The Cure for Europe: A Public Option for Money and a Public Bank

Europe is a different case from other countries, since they have nothing close to monetary sovereignty, and they are completely reliant on an international, stateless European Central Bank, that is, for now, mostly controlled by Germany.
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The Euro sculpture is illuminated next to the European Central Bank, right, in Frankfurt, Germany Thursday, Nov. 22, 2012. (AP Photo/Michael Probst)
The Euro sculpture is illuminated next to the European Central Bank, right, in Frankfurt, Germany Thursday, Nov. 22, 2012. (AP Photo/Michael Probst)

In Europe, riots occur on a nearly daily basis, and the police seem as beleaguered as the unemployed masses are desperate. I recently had this exchange with Warren Mosler, one of the co-founders of the Modern Monetary Theory Movement:

SB: Is it possible for Euroland not to implode if they don't set up domestic, sovereign, currencies that are under each country's political and economic control, or at least some sort of "dual currency" where the domestic currency is legal tender injected directly into the economy (not the banks) for public works and other stimulative purposes, and suitable for paying taxes?

WM: [There will be] no default as long as the ECB keeps writing the check.

SB: Today there were yet more riots in Greece, and Spain is becoming (as bad as) Greece too. How long can a "bad economy" persist until there's a revolution, or the police just give up protecting their masters?

WM: We are in the process of finding out. Could turn into Egypt.

"Could turn into Egypt." Indeed. The process by which the police stop defending the elites is never given enough consideration in social reform movement analysis, but it is absolutely essential, or at least the threat of it is, in any whole-scale reform or even, revolution. This was true in Russia, East Germany, Tunisia, as well as in Egypt. Fortunately, all of these were, for the most part, bloodless revolutions, albeit as yet very much unfinished. Toppling a regime is not the same as ending a political-economic system; it may even reinforce it, as people come to support a new tyranny over anarchy.

Europe is a different case from the other countries just listed, since they have nothing close to monetary sovereignty, they are completely reliant on an international, stateless European Central Bank, that is, for now, mostly controlled by Germany. China is probably the most monetarily sovereign nation on the planet, with control extending not just to its central bank over issuance of money, but currency controls too, over relative valuations compared to other nations. The U.S. does not have total monetary control either, but it is closer in at least having its own national currency, albeit one issued by a private central bank -- the Federal Reserve Note.

Europe could solve its problems tomorrow if they would:

A. Allow each country set up its own currency for domestic use, while still keeping the Euro for international and some domestic use. A viable exchange rate could be established once firm controls on domestic quantity were established (former Libertarian presidential candidate Bill Still wants to go all the way to a return to domestic, sovereign money, but I don't believe complete abandonment of the Euro is necessary or realistic).

B. Accept the domestic currency as payment for all domestic debts, including taxes.

C. Channel the new domestic money directly into public works jobs, solving Europe's massive unemployment problems. Let's stipulate that there are always and everywhere, millions of jobs to be done, and millions of people who want to do them. It is never a question of worker will or need, but of funding and political will. This is a political problem, not an economic one.

D. Set up national public banks to buy up troubled mortgages at pennies on the dollar, much the way the Occupy group, Strike Debt, is now, but instead of completely forgiving the debt, reissue it at greatly reduced rates and principal amounts.

On this last point, these new national public banks should also work with newly reformed governments to institute 100 percent full rental value Land Value Taxation, so that land bubbles such as the one that wrecked Spain, cannot ever happen again -- the tax would rise in good times, to stifle rising land speculation, providing ample revenues for government, while also allowing for untaxing all productive activity -- taxes on wages, sales, VAT would all go away.

It's worth reviewing what happened during Spain's recent land bubble a bit to understand the true cause of this financial crisis. Their bubble crashed just slightly later then America's, and is still unwinding, with people being evicted from their homes in record numbers:

"In the first trimester alone of this year (2011), there have been 15,546 evictions, a 36.8 percent increase over the same period in 2010. So frequent have they become in Madrid that the number of courtrooms in the city dedicated to hearing foreclosure cases has more than doubled, from six to 13 ... With an estimated 700,000 houses built during the go-go years of Spain's real-estate bubble still standing empty, there are no signs that the problem will diminish anytime soon. "Housing values are still falling. Unemployment is going to go up even further, and people's ability to meet their payments is going to drop even more," says (University of Ramon Llull economist) Santiago Niño Becerra. "When it comes to foreclosures, we're going to see some unbearable statistics. It'll require a political solution, not just a financial one."

Lately, the situation has grown even worse, with some people even committing suicide to avoid eviction and homelessness. Unlike in the United States, losing one's home does not absolve one of one's debt.

The ultimate political solution Spain, and the capitalist world in general, including America, needs is Land Value Taxation (LVT). LVT would return the value of the land, created because of population growth and subsequent demand, and not from anything the landowner did, back to the people of the jurisdiction. Economic rent of all kinds, but especially that of location, is calculated to be over 1/3 of GDP (, according to most Georgist economists, more than enough to fund a reasonably sized and efficient government (expensive foreign wars to acquire resources would be unnecessary in a Georgist world too, with people simply being paid for the use of their natural resources instead of robbed of them by imperialist forces).

But, this is a down-the-road solution. Right now, immediate relief for Europe could be found in a return to sovereign money for domestic purposes, applied to Europe's persistent and destabilizing unemployment problem. People unite! Monetary sovereignty Now!