies still being pursued? Almost every commentator has known from day one that the ‘bailout’ packages would not make the debts of Greece or Ireland sustainable. But delegates at last weekend’s conference were clear – that isn’t the point. The point is to recover as much of investors’ money as possible, however liable those investors were for the crisis, and transfer liability to society.

Even if Greece and Ireland need additional bailout money or restructuring through some sort of bonds – the same measures imposed on Latin America in the 1980s which created mountains of debt so big that those countries are still suffering the fall-out – the private investors will have been paid out. The argument becomes one between German and Greek populations as to who will foot the biggest portion of the bill, creating a dangerous nationalism already very evident.

European Commissioner for Economic Affairs Olli Rehn has continually told governments that these matters are best kept in the dark – public discussion is strongly discouraged. Those actually paying the price of austerity disagree, and campaigners in Greece and Ireland say the first step in   any kind of just solution must be a debt audit – modelled on those carried out in developing countries like Ecuador.

A debt audit would provide people of Europe with the knowledge on which to base truly democratic decisions. As Sofia Sakorafa, the Greek MP who refused to sign the bailout terms and walked out of the governing party PASOK, put it at the conference ‘the answer to tyranny, oppression, violence and abuse is knowledge’. Andy Storey from Irish group Afri echoed this, saying the purpose of an audit is to ‘remove the mask of the financial system which controls our economy’.

The results of an audit can be rapid and concrete. Maria Lucia Fattorelli from Brazil is a veteran of debt audits, and helped Ecuadorian groups conduct an audit endorsed by President Correa in 2008. The Economist called Correa ‘incorruptible’ when public spending rose, after his successful default on bonds following the audit. Taking action now could mean saving European countries from the three decades of stunted development experienced by Latin American countries.

But the activists gathered this weekend believed that a debt audit can be the start of something even more fundamental, a new way of thinking about economics. As Sakorafa put it, an audit is the start of regaining values and vision to show ‘beyond speculating market games, there are more valuable concepts; there are people, there is history, there is culture, there is decency’.

Such a rejuvenation of political vision is vital if the crisis is not to cause impoverishment and spur inter-European hostility. On Sunday Irish economist Morgan Kelly said his country was heading for bankruptcy. A secret meeting of European leaders on Friday night came to the same conclusion about Greece, a country we are told is losing 1,000 jobs a day and where the suicide rate has doubled. Portugal’s €78 billion ‘bailout’ package, which is dependent on a freeze in civil service pay and pensions and reduced compensation to laid off workers, and cuts unemployment benefits at exactly the time unemployment figures are reaching record levels, will have a similar impact. Everywhere emigrants are streaming out of these countries in search of better prospects.

No amount of compensation will repair the damage these policies will wreak on society – as delegates across the developing world testified too. There is no reason for Europe to wait 30 years to learn this lesson. A European and international movement must make up for the poverty of our leader’s vision. Such a movement feels like it may have been born in Athens.

Ireland’s continued punishment by the very financial markets which the IMF and EU package was supposed to please, shows how the lives of Ireland’s people will be, more than ever, subject to the whims of the drive for profit. But it also shows that trying to please creditors will not work; Ireland must stand up against its creditors if things are to improve, and say clearly that those responsible for the crisis must take a hit, rather than transferring the pain onto society at large.

Scores of developing countries have been through what Ireland, Greece and others now face. Even by IMF standards, the Irish package is savage. Ireland’s minimum wage will be cut by €1 and round two of a series of very deep cuts will reduce pensions and pension relief, social protection, public services and much more besides.

Zambia similarly made extreme cuts in government spending through the 1980s and 1990s under pressure from the IMF. Whilst the IMF praised Zambia’s success in making the cuts, the southern African country’s debt doubled in size as the economy shrank.

Ireland’s economy will also be restructured, with ‘vigorous action to remove remaining restrictions on trade and competition’, meaning privatisation and deregulation. The emphasis on the private sector would, in other circumstances, be comical given that the faults of the private sector created this public disaster. Ireland’s private sector debt rose to 600 per cent of national income by 2008 as the unregulated private sector went loan mad in its greed for a quick profit.

The pain now being imposed on the public for private recklessness will be felt by ordinary people, the poorest most of all. Economists are saying more clearly than ever that the refusal to negotiate debts with creditors is a huge mistake. Martin Wolf writing in the Financial Times says: “The Irish state should have saved itself by drastic restructuring of bank liabilities. Bank debt simply cannot be public debt. Surely, creditors must take the hit, instead.”

The beneficiaries of the package are, in the main, European banks and other financial creditors. Insulating these private investors from losses is the whole point of the bail-out. Indeed, the UK’s own loans to Ireland – amounting to just under £7 billion – are essentially an additional bail out to British banks – RBS has lent the Irish government £4 billion, and has a further £38 billion of loans to the Irish private sector, particularly mortgages.

For this price, Ireland, and Greece, are now at risk of years of enslavement to debt, and the only alternative is that those debts be renegotiated and reduced. In an Action from Ireland (Afri), paper released this week, Andy Storey lays out the case for a default on Ireland’s debt, arguing that the market could not punish Ireland any more than it already is doing, and that Ireland would recover from any short-term impacts much faster than it will recover from its austerity package. Storey argues that a debt audit, modelled on those undertaken in Ecuador and elsewhere, would be an essential first step in allowing ordinary people to understand exactly how the crisis arose.

The banks have not always won over the last 30 years, and in 2001 Argentina did exactly what many economists are now urging Ireland and Greece to do. On Christmas Eve 2001, Argentina defaulted on its debt originating from an overvalued currency which had been pushed by the IMF. Along with devaluation and introduction of capital controls to prevent money leaving the country, the economy soon began to grow rapidly. Welfare payments were increased to help the poorest cope, while non-IMF approved taxes on exports and financial transactions were introduced to increase government revenue. In 2005, Argentina reached a deal with its creditors where it paid just 35p for every pound that was owed.

Nobel prize winning economist Paul Krugman has said: “you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake”. It is time to learn the lessons of repeated debt crises – governments must stop forcing their people to pay for the behaviour of the financial sector. Private investors do not have to be bailed out at the expense of public austerity. People do not have to sacrifice their rights, welfare and democracy to please the gods of international finance. Neither governments nor their people are powerless. A mixture of debt audits and partial defaults, progressive taxation and capital controls can help return control and sanity to the world.

Many continue to believe that Greece cannot but default on its massive debt. Rumours abound that Spain will be next to be subjected to the diktats of global finance – an eventuality that would bring Europe to its knees. Standing up to global finance is urgent.

‘Job losses in the car industry are inevitable,’ comments Pippa Gallop of the NGO, CEE Bankwatch Network. ‘The EIB should be prioritising investments into alternative industries such as public transport, energy efficiency and waste recycling that will secure jobs in the long term, not misspending enormous sums on a quick and unsustainable fix.’

With a funding ceiling of €70 billion in 2009, the EIB is the world’s largest public international financial institution. It dwarfs even the World Bank, yet remains relatively unknown.

Greenwash

Its loans to the European automotive sector – including €766 million to Jaguar Land Rover and Nissan Europe (both have large plants in the UK) – are expected to exceed €7 billion in the first half of this year alone. EUR4.6 billion of this will be provided under an EIB financing programme called the ‘European Clean Transport Facility’ (ECTF).

This programme’s ostensible purpose is to provide loans to rail, aviation, shipping and automotive industries for development of emissions reducing technologies. Franziska Achterberg of Greenpeace, however, believes it amounts to little more than spin – a ‘clean cars pretext’ with which they’re responding to calls from carmakers and EU member states for a bail out. The EUR4 billion ECTF annual budget is already overspent on the car industry alone, leaving nothing for the research or development of truly green systems of mass transport.

Furthermore, Achterberg believes that loans from a public bank are not justifiable if only for the purpose of helping manufacturers comply with forthcoming EU emissions directives. ‘These loans,’ she says, ‘should lead to additional efforts to reach targets above and beyond those stipulated by a piece of legislation that, thanks to pressure from industry lobbyists, is already weak and ineffectual.’

UK based NGO, The Bretton Woods Project, describes the bank’s position on environmental issues as contradictory. ‘It funded renewables to the tune of roughly €2 billion last year,” says its EIB specialist, Anders Lustgarten, ‘yet has since spent tens of billions financing motorway networks, waste incineration projects, and the aviation, car and fossil fuels industries.’

An EIB spokesperson said in response that ‘the Bank’s activities in the energy sector are balanced in line with key EU policy objectives and contribute to their accomplishment.’ She also points out that the EIB loaned rail projects €2.4 billion in 2008 (19 per cent of a total €12.5bn of ‘trans-european transport network lending’ that year), and that it has made sizeable loans to tram projects in several cities in France, Italy and Poland.

Public responsibility

Lustgarten explains that because the EIB is a public institution – the capital it raises from financial markets is guaranteed by EU member states, and effectively underwritten by taxpayers – it has an obligation to serve the public interest. ‘In reality,’ he says, ‘it almost exclusively serves large, private sector interests.’ Indeed, its list of clients includes numerous enormously wealthy multinationals such as Exxon, Shell, and (the mining conglomerates) Glencore and Freeport-McMoran.

The EIB is also a leading backer of British Public-Private-Partnerships; a controversial yet increasingly common way of funding public infrastructure that often leads to enormously inflated costs. Notable examples include the Isle of Skye bridge (the estimated cost of which was £15 million, the eventual cost, £93.6 million), the troubled London Underground privatisation project, and the farcical £5 billion widening of the M25.

Of most concern to campaigners, however, is the EIB’s use of public money to fund certain ‘development’ projects in the global south. Several vast mining and oil-pipeline projects it has supported in Southern Africa have destroyed ecologically sensitive areas, polluted scarce water resources, expropriated land and displaced thousands while bringing little material benefit to local populations. The Bretton Woods Project describes such ventures as ‘neo-colonialist, anachronistic and, in light of new legislation, possibly illegal.’ The EIB is unique among international financial institutions (IFIs) in that its loan recipients are currently only regulated by a set of non-binding environmental and social impact guidelines. But many contend that as the EIB is an EU organisation, its projects should be subject to the full rigour of EU law no matter where they take place.

Despite the wide-ranging consequences of many of the bank’s undertakings, avenues for complaint or appeal remain limited due to a lack of transparency; typically, projects are listed on its website only two-months prior to their approval. ‘While the EIB is taking steps to improve its levels of public accountability, its public disclosure on the majority of projects is appalling. Information is late, insufficient and incredibly opaque,’ says Lustgarten. He believes that raising the public and political profile of this shadowy giant is vital if it is to be pressured to reform.

In the UK, financial alternatives to failed banks include non-profit models of local lending and banking such as credit unions and community development finance institutions (CDFIs), modelled on Southern microfinance as lenders to individuals and small businesses in disadvantaged communities. They also include more familiar entities such as the Post Office and mutual building societies that have endured despite political hostility and regulatory neglect. The significance of these varied institutions is not simply due to their value as an alternative to a financial monoculture that built banks supposedly too big to fail; it is in their ability to point to a future financial system that serves people’s needs rather than returns to business as usual.

Deregulation and de-mutualisation

The variety of local finance institutions in the UK are partly a response to the way liberalisation has played out. As the political tide turned in the 1980s, the financial sector was a key arena to test Thatcherite principles of deregulation. American financial institutions were attracted to the City of London as a financial ‘Guantanamo Bay’, where practices not permitted in the US could be conducted.

The entry of new players triggered a wave of consolidation in the banking sector. Deregulation also helped to stimulate a housing boom and bust. Banks continued to merge and grow across borders, applying a one-size-fits-all approach, where that one size was invariably Extra Large.

In poorer communities across the UK, bank branches were shut down as costs were cut. Bank managers who had personal relationships with their borrowers became an anachronism and communities became disconnected from the wider economy as finance for their needs was channelled into speculation. This retrenchment means that the combined number of branches of every bank and building society in the country is now less than the post office branch network. The government recognised this problem when it convened the Social Investment Task Force in 2000 and instituted measures to tackle financial exclusion. Yet according to recent figures from the Treasury, 2.1 million people remain without access to a bank account in the UK.

Financial exclusion is the consequence of an unseemly race that emerged in the banking sector in the 1990s. Banks competed to re-focus their activities away from the tedium of orthodox banking and toward the profitable speculation of the City. Meanwhile people excluded from the credit bonanza were increasingly preyed upon by our very own equivalent of sub-prime lenders. The biggest, Provident Financial plc, calls its market niche ‘non-standard’ rather than sub-prime, while advertising an APR for personal credit of 189.2 per cent. While financial companies have had billions wiped off their share value or gone bankrupt, during 2008 Provident Financial plc’s share price rose, reflecting expectations that it will benefit from the exclusion the credit crunch has exacerbated.

The contorted logic of financial liberalisation is most clearly shown by what happened to the mutual sector, where building societies were encouraged to abandon their cooperative roots in search of greater profits. Thanks to their mutual model of ownership, in which depositors are also owners of the company, building societies operate a more conservative and local model of lending. The deregulation in the 1980s included the 1986 Building Societies Act, which sought to enable building societies and banks to encroach on each other’s business areas. Banks were keen to break into the booming mortgage finance sector that had been dominated by building societies.

Starting with Abbey National in 1989, one society after another sought to de-mutualise and become a plc in order to profit from borrowing more heavily and lending more aggressively. Members were enticed to vote for de-mutualisation by the offer of windfall payments. In 1997, £36 billion in cash and shares was paid out to members of de-mutualising societies, which eventually included both Northern Rock and Bradford & Bingley. Both are now bankrupt.

The 2006 inquiry by the all-party parliamentary group for building societies and financial mutuals found that this process had little benefit for customers and that windfall payments typically under-valued members’ stakes. Northern Rock had blithely insisted to the same inquiry that ‘its success over the [previous] eight years would not have been possible under the old mutual model’.

According to the Building Society Association, the period between 1995 and 2000 also saw a branch closure rate of 24.1 per cent by de-mutualised banks, as opposed to 2.4 per cent among societies that remained mutual.

Grass-roots alternatives

The reality of grass-roots alternative financial institutions in the UK remains modest. CDFIs account for less than £300 million in lending. Credit unions, which accept deposits and provide loans, account for just under £400 million in savings. Though they have received some public funds and policy backing, policymakers remain blind to the true potential of these initiatives.
In contrast, the United States has a community finance sector worth billions of dollars. Legislation such as the 1977 Community Reinvestment Act (CRA) ensured the involvement and support of mainstream finance for CDFIs. In the US, the CDFI sector includes local development banks, social venture capital, enterprise lenders and credit unions. Since 1994, over $800 million has been provided to the sector from federal funds, which have stimulated 27 times that amount in matching private investment, according to the US Treasury.

President Obama’s stimulus package includes $100 million to the sector, not to bail out failures but in recognition of community finance’s capacity to counter exclusion and stimulate the economy. Despite some recent claims to the contrary, poorer housebuyers and homeowners borrowing under CRA agreements have been far less likely to default than the packaged-up sub-prime mortgages that are now worthless and were often designed to avoid scrutiny under CRA requirements.

International dimension

The international dimension of financial globalisation is, if anything, even more in thrall to the perverse logic of globalisation. The implication for poorer countries and their citizens is correspondingly graver. Despite the origins of the current crisis and regardless of high-profile cases such as Iceland, it is developing countries that are most vulnerable. The International Institute of Finance predicts that investment flows to developing countries will collapse in 2009 to $165 billion from a high of almost $1 trillion in 2007. The costs of borrowing are also rising disproportionately for developing countries as investors become increasingly risk averse and seek to retract their capital. This puts these countries at risk of currency and banking crises that would send them back into the clutches of the International Monetary Fund and the World Bank.

Despite the clear lessons of the crisis, multilateral agreements and the Bretton Woods institutions of the World Bank and IMF seem oblivious to the need to reform the process of liberalisation. The recent meeting in Doha saw the US and EU renew their efforts to push through the General Agreement on Trade and Services (GATS) without accepting the need to challenge its imposition of greater financial liberalisation.

Other forums, such as the G8 and G20, lack the legitimacy of multilateral bodies but remain the crucible of global reform agreements. Looking beneath the surface shows that the prospect of genuine reform and inclusion of Southern countries is as distant as ever. One critical body determining international financial rules is the Financial Stability Forum. The FSF is not an official body but is supported by the G8 countries to shape international financial regulation policies of G8 members without any responsibility or accountability to other nations.

As all eyes turn to the meeting of the G20 nations to be hosted in London on 2 April, the idea that this global crisis summit should incorporate the concerns of every nation affected is effectively ignored. Roubini Global Economics estimates peak losses of up to $3.6 trillion dollars. Half of that loss is estimated to fall outside the US. Following the so-called Nixon shock in 1971, which ended the link between gold, the US dollar and global currencies, President Nixon’s treasury secretary toured finance ministries around the world to inform them that ‘it’s our currency but it’s your problem’. Little seems to have changed.

Bank of the South

One effort to alter this dynamic is the Bank of the South (Banco del Sur), proposed by Venezuela and Argentina to replace the role of the World Bank in Latin America. It is an explicit challenge to the one-size-fits-all neoliberal model. It reflects a similar conceptual challenge as mutuals do to the idea that the evolution of banking and finance inevitably leads to a system of consolidated, profit-seeking international behemoths.

The Banco del Sur is an attempt at financial regionalisation proposed on the basis of one member one vote, unlike the governance models of the World Bank and IMF, which operate under a US veto and privilege the richest countries. Nevertheless, efforts are being made to model the Banco del Sur on the Bretton Woods institutions rather than on a cooperative principle, implying that what is needed is merely a technical improvement rather than a political challenge to the dominance of Washington-based institutions and their philosophy.

As outrage at banking practices grows, civil society needs to demonstrate that the perversity of rewarding bankers’ recklessness and greed at taxpayers’ expense is no more bizarre than the terms of IMF bailouts and loan conditionality. Through the imposition of severe restraints on social spending to pay off reckless international lenders (who often lent to undemocratic regimes), internationally it is the poorest who have been subsidising the global finance industry’s errors for decades, not just in the wake of the credit crunch. Exclusion and politically-sanctioned abandonment of marginalised communities in the name of free-market competition has direct parallels to the one-sided multilateral agreements made in the name of ‘free’ trade in financial services.

Transferring to the Co-op

The need to create a new shared identity in opposition to financial globalisation, incorporating the impact on social exclusion and inequality in industrialised countries, is reflected in the fortunes of both the Co-operative Bank and the euphemistically titled ‘non-standard’ lenders such as Provident Financial.

Investors looking to profit from the crisis have bought Provident Financial shares. However, depositors with the Co-operative Bank have also benefited from record levels of new customers transferring their accounts to the Co-op.
In 2008 this increased at a rate of 65 per cent. While most banks are panicking over how to rebuild their capital, the Co-operative Bank has increased its personal deposits from £2.7 billion to £3.8 billion. Business lending, generally retracting due to banks’ nervousness, has grown and is expanding across the UK. Meanwhile government ministers publicly beg the bailed-out high street banks to re-start lending to businesses.

The positive fortunes of two such different companies sit in stark contrast to the £1.5 trillion liability to underwrite the banking sector that the government has just announced. It also reveals the indeterminate future of the financial system and its impact on the economy and society. As the Co-op demonstrates, cautious banking based on traditional virtues with a strong social ethic can beat the financial giants on their own terms.

Yet the policy world remains committed to returning to business as usual – but with years of ballooning deficits that will hinder any recovery. This heightens the likelihood of greater exclusion and more communities unable to participate fully in the UK economy. It also suggests that the resurgence in the relevance of Bretton Woods institutions will not come with reforms to governance and policy approaches that have failed developing nations so badly.

Forging a new financial system

What has not been properly contemplated is the prospect, and possible inevitability, of wholesale nationalisation and what that would mean for forging a new financial system built to be transparent, stable and equitable. There is little chance of the toxic assets banks hold recovering in time to salvage their businesses. Those banks will be insolvent and nationalisation becomes unavoidable, as in Northern Rock’s case. Debate has focused on how to achieve an outcome that could allow governments to minimise the time they own banks or avoid it altogether. Sweden’s response to financial crisis in the early 1990s has been taken as a model for the temporary nationalisation of insolvent banks in order to separate the toxic assets and re-privatise the rump of a viable firm.

Instead of taking a similar approach in order to return to business as usual, governments should be pressed to separate the banks from each other’s embrace, not just from their toxic investments. In the wake of the Great Depression in the 1930s, President Roosevelt enacted the Glass-Steagall Act, which separated investment banks from retail outfits. The Banco del Sur, grass-roots finance models and the consequences of a single model of globalisation show the need for diversity in both the scale of banks’ operations and in their functions.

The Glass-Steagall Act was repealed in 1997, a decision repeatedly blamed for contributing to the current crisis by allowing over-consolidation and conflicts of interests to fester in the banking sector. However the successful assault on the legislation was achieved not simply through friendly senators and banks’ closeness to the White House. The operation of unaccountable and deregulated financial centres overseas, not least including the City of London, had fatally undermined the usefulness of such regulation by allowing US banks to bypass the law abroad.

Policymakers need to grasp the nettle by nationalising and de-merging the banking sector. A finite period of public stewardship will be a failure if the opportunity to de-merge over-consolidated and conflicted banks is not taken. Complex cross-border holdings, and the demise of Glass-Steagall in the US, necessitate that such an approach be part of a multilateral process but it can start at home by re-specifying the role of high street lenders.

The point of finance alternatives, including grass-roots models, building societies and even postal banks, is that they are an attempt to re-assert local and democratic sovereignty over economic decisions. Local financial innovations do not represent a panacea and in some respects reflect coping strategies necessitated by the impact of liberalisation. Their diversity is more akin to an ecology that permits different solutions to prosper according to different local, national or international needs as opposed to the imposition of a self-serving and rapacious monoculture.

The time has come to re-assert the shared interest of citizens in rich and poor countries alike. The G20 meeting is already the focus of huge interest. Advocacy must incorporate the understanding that it is not simply a moral question or philanthropic impulses that connect us to the concerns of those in poorer countries. The endurance of alternative financial institutions represents a wealth of solutions shaped to address the common problems caused by a dominant financial sector that serves nobody’s needs but its own.

We now need to devote just as much effort and resources to protecting the interests of financially excluded consumers. The financial system already fails millions of vulnerable households who are painfully exposed to financial crises and the level of financial exclusion is sure to deteriorate as the mainstream banks retrench and the economic climate worsens over the next year or two. Providing access to fair, affordable credit to deprived communities will be a priority and we need to reinvigorate the idea of mutually owned, community based financial institutions as an alternative to the mainstream financial services industry.

The government is rightly determined to prop up the banking system and protect the savings of middle England. This had to be done to restore confidence. However, half the households in the UK have very little savings (worth less than three-weeks average earnings). Around a quarter have no savings at all – this figure rises to 62 per cent in the poorest households.

Vulnerable households are also disproportionately affected by rising household utility and food bills and will find it even harder to build up a decent cushion in the form of savings to protect themselves as we enter a more unpredictable, uncertain time for the UK economy.

Moralising about ‘feckless, irresponsible’ consumers taking on too much debt, or not saving for a rainy day, only adds insult to injury. Many lower income households have no choice but to borrow to make ends meet or maintain even a semblance of a decent life in a modern consumer society.

Financially excluded households need access to fair, affordable credit to survive. But access to affordable credit is a serious problem for the three to four million households with low incomes or impaired credit ratings. Not commercially attractive for mainstream lenders, they’re forced to turn to the ‘sub-prime’ market or denied access to credit altogether.

These households pay a huge price for borrowing. For example, someone borrowing £300 for a year with Provident Financial (the home credit company) might expect to pay back £504 in total – an annual percentage rate (APR) of 183 per cent. In fact, APRs of over 1000 per cent for short-term loans are not uncommon in the sub-prime market (and these are licensed, regulated lenders, not the guys with baseball bats). In contrast, with a typical credit union they might expect to pay back £321 – an APR of roughly 12 per cent.

We haven’t begun to grasp just how damaging the impact of the financial crisis will be on vulnerable consumers. The new economic, commercial and regulatory environment will make it less attractive for mainstream lenders to lend to the ‘working poor’, adding to the traditionally excluded groups. Households considered a high risk will be hit hardest as lending is likely to be concentrated on ‘lower-risk’ households. There will be a significant reduction in mainstream credit funding for vulnerable households who will be priced out of market, denied access to credit or pushed into the sub-prime sectors.

Loan, sweet loan

There are only two ways of providing for excluded consumers. The government could force lenders to lend to them by treating banks as utilities like electricity or gas companies. This is an option but the government and regulators could find it difficult to square the circle of forcing the major banks to lend directly to riskier households, while at the same time putting lenders under severe pressure to act prudently and restore balance sheets.

The other option is for government to lend to the most vulnerable in society and to help alternative, not-for-profit (nfp) lenders. Nfp lenders such as credit unions and community development finance institutions (CDFIs) provide an affordable alternative to commercial sub-prime lenders for financially excluded consumers. But despite the apparent advantages of nfp lenders, they have achieved fairly limited penetration (exceptions being parts of Northern Ireland, Scotland and Merseyside) compared to the scale achieved by commercial non-prime lenders (such as home credit firms). For example, credit union membership in the UK reached around 400000 in 2005, a fraction of the number of households that need affordable credit.

Commercial non-prime lenders of various types lent at least £4.3 billion in 2005. In comparison, the total lent by nfp lenders (including the Government through the social fund) amounted to around £1 billion. Credit unions made around £257million in new loans in 2005, while CDFIs increased their lending and investment by around £77 million (only £3m of this was for personal loans). £688 million was provided through the social fund in 2006/7.

Commercial non-prime lenders are well entrenched in local communities as a result of their business model (based on door-to-door collections).Nfp lenders cannot compete effectively unless they have access to additional, sustainable resources to take them on at the doorstep.

To be fair to the government, it has improved the position of people facing repossession but the growth in financial exclusion is a much greater systemic problem that needs tackling. Credit unions and other community based lenders need money, they need it now and they need lots of it.

The additional funding could come from three sources. The most obvious is from central and local government. Spending just a tiny fraction of the taxpayers money used to prop up the major banks underwriting loans made by nfp lenders would massively increase the pool of credit for vulnerable communities.

The second source is the financial services industry itself. There is a strong moral and economic case for introducing a financial exclusion levy on the banks to make them pay restitution for the damage they have caused to our financial system. At the very least the UK needs its own version of the US Community Reinvestment Act so that banks are forced to become more transparent about the number of households they exclude.

The third option is for government to encourage new forms of social investment funds, which trades unions, pension funds and ethical investors could use to invest in vulnerable communities through ethically run, nfp lenders.

However, even nfp lenders have their limits. For many of the poorest households the only meaningful option is for the government to lend them interest-free money through the social fund.

Overall, there is no shortage of policy options for the government if it wants to protect the most vulnerable in society from the worst of the financial storm. But it’s now a question of will.

Taking advantage of the opportunity of so many people from movements gathering in Beijing during the Asia-Europe People’s Forum, the Transnational Institute and Focus on the Global South convened informal nightly meetings between 13 and 15 October 2008. We took stock of the meaning of the unfolding global economic crisis and the opportunity it presents for us to put into the public domain some of the inspiring and feasible alternatives many of us have been working on for decades. This statement represents the collective outcome of our Beijing nights. We, the initial signatories, mean this to be a contribution towards efforts to formulate proposals around which our movements can organise as the basis for a radically different kind of political and economic order.

The crisis

The global financial system is unravelling at great speed. This is happening in the midst of a multiplicity of crises in relation to food, climate and energy. It severely weakens the power of the US and the EU, and the global institutions they dominate, particularly the International Monetary Fund (IMF), the World Bank and the World Trade Organisation (WTO). Not only is the legitimacy of the neoliberal paradigm in question, but the very future of capitalism itself.

Such is the chaos in the global financial system that Northern governments have resorted to measures progressive movements have advocated for years, such as nationalisation of banks. These moves are intended, however, as short-term stabilisation measures and once the storm clears, they are likely to return the banks to the private sector. We have a short window of opportunity to mobilise so that they are not.

The challenge and the opportunity

We are entering uncharted terrain with this conjuncture of profound crises – the fall out from the financial crisis will be severe. People are being thrown into a deep sense of insecurity; misery and hardship will increase for many poorer people everywhere. We should not cede this moment to fascist, right wing populist, xenophobic groups, who will surely try to take advantage of people’s fear and anger for reactionary ends.

Powerful movements against neoliberalism have been built over many decades. This will grow as critical coverage of the crisis enlightens more people, who are already angry at public funds being diverted to pay for problems they are not responsible for creating, and already concerned about the ecological crisis and rising prices – especially of food and energy. The movements will grow further as recession starts to bite and economies start sinking into depression.

There is a new openness to alternatives. To capture people’s attention and support, they must be practical and immediately feasible. We have convincing alternatives that are already underway, and we have many other good ideas attempted in the past, but defeated. Our alternatives put the well-being of people and the planet at their centre. For this, democratic control over financial and economic institutions is required. This is the ‘red thread’ connecting up the proposals presented below.

Proposals for debate, elaboration and action

Finance

o Introduce full-scale socialisation of banks, not just nationalisation of bad assets

o Institutionalise full transparency within the financial system through the opening of the books to the public, to be facilitated by citizen and worker organisations

o Introduce parliamentary and citizens’ oversight of the existing banking system

o Apply social (including conditions of labour) and environmental criteria to all lending, including for business purposes

o Prioritise lending, at minimum rates of interest, to meet social and environmental needs and to expand the already growing social economy

o Overhaul central banks in line with democratically determined social, environmental and expansionary (to counter the recession) objectives, and make them publicly accountable institutions.

o Create people-based banking institutions and strengthen existing popular forms of lending based on mutuality and solidarity

o Safeguard migrant remittances to their families and introduce legislation to restrict charges and taxes on transfers

Taxation

o Close all tax havens

o End tax breaks for fossil fuel and nuclear energy companies

o Apply stringent progressive tax systems

o Introduce a global taxation system to prevent transfer pricing and tax evasion

o Introduce a levy on corporate profits with which to establish citizen investment funds (see below)

o Impose stringent progressive carbon taxes on those with the biggest carbon footprints

o Adopt controls, such as Tobin taxes, on the movements of speculative capital

o Re-introduce tariffs and duties on imports of luxury goods and other goods already produced locally as a means of increasing the state’s fiscal base, as well as a means to support local production and thereby reduce carbon emissions globally

Public spending and investment

o Radically reduce military spending

o Redirect government spending from bailing out bankers to guaranteeing basic incomes and social security, and providing universally accessible basic social services such as health, education, child care, housing, water and electricity

o Use citizen funds (see above) for supporting the very poor and indigenous communities

o Make interim arrangements for people who may lose their homes due to defaults on mortgages caused by the crisis, such as renegotiated terms of payment and prevention of evictions

o Stop privatisations of public services

o Establish public enterprises under the control of parliaments, local communities and/or workers

o Improve the performance of public enterprises through democratising management – encourage public service managers, staff, unions and consumer organisations to collaborate to this end

o Introduce participatory budgeting over public finances at all feasible levels

o Invest massively in improved energy efficiency, low carbon emitting public transport, renewable energy and environmental repair

o Control or subsidise the prices of basic commodities

International trade and finance

o Introduce a permanent global ban on short-selling of stock and shares

o Ban on trade in derivatives

o Ban all speculation on staple food commodities

o Cancel the debt of all developing countries – debt is mounting as the crisis causes the value of Southern currencies to fall

o Phase out the World Bank, IMF, and WTO

o Phase out the US dollar as the international reserve currency

o Establish a people’s inquiry into the mechanisms necessary for a just international monetary system

o Ensure aid transfers do not fall as a result of the crisis

o Abolish tied aid

o Abolish neoliberal aid conditionalities

o Phase out the paradigm of export-led development, and refocus sustainable development on production for the local and regional market

o Introduce incentives for products produced for sale closest to the local market

o Cancel all negotiations for bilateral free trade and economic partnership agreements

o Promote regional economic co-operation arrangements, such as UNASUR, the Bolivarian Alternative for the Americas (ALBA), the Trade Treaty of the Peoples and others, that encourage genuine development and an end to poverty

Environment

o Introduce a global system of compensation for countries which do not exploit fossil fuel reserves in the global interests of limiting effects on the climate, such as Ecuador has proposed

o Pay reparations to Southern countries for the ecological destruction wrought by the North to assist peoples of the South to deal with climate change and other environmental crises

o Strictly implement the ‘precautionary principle’ of the UN Declaration on the Right to Development as a condition for all developmental and environmental projects

o End lending for projects under the Kyoto Protocol’s “Clean Development Mechanism” that are environmentally destructive, such as monoculture plantations of eucalyptus, soya and palm oil

o Stop the development of carbon trading and other environmentally counter-productive techno-fixes, such as carbon capture and sequestration, agrofuels, nuclear power and ‘clean coal’ technology

o Adopt strategies to radically reduce consumption in the rich countries, while promoting sustainable development in poorer countries

o Introduce democratic management of all international funding mechanisms for climate change mitigation, with strong participation from Southern countries and civil society

Agriculture and industry

o Phase out the pernicious paradigm of industry-led development, where the rural sector is squeezed to provide the resources necessary to support industrialisation and urbanisation

o Promote agricultural strategies aimed at achieving food security, food sovereignty and sustainable farming

o Promote land reforms and other measures which support small holder agriculture and sustain peasant and indigenous communities

o Stop the spread of socially and environmentally destructive mono-cultural enterprises

o Stop labour law reforms aimed at extending hours of work and making it easier for employers to fire or retrench workers

o Secure jobs through outlawing precarious low paid work

o Increase employment through the establishment of new public enterprises

o Guarantee equal pay for equal work for women – as a basic principle and to help counter the coming recession by increasing workers’ capacity to consume

o Protect the rights of migrant workers in the event of job losses, ensuring their safe return to and reintegration into their home countries. For those who cannot return, there should be no forced return, their security should be guaranteed, and they should be provided with employment or a basic minimum income

Conclusion

These are all practical, common sense proposals. Some are initiatives already underway and demonstrably feasible. Their successes need to be publicised and popularised so as to inspire reproduction. Others are unlikely to be implemented on their objective merits alone. Political will is required. By implication, therefore, every proposal is a call to action.

We have written what we see as a living document to be developed and enriched by us all. A future occasion to come together to work on the actions needed to make these ideas and others a reality will be the World Social Forum in Belem at the end of January 2009.

We have the experience and the ideas – let’s meet the challenge of the present ruling disorder and keep the momentum towards an alternative rolling!

Initial Signatories

Organisations

Transnational Institute, The Netherlands

Focus on the Global South, Asia

Red Pepper magazine, United Kingdom

Institute for Global Research and Social Movements, Russia

JS – Asia/Pacific Movement on Debt and Development (JS APMDD), Asia

RESPECT Network Europe, Europe

Commission for Filipino Migrant Workers (CFMW), Netherlands

Ecologistas en Accion, Spain

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