Abuses of “creative finance”. The EU is calling for better management of the world financial system (see following pages). Domestically, consensus is forming. Statements that the over-valuation of the euro was the cause of all the evils and that checking inflation should not be a priority are no longer taken seriously. If one ignores a handful of populists, it is generally accepted that inflation is the most unfair of taxes because it hits the poor far more than the rich, and is the main reason for the loss of purchasing power. A further step has to be taken: acknowledging that, alongside the risks and unpleasantness, there is a positive side to the crisis: the end of a financial system that is incompatible with any rule of decent behaviour. Some abuses will be done away with. We accept that the most negative aspects of this crisis, with their dramatic consequences for us all, are not the result of the normal operation of the markets nor of legitimate banking activity, but of what has been called creative finance. What a turn of phrase this is, giving, as it does, the impression of something whimsical, pleasant, or artistic even!
Observers have noted that it is the countries where creative finance has been least active that have been the least affected by the crisis. Advocates of creative finance speak of global catastrophes and highlight the effects on small savers and the weakest sections of society. In fact, it is above all their own abuses that they are trying to protect and, if possible, extend, by calling for public intervention to avoid their paying the bill and to safeguard their privileges. They do not officially oppose the new planned rules of the game (how could they?), but they want to manage them themselves, because self-regulation, in their opinion, is always better that public regulation. As if, in the light of what has just happened, we could have any confidence in them!
What VGE and Mr Juncker were saying. I would not be so forthright if I had to rely on my own knowledge and impressions. But this is not the case and I am going to quote a few remarks by two acknowledged leading figures: the father of the euro and chairman of the Convention which drew up the draft EU Constitutional Treaty (and former finance minister and president of the Republic in France to boot), Valéry Giscard d'Estaing; and the longest serving member of the Council of Europe and longstanding president of the Eurogroup (he has been unanimously elected three times), Jean-Claude Juncker.
Valéry Giscard d'Estaing said in a speech in Brussels in May of this year (I heard him with my own ears) that bankers had “created what are called bubbles, an artistic way of creating false money”, and he spoke about “reason and security returning to the banking gambling casino that is so far removed from the basic job of banks - financing investment, production and trade” (see this column in edition No 9669 of 28 May). This cleansing was beneficial, according to VGE, who, in condemning the exclusively speculative casino stated, “It is this system that has collapsed. We'll never see it again, and other parts of it will go too”.
From Jean-Claude Juncker, I quote the comments of a year earlier, to the European Parliament, on another point quite closely related to the abuses of creative finance, wage policy. “European employees no longer can understand a Europe where some earn fortunes without working and others have just to accept, and live with, our calls for them to show wage restraint. This economic and social injustice is taking hold. It means we have to take action” (minutes of the European Parliament debate of 11 July 2007).
Statistics don't tell the whole truth. Authorities are, of course, right to be concerned about economic activity in general, growth levels and protection for the most vulnerable. However, some data which result in statistics being lower but which, in fact, reflect the end of excessive or purely speculative wealth gathering must not be seen as a loss for the real economy.
Discussions and negotiations within the EU are difficult and, at times, controversial. Work is intense, and I would direct you to the detailed information published in our newsletters (No 9740, for example), and to the debates going on in the European Parliament, which have been especially enlightening in recent days on opposing theories. Work on some points has not gone beyond the preparatory phase, but some sections on new governance are already taking shape, and this new governance will undoubtedly be better than its predecessor, particularly with regard to transparency and supervision. We mustn't take all the predictions of catastrophe at face value. Quite simply, the return of calm and confidence would be a precious thing.
(F.R./transl.rt)