All what the European citizens expect from Europe is contained in article 3 and one must observe that these aims are not met. In France the “golden rule” written in our constitution : “Everybody has the duty to work and the right to get a job” is not met either.
What is modern money
Money is an IOU.
It is recorded in a unit of account. In any modern nation the unit of account that is officially called money is chosen by the national government.
Money is sovereign if it can be issued by the State.
A fully sovereign State exercise authority on its money.
Money is wanted because it is needed to pay taxes enforced by the State.
In a sovereign State the various IOUs are organized into a hierarchy depending on the confidence they are worth. It is the Government debt that is wanted the most because it will always be reimbursed when due. A sovereign State is not like a household or a private company that cannot issue money.
Contrary to households and private companies a sovereign State has no constraint on its expenditures. This is not to say that it can spend without limit and generate inflation . Its aim should be full employment of its human resources.
It is to be underscored that the Euro is not a sovereign money thereby in the countries that adopted the Euro the government cannot issue money and is obliged to finance its deficit by borrowing on « the markets » and thus can be bankrupt. It must be also understood that we are no more at the time of the gold standard (which disappeared in 1971).
Public expenditures shall maintain the economy on a good path by a judicious choice of investments financed by these expenditures.
What could be the role of money to reach the Union aims?
The Eurozone is threatened of an explosion. The treaty on stability, coordination and governance (TSCG) incorporating the “golden rule” is opened to ratification and will be valid when twelve ratifications by member States of the Eurozone are obtained ( in october 2012 the count was ten). My friend Alain Parguez and myself have written and published our analysis and proposals and a scenario to get out of the crisis. This scenario is a true alternative to the austerity policies recommended by the mainstream economists and could thus be accepted by the citizens of the countries of the Eurosystem.
The European council, the sovereign body in the Union has the possibility to exercise authority on money (Euro is not presently a sovereign money and the other European moneys are not either anymore) and rules for money creation allowing to aim at quasi full employment in every State of the Union are certainly to be considered (common economic governance by the council between accountable nations).
The council with the help of the specialized bodies of the member States should answer the two following questions :
What are the useful public investments sacrificed on the altar of austerity ?
Are there in European countries unemployed people who could work to make these investments a reality?
To finance these investments States must spend (Public orders to industry and not creation of public workshops) to put people to work without fearing the deficit or the debt. Only the European Council has the power to authorize the corresponding money creation.
Member States should be able to create money for their investments by issuing bonds bought by the ECB or by their Central Bank at the same interest rate granted to banks, this in order to support by their expenditures full employment in the economy.
Very often it is said that statesmen are unable to resist to make unprofitable investments just to get votes . This suits mostly employers and bankers who thus can save for themselves the privilege of money creation. The same reproach can be made to employers and bankers on non profitable investments or luxury expenditures, on speculation transforming finance in a huge casino instead of being the means of social and technical progress without forgetting lavish compensations which are in fact true frauds when they are decided between friends.
There are good statesmen and good employers. There are bad statesmen and bad employers. You should not deprive statesmen of their means of action on the ground that there are bad statesmen. Money creation by banks only has sufficiently proven its adverse effects.
Article 123 and others
relative to the ECB and the stability and growth pact of the treaty on
the functioning of the European Union should be modified by the European
Council for they only reproduce the articles of the Maastricht treaty that
have demonstrated their inability to reach the aims of article 3 of the
treaty on the European Union. These articles are very expensive for the
member States in interests paid to banks.
Heads of governments who would have then sovereignty over money (but together) could establish the rules of a confederal economic governance of Europe and put them into practice by themselves. This would imply more frequent meetings of the European Council, the creation of ad hoc national and regional bodies working together and a true will to exercise European solidarity.
Indeed Europe is at
Either member States retrieve their sovereignty on money by leaving the Eurosystem and thus can freely spend to invest and reach full employment of their human capital. It is the explosion of the Eurozone.
Or the Eurosystem is reformatted by its sovereign body ; the council of the chiefs of government ; it is the meaning of our proposals.
The present analysis
leads to consider that in a Europe with 27 countries still growing, one
must keep in mind the content of the treaties
and modify the articles of the treaty on the functioning of the European
Union mentioned above in order that no State is led to invoke article 50
of the treaty on the Union (voluntary withdrawal)
Daniel Pichoud November 2012