Declaration by distinguished former European Leaders in Support of the Modest Proposal’s main tenets: The urgent need for a fresh New Deal for Europe

Europe’s most serious deficit is political. A dearth of political will, democratic legitimacy and purposeful, farsighted leadership is responsible for the Eurozone’s repeated failures to get to grip with the Crisis’ different manifestations.

Proposals like that our own Modest Proposal, of Tremonti-Yuncker and others offered Europe obvious alternatives to the current policy mix which exacerbates the Crisis and causes permanent damage to Europe, its economy, its society and, primarily, its prospects of a democratic common future. 

A familiar refrain amongst commentators and the public at large is that Europe’s current crop of leaders are missing the qualities and clarity of vision of the political leaders who shaped the European Agenda in decades past. It is for this reason that we decided to ask some of them to express their support for the basic tenets of the Modest Proposal: By signing the Declaration below, these former Heads of State, Prime Ministers and European Parliamentary leaders will hopefully send a loud and clear message to our current leaders: It is time to stop dithering, to desist from pretending that this is a Greek Crisis, and to withdraw from the catastrophic trap of treating the problem as one that can be cured by means of the mix of loans plus liquidity.

Once the Declaration below was drafted, and support for it was declared, Stuart Holland and myself approached the Financial Times and Der Spiegel who graciously agreed to relate this Declaration to their readers on the same day, Monday 4th July 2011. Meanwhile, the Declaration is being published, at the same time, in Greece by, the site where our Modest Proposal first saw the light of day fully fledged.

We trust and hope this Declaration will help steer the debate away from the aridity of the current agenda and onto a rich new vein of innovative ideas for dealing rationally and collectively with the Eurozone’s systemic Crisis.


Signed by: Giuliano Amato, Enrique Baron, Michel Rocard, Jacek Saryusz-Wolski, Mario Soares, Jorge Sampaio, Guy Verhofstadt (*)

[Click here for a German language version: Ein _New Deal_ fur Europa]

Europe is losing a war between elected governments and unelected rating agencies. Governments are trying to govern but rating agencies rule.  Electorates know this and some member states, aware of it, oppose fiscal transfers to others.

Yet some of them, includingGermany, have gained from a euro which is lower and more competitive than it would be for a core Eurozone of fewer countries. Defaults by the most debt exposed countries would hit banks and pension funds in centralEuropeas well as those in the periphery.  No one is immune.

The answer is not lessEuropebut more. Jean-Claude Juncker and Giulio Tremonti have argued that a conversion of a share of national debt to EU bonds would stabilise the current crisis.  We agree.

The decision on such a conversion need not be unanimous. It could be by enhanced cooperation as was the creation of the euro itself. Those governments that wished to retain their own bonds, as Germany might, could do so.

We agree also with the Juncker-Tremonti case that European bond issues could be globally traded and attract surpluses from sovereign wealth funds and the emerging economies whose governments have called for a more plural global currency system. These would be financial inflows to theUnionrather than fiscal transfers within it.

But we suggest that the conversion of a share of national debt to the EU need not be traded. It could be held by theUnionon its own account. Since not traded, it would be ring fenced from rating agencies. Its interest rate could be decided on a sustainable basis by Eurogroup finance ministers. It would be immune from speculation. Governments would govern rather than rating agencies rule.

We also suggest also that there are lessons to be learned from the 1930s US New Deal which inspired the proposal by Jacques Delors in 1993 to match a common currency by common European bonds.

The Roosevelt administration did not need US bonds to be financed or guaranteed by member states of the American Union such asCaliforniaorDelaware, nor demand fiscal transfers from them, nor bought out their debt. Nor need the European Union do so to issue its own bonds now.

US bonds are financed by its common fiscal policy.Europedoes not have one. But the member states whose share of national debt was converted to EU bonds could service it from their national tax revenues without fiscal transfers from others.

Europealso has an overlooked late starter advantage. Many to most of its member states are deep in debt after salvaging banks. But theUnionitself has next to none. Even with buy-outs of national debt since May last year, its own debt is under 1% of its GDP.

This is less than a tenth of the level from which theUSissued bonds to finance the New Deal whose success gave it the confidence to fund the Marshall Aid which recovered Europe from WW2 and from whichGermanywas a key beneficiary.

Nor would EU bonds necessarily need a new institution.  A ring-fenced bond could be held by the European Financial Stability Facility. Net bond issues for growth could be by the EFSF or by the European Bank Group. (**) They could be serviced from revenues on project co-finance as the EIB’s own bonds are.

The ECB is the guardian of price stability, but the EIB Group can safeguard growth. EIB project finance already is double that of the World Bank. It has issued its own bonds for fifty years without national guarantees or fiscal transfers. None of the major Eurozone member states count borrowing from it against national debt.

Bonds are not printing money. They are not deficit finance. Net issues of bonds by the Union would mean inflows of funds to finance European recovery rather than austerity. We urge recognition of this by Ecofin and the European Council both to safeguard the Eurozone and to gain economic and social cohesion by a New Deal forEurope now.

(*) Giuliano Amato, Michel Rocard, Mario Soares and Guy Verhofstadt were formerly the prime ministers of Italy, France, Portugal and Belgium. Mario Soares later was president of Portugal. Jorge Sampaio was President of the Republic in Portugal. Guy Verhofstadt currently is leader the Alliance of Liberals and Democrats in the European Parliament. Enrique Baron has been leader of the Socialist Group and a president of the European Parliament. Jacek Saryusz-Wolski is a vice-president of the European Peoples Party and of the European Parliament, and chair of its Foreign Affairs Committee.

(**) Readers familiar with the Modest Proposal will have noticed a difference between this suggestion and the Modest Proposal: Whereas in the latter we recommend that the ECB handles the tranche transfer and issues the Eurobonds, in this Declaration, in an attempt not to ruffle the feathers of those who do not want to be seen to be challenging the independence/current role of the ECB, we offer as alternatives to the ECB either the EFSF or the EIB group (which includes the EIB and the European Investment Fund). The point here is to the principle of the tranche transfer. Once that is established, we can debate whether perhaps it is better to give that role to the ECB. In the context of the present Declaration we judged that this was appropriate to allude to different existing institutions as the agency that is assigned the central role of managing the tranche transfer so as to drum up the widest possible level of support.


  • Good job Yani!

    Let’s see if someone is home when the light is on, this time around.

  • Yani,
    Monday 4th of July 2011, may become Euro zone’s “Independence Day”. I hope so.

  • The title declarations surely meets the writing style .
    Hope that it’s supported by officials too.
    May this be a true way out of the crisis .
    Thanks Mr Varoufakis for your good work !

    • Hmmm , what impresses me when read it a second time are the people who signed the declaration . They couldnt be more strategically chosen . They are all people of high influence on european parliament covering all political parties .
      To my understanding , it’s like if all political parties in european parliament unofficially accept the modest proposal at the same time .

      Well done !!!!!!

    • Ilias, there is not realyl an opposition in the European parliament. They all want to build the empire of Europe, no matter if the cost is democracy or money or both.

    • I am not so sure if these guys are well picked. They got us in the mess in the first place.

      A critical observer would see the bias. Would you ask Jürgen Schrempp (fomer CEO of Daimler), if the merger with Chrysler was a good idea? This merger has destroyed billions of shareholder equity!

      Actually the behavior of CEOs and European politicians is similar in a way: They love mergers, because it makes them “more important” and makes them look like they have a vision. In the end, at least for mergers of companies, very rarely value is created for shareholders.

      It works also the other way around. When breaking up big companies, often a lot of value is created.

  • Great development!
    But… couldn’t you win the support of a German respect person of the political life? I can’t believe, you would not get support for the proposal in Germany too.

    • For example former prime minister Schmidt, who is enjoys huge respect in Germany, could be such a person, if I recall his comments to the current situation.

    • We did contact him. He was very positive. And then wrote his own article, saying similar things, in Die Zeit and politely turning our request down.

    • The online petition to the German Bundestag with the highest number of supporters is the one against the ESM 🙂 And it is only online since a week.

  • This is going to be seen as an unfair comment, but it has to be made.

    With the very greatest of respects to everyone involved with the modest proposal and this declaration; while it has widened the debate; it does not address the underlying problem; astronomical levels of leverage within the banking system that led to the imposition of outrageous levels of debt on the likes of Greece, while at the same time, draining the savings of the people to repay the “leveraged” debt.

    Ergo, we the people, are now left with insufficient hidden prosperity, (money not pledged to repay debt, both private and government), to underpin the replenishment of the millions of private sector jobs that must be created to re-balance the economies of all of the affected nations.

    As a British inventor, I am too well aware that Europe has abandoned the individual entrepreneur in favour of the major multi-national corporations and has permitted a feudal mercantile economic model to become the dominant mode of long term investment. The European Investment Bank (EIB) is entirely wedded to that feudal economic model.

    Europe does not have any recognised system in place to permit the creation of free enterprise businesses to in turn; create the millions of free enterprise jobs. Selling EU bonds does not address this central elephant in the room; the desperate need to create new jobs; particularly, within free enterprise, privately owned businesses. The EIB will simply continue to toil to an unworkable economic model that is a significant part of the overall problem. It has no track record of free enterprise private sector job creation. None!

    This is not a new problem. It was first addressed by evidence I presented to the European Patent Office in 1992 and followed up with detailed discussions with the Bank of England, (at the highest level), ever since. Recently, they have been kind enough to confirm that I am correct to identify the lack of available equity capital needed to underpin the creation of new private sector jobs. In turn, last summer, I presented a detailed paper in response to the British government Green Paper; Financing a Private Sector Recovery.

    What I have proposed is to transfer the value of grossly leveraged bonds back into the private sector economy by re-issuing them as Vanishing Bonds which are only used to create new, free enterprise, private sector businesses, millions of them, to in turn, create private sector jobs.

    May I be so bold as to suggest that, instead of Europe issuing EU bonds, it instead takes under its control the grossly leveraged debt issued to the likes of Greece and re-issues it as vanishing bonds to permit the creation of private sector employment.

    Transferring debt by issuing EU Bonds as proposed does not address the desperate need for private sector employment; it will simply reinforce the belief that a failed; feudal mercantile economic model; (creating employment with tax and government borrowing underpinning central government institutions); can still be made to work. It is time to change direction and not repeat the failures of the past.

    The citizens of Europe deserve to be free to be able to create their own jobs and to enable that step forward, Europe must set them free and give them access to the free enterprise equity capital; they must have if they are to succeed.

    • @Chris Coles

      There is nothing unfair with your comment. New ideas should be freely expressed and judged on their merits.

    • Unless I am mistaken, what you mean (creation of jobs – further development of the private sector) is “the third pillar” of Mr Hollan’s and Mr Varoufakis’ “Modest proposal” with thw help of EIB.

  • The direction was known.More Europe was always in the cards.What the price was up to now was the destruction of the stongest middle classes among the member states thus thus increasing the distance between the crowds that have been left wondering and wanderinf in the Piazza’s of Europe and the guys who will always be the core of the system of which the rating agencies have now become the unelected Consuls (beware of Bonapartes…).The proposal ring-fences from the rating agencies, but how long will it be without a major restructuring of the system and a new social contract before they take over and then all of Europe becomes their prey?If the proposal succeeds, which I wholeheartedly wish, it must be made more clear what is itin it for the average European. Otehrwise the Euro will just sky-rocket, and then something will have to be done,and then focusing agsain on small states with problems might be the best solution and all that ad nauseam.This has to be accompanied by a strong political will to restore part of the social state demolished and this passes through a redistribution of wealth, a modest one of course as nothing more can be acieved.But is anyone willing among the oligarchs to cede aven a penny, be that a cent?

  • Just a thought….

    It is not a Fata Morgana on the horizon in the midday’s heat. It is just a tiny island off the coast where I live and which is usually hidden by the waves and only on a very calm day one can clearly see it. By ‘slowing down’ the camera, and shooting with long exposure times, the gentle tide get’s blurred into a fog, yet maintaining a structure that allows it to be identified as waves.

    Slowing down is a essential technique for me as a photographer, on many levels. I learned early that my photography benefits from a certain mental state of ’emptiness’ which allows me, if successful, to change my perspective towards the essential meaning of things by recognizing that they hold no intrinsic meaning, that they are empty and only exist in correlation of causality, and perhaps they are insights.

    Slowing down was my advise on the economical side of things as well. Some say, Capitalism is not an Ideology, and in a sense this is true, but it is practiced like a religion, clutching the bibles of Hayek and Friedman, a phletora of economists fires waves after wave upon us, telling us what we need to do, it has a near fatalistic quality, the mathematised disciples of a cult, a sect that worships the dogmas of inflation and infinite growth.

    We need a paradigm shift.

    It sounds drastic, and it is. The paradigm shift in physics from a newtonian view of the world to quantum physics was such a drastic move, and we need the same to happen now on all the levels that make up our social fabric. The multidimensionality of this crisis demands such a shift, and without it, the alternative is to continue to listen to the High Priests of a cult that allowed a tiny minority to consume and rape the resources of this planet to the point of exhaustion. The average US citizen consumes 30 pounds of global resources every week. To make up these resources a further 2,000 pounds of resources are required and they are wasted in the process. – The American way of life is not negotiable? –


  • A question concerning your New Deal proposal .
    What about the terms in loan agreements already signed in Greece?Will implementation of New Deal proposal cancel them?

    • This is a political issue. I am sure that the mindset change necessary to see our proposal adopted will also lead quickly to a vast change in the terms and conditions of existing loans.

    • imho, Greece needs a regime change with a temporary government, no one who has his snout in the trough since decades should be in that circle, then declare these loan agreements as ODIOUS debts.

      Separate debts that are required to run the country from debts that are imposed to pay back banksters.

    • This option is not compatible with Eurozone . It has to be combined with a couple of other decisions too . Generally it is easier to say than to do.

      By the way , I have heard Mr Varoufakis say that the choice of new drahma along with the existence of euro is not a viable solution for Greece .

      But in other occasions , i have heard him say that , if Greece decides to exit Eurozone , Germany will have no option than to leave Eurozone too and that would be the end of euro .

      I am not an economist , thus i can not judge on my own . But it doesnt make sense logically .

      If the second argument is true , it turns the first invalid , because the second says that cohabitation of drahma and euro is impossible.

      I dont want to bring the end of the financial world , but if the rest of the europeans dont get it why Greeks have to pay this price? And to be more elaborate , it’s not that they dont get it , they gamble on it too !

      I understand the logic of Mr Varoufakis , if you look the greater good , he ‘s right . But it’s hard to swallow . Greeks are brainwashed to think the greater good and the rest of the europe makes a profit out of it .

      Anyway , i am confused !

    • Do not be confused. The matter is simple: Greece would collapse after an exit from the euro, if the euro remained legal tender. Ot would never be in its interests to do so. But, and this is my next thought, if Greece were to leave the euro, the euro itself would not survive long. Ergo, a Greek exit from the euro will not happen. What might happen is a German exit from the euro which will mean either a return to national currencies or the creation of new ones: eg. A Latin Union around France, Italy and Spain, a DM zone involving Germany, Austria, Holland and Finland etc. That would be less painful for Greece but detrimental to Germany whose export markets will be lost largely.

    • “That would be less painful for Greece but detrimental to Germany whose export markets will be lost largely.”

      If that is the case, wouldn´t it be good? It solves 2 problems: The French deficit and it would slow down the current boom in Germany.

      At least it would be closer to a free market world and hence more welfare would be created as a whole.

    • Apologies Knut but that is akin to saying that the Plague solved Europe’s overpopulation problem. The body count sort of matters. Believe me, you do not want to see what will happen to your country if, in addition to the depressed living standards of many of Germany’s hard working people, unemployment tripples (and at a time when the US market can no longer absorb German exports).

    • Most people who do not have a job in Germany do not want to work. It is that simple.

      The official number from the finance department is that we would have 2 million more. From my perspective this is managable. At the moment the challenge is to find people. I have never experiences such a shortage of labor.

      There is no reason companies or people should produce something that does not create any value and is just produced due to an articial interest rate.

      I sometimes have the feeling that would prefer to be a socialist politician over an economist.

  • Isn´t Issuing bons printting money? I would say that depends on who buys them. If it´s a private investor or mutual fund, sure it´s not printing. If it is a private bank or a central bank, of course it´s printing money. The private banks do it through fracctional reserve lending and the Central Banks do it by just issuing currency to finance asset purchases.
    They will have to keep pumping money through the system because everyone is broke,the financial system and the states. It´s all supported by a pyramid of thin-air money/debt that needs to grow indefinitely. The problem is that the economy can´t grow exponentially forever and this is the mis-match that will ruin all these efforts. Until serious monetary and fiscal reform, and true capitalism (instead of krony capitalism that subsidizes the financial system) is embraced, nothing will be solved.

    • No it is not. Issuing bonds means borrowing. Without borrowing there can be no progress. Business borrows to invest. Without credit and loans we would be living under primitive conditions. The trick is to borrow to invest in future growth; which is the essence of our Proposal. In contrast, printing money constitutes an increase in the quantity of money. That can only be useful in order to deal with liquidity problems, at a time of a financial sector crash.

  • From an outside perspective it is easier to see the world clearly:

    Harvard Business Review:

    “The common currency really would be doomed if Germany were to choose to recreate the Deutschmark. If it did so, the Benelux countries, Austria, and the Baltic states would surely want to join. The Scandinavian countries would peg their currencies to this new union as well. You could advance plenty of arguments in favor of this kind of move.


    That may sound like too much like a conspiracy theory but it’s probably worth at least thinking about. And whatever is going on, I think it’s fair to say that the passage of the Greek austerity package is unlikely to represent a resolution to the Greek crisis”

    • There is no doubt that Germany could get out and create a northern DM zone. The question is whether it would be in Germany’s interest to do so. I have no doubt that it would spell catastrophe for the hard working people of Germany.

  • That is interesting, but how a transfer of a part of the national debt to a European Agency would reduce the burden of the debt in countries like Greece which they would still have to pay interest and principle on that debt? Don’t you think that states like Greece and Ireland need an immediate and generous haircut of their public debt?

    • Yes, I do. Greece and ireland are special cases. They will need to have a mutual write off of public and banking debts. But once the tranche transfer defuses the eurosystem crisis, it should be quite straightforward.

    • If they default on their debt, the entire financial system will collapse, due to the trillions onf dollars of derivatives like Credit Default Swaps floating around. Also, there is not sufficient capital available to make the banks solvent again. Who will bail them out this time? Bankrupt States? Printing money and debasing the currency is the only way out as long as we stay in this debt-based monetary system, which is problably the greatest monetary experience ever undertaken in a global scale (which will son be 40 years old – merely a glimpse on a historical scale). My guess is that this experiment is coming to it´s final days, because the level of credit that now sits on the balance sheet of the private and also the public sector is reaching the limit. It can´t be paid and it will not be paid. The only way to deal with this amount of debt is the service it with largely debased currency. It will be a race to the bottom.

  • Dear Mr. Varuvakis,

    I would be very interested in what you think, in relation to the theories of Kondratiev and his postulate of a base Inovation. Could climate-friendly energy generation projects to be this inovations and investment projects, which ailing economies of the European debt and help out from this crisis? I do not mean exclusively, but as a starter, so to speak, which gradually, through the funds that invests in the real economy, other sectors would follow.

    Thank you

    • Absolutely. This is precisely the type of investment that we have in mind for the European Investment Bank’s involvement!

    • Not yet. We have focused on eurozone politicians. But there is no reason why we should not venture beyond the eurozone’s borders.

  • @ IsP July 4, 2011 at 20:23

    “# Unless I am mistaken, what you mean (creation of jobs – further development of the private sector) is “the third pillar” of Mr Hollan’s and Mr Varoufakis’ “Modest proposal” with the help of EIB.”

    In one sense you have identified the dichotomy between Mr. Varoufakis and my own proposals. He believes that the answer lies with the use of the EIB, and, to quote his later comment:

    (July 4th 15:50), “Issuing bonds means borrowing. Without borrowing there can be no progress. Business borrows to invest. Without credit and loans we would be living under primitive conditions. The trick is to borrow to invest in future growth; which is the essence of our Proposal.”

    This is the great misunderstanding created by the whole edifice of fiat currency; that banks and borrowing; create the conditions for the creation of new businesses and thus new jobs. Moreover, that such new job creation must continue under the control of a central institution, such as the EIB.

    For many years now, I have argued that to CREATE a new business, you need two things: Savings invested as Equity Capital to provide the financial structure, the foundations if you like, of the new business and, that that foundation, structure, has to enable the founder of the business to be able to survive through the several years timeline from the original idea to the point where they can manufacture and sell their product.

    Whereas banks, per se, are simply a business supplying the working capital; the short term funding, “borrowing” any such business will need to be able to buy their materials and carry the costs of production through to the final sale of the product or service.

    That therefore, there are TWO funding requirements for the creation of new jobs, (1). equity capital to found the business and (2), working capital in the form of borrowings to pay for the flow of product passing through the business. At the moment, we only have access to those borrowings.

    That there is no recognised system in place, particularly a free enterprise system; accepted, defined by clear, understandable rules; that everyone, particularly right down at the grass roots of all society, (where all the micro start – up businesses originate), can understand them.

    What I did way back in 1994, was set out a set of rules for such grass roots free enterprise equity investment and that has all been set out, including the supporting debate, in The Road Ahead from a Grass Roots Perspective which you may download for free here:

    Today, IMHO sadly, Europe is dominated with the idea of the use of hugely powerful institutions, such as the EIB, and many more imaginative, hugely structured “European Programs” to create new jobs. Yet, at least half of Europe is desperately short of jobs, particularly for the young people.

    What I believe is that, yes, there is a place for the likes of the EIB; but not at the point of the initial business creation. That we must recognise that the seed bed of prosperity stems from the creation of millions of new businesses right at the grass roots; and that that process must be as free as possible, to enable as many as possible to try. Each in their own way, under free enterprise rules, where the manager of the business owns the business. Only then will Europe overcome its internal struggles to create new prosperity.

    Finally, I must apologise to Mr. Varoufakis for forcing my own opinions into his debate; but it is only that I do believe that in this particular matter, he is wrong. The EIB is never going to be able to deliver such an outcome. European Programs have not delivered the required prosperity either; so why would anything suddenly change now?

    We must have a transfer of the value of the debt; back into new job creation. It must be through the creation of millions of free enterprise businesses, creating tens of millions of new jobs at the grass roots. They can only be created using equity capital invested under free enterprise rules.

    • Will this address the problem of the the slow transformation of western societies into service societies? After all how many businesses can one start for haircuts and manicures?

      The continuous outsourcing of industrial production to China and India, even standard brand names one looks and finds the “made in the republic of China” in small letters, means that the available field for creating new businesses has diminished drastically. Unless some type of protectionism is introduced, i.e. buy and sell only EU manufactured items I do not see the possibility of creating millions of new jobs.

      Even if enterprising innovations are created, if they are successful they will be bought off and made outside the EU.

  • I’d like to highlight this : ‘We agree also with the Juncker-Tremonti case that European bond issues could be globally traded and attract surpluses from sovereign wealth funds and the emerging economies whose governments have called for a more plural global currency system.”

    So Euro bond issues would try to act like US treasuries in the period leading up to the financial crisis (2001-2007) ? Surplus recycling from Asia and OPEC isn’t much a solution, though it might produce a few good years. But it will inevitably will hollow out even core Europe’s industrial capacity.

    The global imbalances relating to chronic weak aggregate demand (relative to capacity) have not been addressed which means another, even larger, crisis is inevitable. Wealthy people continue to use their instruments of power to shuffle around (or print) money rather than accept limitations on their obscene privileges. It won’t work.

  • @ anna v July 5, 2011 at 21:09
    “Will this address the problem of the the slow transformation of western societies into service societies? After all how many businesses can one start for haircuts and manicures?
    The continuous outsourcing of industrial production to China and India, even standard brand names one looks and finds the “made in the republic of China” in small letters, means that the available field for creating new businesses has diminished drastically. Unless some type of protectionism is introduced, i.e. buy and sell only EU manufactured items I do not see the possibility of creating millions of new jobs.
    Even if enterprising innovations are created, if they are successful they will be bought off and made outside the EU.”
    Today almost all of our needs are supplied from financial institution owned companies supplying from their global sources. The same financial institutions have caused all of our problems relating to lending vast sums to our respective nations to very effectively make our populations slaves to debt.
    Turning to job creation; the primary reason for the loss of jobs has been the financing of new companies by taking complete control over the ownership of the business from the outset. This has been done to permit the business to be sold on at the earliest possible moment; purely as a means to promote further Mergers and Acquisition, (M&A), and has represented a totally non competitive market for the manufacture of all products and services. Today, you cannot establish a private business using institutional funding under free enterprise rules. We see the result here in the UK with every High Street in the nation with the same names over the shops. Diversity, local competition, all have been sacrificed to the Global financial markets and their insistance on owning all new business. Ergo, as all the companies are owned by the source of finance; all local competition for the local supply of goods has been replaced by sourceing from the likes of China.
    What I am proposing is that, in every local community, anyone that wishes to try, can set up a new business to supply their local marketplace. No restrictions. No committees. Any industry. Just get on with the job of recreating a local competitive supply for the local community. Each new business has every reason to try and survive and thus they will have every reason to use the same attitudes as Japan after WW2. (They worked together to create a marketplace for their work). Each new job represents increased prosperity for their local community.
    As each new business will be set up on free enterprise terms, they will NOT be under the control of the source of their funding; instead, they will be free to succeed under their own terms. The manager of the business will own the business. Yes, many will fail, (as is always the case), but we are short of six million private sector jobs just here in the UK. In Spain, for example, we hear they are short of millions of jobs for their young people; a large proportion being unemployed. How many government funded jobs do you need to replace with privately owned jobs in Greece?
    Again, because we will use equity capital instead of loans, if the business fails, the capital remains in circulation within the local community to increase local prosperity. Greater local prosperity means a larger available market for the products and services so created.
    We all of us, once, produced everything we needed. We must turn the clock back to survive and make a start to recreate our own locally owned prosperity. And, surely, the best protectionism is local self interest in maintaining locally owned businesses creating local employment for our local communities?
    To create a true free market, capital based economy with as much competition between the many suppliers to the local economy as possible; only requires we accept four primary rules:
    1. Only the job creator makes the decision to create a new job.
    2. They receive adaquate Equity capital by abiding to strict, but open rules that leave them in complete control of their new business.
    3. Local savings are invested as equity capital back into the local community to provide the required capital to create new jobs.
    4. All transactions are made to the rules of a free market.
    Read my book, many have already. Try chapters 2, 4, 5 and 6. Chapter 3 sets out the basic rules.
    What I did with my proposals addressing the UK Green Paper, was to suggest that the first tranch of the required capital would come from the transfer of prosperity held at the moment in the financial institutions, by transforming their grossly leveraged bonds, (which everyone knows full well are impossible to redeem in total – you cannot lend out 50 times all the money incirculation and expect to get the money back as there simply is not enough in existance to enable that to happen), into vanishing bands to allow the transfer of prosperity back into the local communities. Thus, until the new businesses so created are up and running, no local savings will be risked. But from then onwards, their local savings will replace the vanishing bonds.

    • The picture you give of the world is “neofeudalism”. In feudal economies, the castle controlled everything, and the economies stagnated because, as someone said, “how much can the lord spend in the village”.

      The world broke out of feudalism by revolutions, mainly powered by the middle classes in emerging towns. I do not see the equivalent of towns in our present world. Globalization and the internet have taken care of the need of the lords ( after all the human race is a social race) to congregate in towns for the season and talk about the partridge season.

    • Anna V; the new “Lords” are in their castles which today are the giant tower blocks at the centre of every large city on the planet. We call them the Finance, Insurance and Real Estate, (FIRE), economic institutions. 🙂

  • Speaking of “new deal”: correct me if I am wrong, I suppose the Glass-Steagall-Act was one crucial part of the “new deal”. These days – since 2008 – one again reads often about this regulation. Obama is said to favour a new version of this banking system reform and even John McCain had campaigned with a pro-new-GS-act position. And just a month ago or two, I have read about a new attempt of the british government this time, to separate banks according to their activities, an attempt which seems to very much having lost momentum due to the resistance of the banking sector.

    Would you endorse a kind of reactivation of the 1933 banking act and a separation of banks according to their activities?

    • Absolutely. In particular I think that Paul Volcker’s proposals, that bit the dust only too recently, are the way to go.

  • I haven’t had the time to read this since you posted it in full. Having read the modest proposal and now this one, I still wonder. Have people working in finance and financial markets been consulted in the implications/feasibility or to comment on the general soundness of those proposals? If not or if you think they should not be involved, what other assumptions are not presented here that might explain my questions below? Because to be honest with you from my understanding of how financial markets work I see at least a handful of areas that need to be addressed in order to make sense of this.
    I am sure that you must have seen the concerns of commentators at the financial times as well, raising similar questions.
    I am not going to comment on the non technical, political and rather populist in my view remarks (i.e. elected governments vs non elected credit agencies ). I will only raise 2 questions at this point.

    1. You suggest that member states exchange part of their national debt on a voluntary basis for newly issued debt that won’t be traded ( I assume you mean in the secondary bond markets). You also suggest that the coupon rate on those bonds will have to be determined by a group of Eurogroup finance ministers. So in practical terms Greece transfers lets say 100Bln Euros of is outstanding debt. Some European institution now will have to issue new bonds 100Bln of total face value. The Eurogroup finance ministers will have to agree on its coupon.
    How much do you think the coupon rate will have to be in order to be competitive to attract global investors? How much better or worse do you think it might be compared to Germany’s 10 year bonds assuming, for sakes argument, that are still traded in the open market? How much success among sovereign funds, institutional investors, hedge funds etc do you think these might have given the fact that they won’t be traded? I suppose since they are not traded and if an investor wants out before maturity the issuer would have to buy them back. I gather you might want to offer an exit point before maturity, which I cannot see how you can make it as straightforward as it is in the secondary market. In that scenario your institution will have to again find very quickly a new buyer or they will need to come up with the funds to hold those bonds in their books. Plus the Eurogroup finance ministers will have to somehow continually determine the price of the bonds right? I suppose they will need to see at comparable bonds in the market to determine that. More over why would anybody want to buy bonds of any issuer without an independent agency assessing the issuers’ creditworthiness?
    You understand that all these questions basically point out a number of problems that the secondary market solves today. If you are suggesting a totally new way of managing the debt issuance and trading of bonds involving some extremely bureaucratic, government run non transparent and inflexible process then you will need to show why this is going to be competitive from an investor’s point of view compared to the existing one in place. In the end you are the one, in need of borrowing. In this proposal you may think you present a case which is better perhaps from the debt issuers point of view. I think you’d rather focus on the investors point of view as well if you want people to rush into this.

    2. Now here’s a second thing. So we said Greece, as an example, has converted 100Bln of its current debt into newly issued eurobonds through EFSF. Who services this debt now? I assume it is serviced by Greece’s budget correct? So we go back to the EFSF being the conduit for Greece’s debt but Greece is solely responsible for receiving the proceeds and paying back the EFSF on those bonds. So when you say “They could be serviced from revenues on project co-finance” what are you referring to exactly? If Greece has the money raised by those bonds to finance its government, who co-finances what and where do they raise the money from? Are you talking about separate funds?

    PS. I also think that it is not fair to subtly “mock” the ones who have raised concerns about the role of the ECB outlined in your modest proposal by saying that you are now changing completely this only not to “ruffle their feathers “. I personally have raised the question here and I still haven’t seen a satisfactory argument other than something along the lines of “The ECB is unique in its role historically so it can do unique things therefore” which is fallacious in my view as it does not address the pragmatic questions. Not sure if you have answered this elsewhere but I would love to read/hear it if you have a link.

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