Zombie Economics

What does Equity mean today?

Equity (from latin aequus which means equal) is often used as a synonym of justice. We should start making a distinction between these two notions. The principle of justice applies to individuals and consists of treating equal things in equal manner and unequal things in an unequal manner.  Equity has to do with social and moral righteousness and suggests that people share a common human dignity, and as such should be treated as equals with equal concern and respect. This matters for public policy because citizens can hold the State responsible for ensuring that all citizens are treated as equals and for influencing how things are distributed, i.e. goods and resources (for instance access to healthcare, pensions ) are allocated according to need, not power.  

In current times of crisis, Equity implies that those being responsible for financial speculation - individuals, structures and mechanisms - which to a varying degree  caused the current global crisis are identified and punished so they should not be able to cause any more damage. Their privileged situations of impunity which offend gravely the innate sense of justice among human beings should be brought to an end. Equity also means that everyone should pay its share on its own income and wealth, and that,   the burden is not put only on workers but extends to hidden wealth and tax evasion. Finally, Equity means  that we should not tolerate that opacity persists on the responsibility of the crisis. This means, in substance that those who have more should pay more, but also those who never paid taxes (or very little) should start paying their contribution. 

Citizenship is often an empty word in contemporary democracies. It cannot be a feast for some and a malediction for others, but a commitment for mutual solidarity and aid. Carlo Maria Martini, a former archbishop of Milan and probably the most (intellectually) authoritative voice of the Catholic Church reminded us that  the crisis should be fought with civil courage and that helping the poor is not just a moral obligation. It means helping ourselves as a community of men. 

Moral hazard

The president of the European Central Bank, Mario Draghi, warned in an interview in the Financial Times (19 December) of the cost and dangers of disintegration of the eurozone. Unlike his predecessor, who always refused to even countenance such a possibility, Draghi does not rule it out but says that the ECB buying up state debt is not a miracle solution to the crisis because countries themselves have to act first and is the only practical way of restoring confidence among investors.  In order to tackle the crisis, the ECB president says that unprecedented measures are needed, like the ECB's support for eurozone banks, for example, of unlimited three-year loans. This is intended to be lent on to the real economy to relieve pressure on small and medium-sized banks that provide the bulk of finance to small business  which make up 70% of private sector jobs in the eurozone.

Yesterday, the ECB offered to all eurozone banks unlimited liquidity at a 1% interest rate. Some economists think that this measure will allow banks to provide credit to enterprises, thereby alleviating the recession effects. Some others foresee that banks, attracted by the difference between the cost of borrowing and the interest rates on sovereign debt of Spain or Italy, will be tempted to use this source of liquidity to purchase bonds and speculate for profit.

This bears resemblance with  a moral hazard situation in which banks continue to take excessive risks and if things go wrong, the ECB and States will have to intervene to save them. In heavily indebted countries, the ECB operation is not the panacea, neither for enterprises, nor for the Treasury. In order to provide credit to enterprises ( or even purchase bonds), the bank should have the necessary liquidity, that is enough capital (net from loans already provided). Each loan entails specific risks:  the loan could not be reimbursed and State  bonds could lose their value as it happened a few months ago. In substance, to face these risks, banks should have enough free capital; if they don't have it, the ECB liquidity will not be useful. the problem is that many banks in Italy and Spain have little capital available, especially after the loss in value of State bonds. This is probably true for large banks, which are more heavily exposed, but it may not be the case for smaller banks which have been in the past more active in providing capital to small and medium businesses.

In substance, the ECB may help alleviate the effect of the recession but also create a moral hazard  that should be avoided.  Governments should use heir powers to ask banks to provide credit to enterprises. But it is not certain that they will do so as they failed to introduce strict financial regulation for the banking system. It is a pure illusion to think that the ECB is the solution to the eurozone crisis. Other measures, such as making the European Financial Stability Fund (EFSF) fully operational and increasing its lending capacity are certainly necessary. But the key to recovery is an ambitious plan of growth enhancing investments at the EU level which may stimulate demand and job creation. This seems to be a taboo for European leaders that we must breach to avoid the break up and disintegration of Europe with all its negative consequences on ordinary people and businesses.

Bankers' Theology

The Failure of Austerity

Just a couple of months ago, the worst scenario for Europe was Greece's default. Now it looks as if  a wider crisis has pervaded the entire Europe, not only peripheral countries.

The European sovereign debt crisis has just now caused a panic reaction in the US and the UK. Banks have decided to prepare for the worst scenario: the break up of the euro. During the night of 28 November, a concerted action of the FED and other major central banks contributed to alleviate the market pressure by easing borrowing at low interest rate, but this will not stop the fire, just save time. Economic analysts believe that Europe has already entered in a recession, and it may spread to other parts of the world economy.

To quote Keynes' words,  we are suffering from a bad attack of economic pessimism. The great economist wrote in his famous essay 'Economic possibilities for our grand-children" (1931):

"The prevailing world depression, the enormous anomaly of unemployment in a world full of wants, the disastrous mistakes we have made, blind us to what is going on under the surface to the true interpretation. of the trend of things. For I predict that both of the two opposed errors of pessimism which now make so much noise in the world will be proved wrong in our own time – the pessimism of the revolutionaries who think that things are so bad that nothing can save us but violent change, and the pessimism of the reactionaries who consider the balance of our economic and social life so precarious that we must risk no experiments."

During the past decade, the United States, like Europe had a fragile banking system due to excessive risks which led to the build up of huge amount of debt. However, Europe's debt stems from cross-border lending,  from the core to the periphery, making the euro zone economies interwoven. German capital (in excess) flowed to southern countries, which were perceived as low risk being in the same monetary area.  In fact, capital went to the private sector, not governments. Then, the bubble burst in Spain, Portugal and Ireland and private spending fell dramatically in debtor countries. 

European leaders were convinced to do the right thing when they introduced austerity measures assuming that the main problem was fiscal irresponsibility. In fact, only Greece had a huge budget deficit ; Spain had a continuous budget surplus before the start of the crisis. Deficits rose due to the economic downturn, caused by the fall of private demand. Despite warnings by wise men, all countries, not just debtor countries were asked to cut public spending and raise taxes. So far austerity policies have not triggered economic recovery but just worsened the debt crisis. 

During the last decade with lax monetary policies, southern economies because of divergence in prices and wages with norther economies. The competitiveness gap can be addressed only if prices and wages fall in the 'peripheral' economies or if prices rise in the 'core' economies. If southern economies are forced to deflate, they will pay a heavy price in terms of job losses and worsen its debt situation. Conversely, northern economies will not accept a rise in prices, which would mean higher inflation for the whole euro area. Last April, the European Central Bank (ECB)  raised interest rates though it was obvious that inflationary expectations were low. Is it when the euro area entered in its critical phase? 

Now, the situation appears out of control, despite the strengthened governance measures taken by European leaders. Italy and Spain are under attack because their public finance have deteriorated as a result of the crisis. Is it economically rational that Italy pays more interests on its debt than Egypt? Markets are driving up too interest rates in countries like Austria and Finland. The reason is that  severe austerity plans and a European monetary policy obsessed with inflation makes it impossible for heavily indebted countries to escape from their debt trap and will inevitably lead to debt defaults* and a general financial collapse.  

The Economist ( Sept. 17) wrote : "So far the euro zone's response has relied too much on two things: austerity and pretence. Sharply cutting budget deficits has been the priority - hence the tax rises and spending cuts. But this collectively huge fiscal contraction is self-defeating. By driving enfeebled economies into recession it only increases worries about both government debts and European banks". 

The entire European economy is being dragged down in a recession by troubled debtor countries. It probably needs a change of direction in fiscal and monetary policies and shift the agenda from austerity toward growth. Throughout the euro zone's debt crisis,  Merkel and  Sarkozy said they would do whatever to save the euro, but they have failed to stop the crisis. They ruled out  joint euro zone borrowing and a bigger role for the ECB in fighting the European sovereign debt crisis, but there are not many options left apart moving to a fiscal union with greater economic powers and the ECB providing unlimited backing to debtor countries. 

We hope that our European leaders will act in the interest of all European citizens. Failing to act would mean taking all of us down the path of ruin.  

* G.Soros wrote a few weeks ago in a prophetic article : "To resolve a crisis in which the impossible has become possible, it is necessary to think the unthinkable. So, to resolve Europe’s sovereign-debt crisis, it is now imperative to prepare for the possibility of default and defection from the eurozone by Greece, Portugal, and perhaps Ireland..  

Two (or three) speed Europe

As the crisis has reached its peak,  the division between the core and the periphery of Europe becomes more acute. Neither the European councils nor the G-20 summit have triggered confidence in the economic governance system that was put in place with great difficulties. Tensions over Italy and Spain have in fact led to the idea of a two speed Europe with a hardcore around France and Germany while tensions between the euro area and the UK are revived. The prospect of a deep recession, as warned by the ECB, feeds the economic pessimism over the current possibility to deal with the crisis within the confines of the Lisbon treaty.

P. Krugman  argues that the euro crisis is about 'original sin' (in the economic sense), meaning that countries like Italy, by joining the euro, converted its status of economic power, as a country issuing its debt in its own currency into a situation with debts in euro, which makes it more vulnerable to financial crises. This principle was inherent in the European monetary union, but no governance rules were  introduced to help address possible financial crisis due to the financial orthodoxy imposed by Germany. 

Beyond this apparent contradiction,  N.Roubini explains that the structural causes of the eurozone crisis are much deeper and do not lie in a fiscal crisis. The divergence in real exchange rates and the strength of the euro - which introduces a competitive shock on weaker economies- largely explain the current crisis. Over the past ten years, the southern economies , which include Cyprus, Greece, Italy, Ireland, Portugal and Spain- were essentially consumers ' of first and last resort', with budget gaps exceeding their respective incomes. In addition, the private sector had also accrued considerable debts, fueled by the housing bubbles, especially in Spain and Ireland. On the other hand, the other countries- Germany, France, Austria and the Netherlands- were producers 'of first and last resort'  resulting in a growing surplus in current account balances, which was exacerbated by the strength of the euro. So, the large current account deficits, due to excessive consumption, led to loss of competitiveness and economic stagnation.

N. Roubini's argument points to the following option:  "Symmetrical reflation is the best option for restoring growth and competitiveness on the eurozone's periphery while undertaking necessary austerity measures and structural reforms. This implies significant easing of monetary policy by the European Central Bank; provision of unlimited lender-of-last-resort support to illiquid but potentially solvent economies; a sharp depreciation of the euro, which would turn current-account deficits into surpluses; and fiscal stimulus in the core if the periphery is forced into austerity". 

This solution is vigorously opposed by Germany and the ECB as it would have (modest) inflationary effects in core countries relative to the periphery. The bitter medicine that they are imposing on the 'peripheral' countries is deflation with recessionary effects: fiscal austerity, structural reforms and real depreciation. Austerity policies reduce output in the short term, due to lower demand and productivity effects linked to structural reforms and reduction of nominal wages and prices. This will become socially unsustainable, and if peripheral countries remain caught in a deflationary debt trap, they might be tempted to default and exit the euro area. In this scenario, "coercive restructurings of debt will come first, and then exits from the monetary union that will eventually lead to the eurozone’s disintegration".

Alternatively, the possibility of a break up of Europe, especially with Italy too big to fail or to save - and the contagion of the debt crisis to France, could lead to a closer political Union, which would require new forms of economic governance. The Netherlands Bureau for Economic Policy Analysis pointed out in a recent report that the debt burden of southern countries is not only the consequence of lax fiscal policies, but that  banks from the northern euro area have lent too much money to Greece and other troubled countries without any effective supervision in the banking system. It also believes all euro area countries should give up some national sovereignty when it comes to bank supervision, the EFSF, the deposit-guarantee scheme and budget supervision.

The German-French 'Directoire' no longer works and may be extended now to Italy - with the Monti government close to European affairs - with a view to build  more effective supranational institutions, in particular more economic powers to the ECB as a functioning lender of last resort, fiscal integration (with permanent fiscal transfers from the core to the periphery) and a common sovereign debt with the emission of euro-bonds. This project seemed unrealistic only a few weeks ago, now, with the opening of a strong divide with the UK and non euro-countries, it may even sound plausible in a few years time with a revised EU treaty.

P.S: Last week, José Manuel Barroso, President of the European Commission, warned that the collapse of the euro area would destroy half of the value of European economy, which would swamp the region to depression similar in scale to that of 1930. 

Seven Lies

Tell the Truth

Adam Smith wrote in his "Wealth of Nations"* (1776) : "the violence and injustice of the rulers of mankind is an ancient evil for which, I am afraid, the nature of human affairs can scarce admit a remedy. But the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind, though it cannot perhaps be corrected may very easily be prevented from disturbing the tranquillity of anybody but themselves". The father of economic liberalism, who also was a professor of moral philosophy reckoned that although the economic system was profoundly unfair, there was little to do to correct the current state of affairs. The 'laissez-faire' can only be offset by wise behaviour of men. In fact, since its foundation, capitalism needs rules to limit and control the functioning of markets and the State has the responsibility to design these rules and to enforce them. For this reason, the current crisis is also a political crisis that we should understand as a crisis of the State as well as a moral crisis where ethical values are substituted by electoral promises.

Our political leaders should tell citizens that global crises require global, wide ranging solutions. They decide on limited, short term measures which will not allow us to get out from the current mess. They often lie to hide the gravity of the situation: most countries claimed that they had the most solid financial system and they end up saying that they need to recapitalize banks. But they avoid arguing about the true causes of the global crisis.

The G-20 summit in Cannes (3-4 November) was, in that respect, very disappointing given the high expectations raised , in particular on strengthening the international financial system . The final declaration is extremely vague: for example, it calls for a global strategy for growth and jobs and refers to a vague commitment to take "discretionary measures to support domestic demand, should economic conditions materially worsen" . In substance, the summit has failed to provide a coordinated response to the sovereign debt crisis and all big questions (for instance the financial supervision and regulation issues) remain unresolved. Moreover, it shows the inability of nations with different interests, and often ruled by political coalitions, to take collective actions to transform the rules and structure of the world economy.

In a speech held in September 2008, Sarkozy pledged " laissez faire is over (...) The financial crisis is not the crisis of capitalism. It is the crisis of a system that has distanced itself from the most fundamental values of capitalism, which betrayed the spirit of capitalism".He called banks to develop credit rather than speculation and limit traders' remuneration. In 2009 and 2010, despite joint calls with Merkel, little has been done to regulate the European financial market and ban high risk practices (derivatives, credit default swaps, short term selling, etc.) In August 2011, the aggression of financial speculation against sovereign debt shows that financial markets can still act freely, forcing European leaders to strengthen economic governance of the euro zone.

At global level, binding rules on capital requirements have been introduced for banks to limit their profits but in return they create an incentive to generate more profits, which restricts credits to enterprises. In the aftermath of the financial crisis in 1929, the Glass-Steagall Act introduced a strict separation between investment banks and commercial banks to regulate the US banking sector and avoid conflicts of interest and fraud. this provision was removed in 1999 (with a law signed by Bill Clinton !) which led to re-establishing conflict of interest in the financial sector and fostering 'too big to fail institutions' that led to the housing market collapse and the sub-prime crisis. Subsequently, heavily indebted banks were rescued without asking anything in return, no incentives to provide credit to the real economy and no ban on high risk financial activities.

Despite the gravity of the crisis and its consequences on the vast majority of citizens, most political leaders are still reluctant to introduce effective measures to tax the rich, ban tax havens or limit trading bonuses. Adam Smith wrote : "Wherever there is great property, there is great inequality". For the first time in the last two centuries, the new generations living in western countries do not have any hope of a better future than their fathers. They express discouragement and fear of being the victims of a historical regression in western civilization and values. They only have indignation to demand global change and put an end to enormous privileges of a tiny fraction of the population. But this is a legitimate fear that we must overcome if we are capable to return to genuine politics that the political leaders have lost, its capacity  to represent the interests of all, the profound aspirations and needs of the citizens to live in a better world. This is possible if they just start telling the truth.

* A.Smith. An Inquiry into the Nature and Causes of the Wealth of Nations. Ed. R. H. Campbell and A. S. Skinner. 2 vols. Glasgow Edition of the Works and Correspondence of Adam Smith 2. Oxford U. Press, 1976.

The primacy of Labour

In a recent speech held in Rimini on 28th October, Cardinal Bagnasco, a conservative and influential member of the Catholic Church, affirmed that the State has the duty to intervene to create job opportunities. He said: "”In the shadows of the non-working , confidence and self-esteem are severely threatened, and serenity to the future is not. For all these reasons, the State has the delicate and onerous duty to provide access to employment opportunities in different areas, taking into account all circumstances, however, that unusual, such as those that the world is experiencing, require an update of mentality and ability to ”renewal. (...) Without decent employment, the man hardly able to measure his personal capacity, to establish collaborative relationships with others, to contribute to the achievement of social good, to feel part of the building in the world, to perceive its dignity in earning honorable bread for themselves and their loved ones". 

The archbishop of Genoa has insisted on the work as " a right and duty of every person, the primacy of man at work, and the primacy of labor over capital, without labor". ”It‘s undeniable- he added – that all human activity, and then the work takes place within the culture and interacts with it, and then between economy and culture, there is a reciprocal relationship, but must remain firm and clear the primacy of culture, if you do not want to enter the jungle of a market without rules because without values.”

Every man  of good will and respectful of human dignity should subscribe to these words. In fact, many constitutions recognize that work is a right and its primacy over capital. This is the legacy of Europe's culture and ideas on labour and value developed by Adam Smith, David Ricardo and Karl Marx. 


Today's world is characterized by an increasing antagonism between labour and capital. Governments failed to address social inequalities while maintaining privileges for the rich. That unsustainable situation gave rise to the explosion of anger of the young generations and revived social conflicts in our societies. The Church's message on the priority of labour is a key component of its social doctrine and has been subject to academic discussion.  But now it has to be understood and turned urgently  into concrete measures of social justice and equity for the vast majority of men and women. 

The Icelandic lesson

In an international conference held on October 27 in Reykjavik, Iceland's experience in addressing the global financial crisis was reviewed. In the light of the achievements and challenges still ahead, there are some interesting lessons to learn in order to inform the wider economic issues for  the eurozone countries.

Iceland suffered the largest banking collapse in economic history. In 2008, the Icelandic financial crisis  led to the collapse of the three main banks, whose assets were much larger than the country's external debt. The national currency (krona) fell sharply (more than 35% against the euro) which led to capital account restrictions; the market value of  the stock exchange fell by more than 90%. This led to a severe economic recession, with a drop in GDP of 10,2% in 2009-2010. According to certain estimates, the cost of the crisis can be evaluated in  at least 75% of the country's GDP. But the external consequence was also dramatic as millions of  bank deposits were frozen and foreign banks had to face significant losses.

The government decided to nationalize the banking sector - which was deregulated in 2001 - (after that the UK decided to nationalize Bradford & Bringley, one of the banks involved in the financial crisis) since banks were unable to refinance their debts. Banks were restructured  and subordinated to stricter financial supervision; businessmen involved were subject to intense scrutiny; criminal investigations were launched on financial fraud. Eventually, the government resigned in 2009 after massive protests .

Since the crash, the country has improved its financial position and the economic recession was halted at the end of 2010. The emergency legislation which allowed the State to take control of the financial sector helped resolve the financial crisis.In fact, the country was not affected by Europe's sovereign debt crisis. Despite contention with Britain and the Netherlands over the question of a state guarantee on the deposits of an Icelandic bank (Landsbanki) in these countries, credit default swaps on its sovereign debt have steadily declined and are now much lower than Ireland . Furthermore, the decision of the government to apply for the euro membership has also helped to enhance credibility on international financial markets. 

But the most important fact is that a country on the verge of financial collapse has managed to resolve the financial crisis with a strong fiscal adjustment under an IMF programme while using the social welfare  system to maintain real wages. Welfare expenditure in the form of transfers to households and social protection increased significantly between 2007 to 2010 to soften the impact of the crisis. Child benefits were also increased and  targeted  at lower income groups. As a result the inequality trend was scaled back, with a Gini coefficient declining from 0,43, its maximum level in 2007 to 0,29. 


 European leaders should draw lessons from this country, in the way it managed to overcome the financial crisis with a sense of equity and justice. In comparison, the eurozone crisis requires urgent action on a much wider scale, including with non-European partners, and bolder measures to strengthen fiscal integration and the creation of eurobonds.

Nassim Taleb : The banks should be treated as Utilities

Nassim Taleb : The banks should be treated as Utilities

The Indignant Generation

2011 is the year of global indignation. We have not seen such mass reaction since May 1968: the Spanish 'indignados' ; the Arab revolutions;  the riots in London; the protests of young Israelis in Tel Aviv against high costs of living; protests of Chilean students demanding higher social spending; massive demonstrations against austerity in Greece, Portugal and Italy; India’s movement against corruption; and now the “Occupy Wall Street” movement in New York and across the United States. These movements are now turning into global protests:  from America to Asia, from Africa to Europe, people are rising up to claim their rights and demand  a true democracy. On 15 October, people met pacifically  in the streets in 951 cities from 82 countries to initiate global change. 

Many of these revolts have a common ground. They represent a powerful critique to globalization which has benefited to the wealthy and has produced an international labour market that held down the wages of the  unskilled workers in western economies. It is a genuine expression of anger of a generation without future and distrust of  traditional institutions, political as well as financial, being responsible of the crisis and having caused an enormous damage to our societies. The indignados of Madrid, Athens and Paris claim they do not belong to any political party, but they are not conservatives. They demand support for a “European social model”, which promises free education and healthcare and a decent income for all. 

Some may argue that this is a reminiscence of utopian communism, a sort of City of the Sun (Civitas Solis) where all public goods would be put in common. We cannot agree more but is this possible on Earth? Of course, water is a public good of common use; forests should not be destroyed; the air should not be contaminated; banks should not commit fraud and cheat out for profit. Citizens should have a say in the organisation of public life. The risk is that utopian ideas may be exploited by populist leaders to their own profit. 

The consciousness of the indignant  is about their future stolen for an entire generation. Our societies don't have anything to offer to them: no jobs, less public services, erosion of middle classes living standards. In a sense, they express an alternative economic model, a more egalitarian society based on the satisfaction of  basic needs and the respect of human dignity. Is there anything wrong with that? 

As N.Roubini put it, "any economic model that does not properly address inequality will eventually face a crisis of legitimacy. Unless the relative economic roles of the market and the state are re-balanced, the protests of 2011 will become more severe, with social and political instability eventually harming long-term economic growth and welfare".

World leaders are too busy to find solutions for re-capitalizing the banks but don't listen to the pacific and silent revolution of an entire generation. They must act before it is too late. But global change is at our door !

Omnia cum tempore !


P.S: In October 2010, Stéphane Hessel, a former French-German resistance fighter published a pamphlet called    Time for Outrage! (original French title: Indignez-Vous! ) which  has sold more than 3.5 million copies worldwide. The essay calls on young people for peaceful and non-violent insurrection against  the growing gap between the very rich and the very poor,  the need to re-establish a free press,  to protect the environment and the welfare system, and the plight of Palestinians. It inspired  one of the names given to the Spanish protests against corruption and bipartisan politics, Los Indignados . These protests, in conjunction with the Arab Spring, later helped to inspire other protests in many countries, including Greece, Israel, and the United States.

Keynes speaks

We must defend citizens, not banks

Europe is on the verge of  collapsing. The eurozone crisis seems unstoppable and  despite of  measures taken so far by the European governments, the European Central Bank as well as other central banks from other countries,  it still feeds panic in financial markets.

European governments now recognise that they have to do more if they want to save the eurozone.  They have to tackle several problems at the same time, e.g. the rescue plan for Greece,  recapitalization of the banks, protect from contagion Spain and Italy. But there is no consensus so far  on a comprehensive plan which provides a durable solution to the eurozone.

An elaborated proposal  has been put forward recently by  G.Soros  who writes :  "Financial markets are driving the world towards another Great Depression with incalculable political consequences. The authorities, particularly in Europe, have lost control of the situation. They need to regain control, and they need to do so now". He suggests three main steps: "first, the governments of the eurozone must agree in principle on a new treaty creating a common treasury for the eurozone. In the meantime, the major banks must be put under the direction of the European Central Bank in exchange for a temporary guarantee and permanent recapitalization. Third, the ECB would enable countries such as Italy and Spain temporarily to refinance their debt at a very low cost".

In a pure financial logic, this would contribute to 'calm the markets'. We should give him some credit given  his expertise in financial speculation, but he understands that capitalism is digging its own grave  and that a collapse of the euro would have dramatic consequences for the entire world economy.

The first proposal requires a change in the EU Treaty and cannot be readily be implemented as it would require the unanimity of all Member States. But, despite political difficulties, it would certainly be a step forward toward the creation of a fiscal union which would then imply the emission of eurobonds. In the meantime, who will fill the vacuum:?  The European Central Bank is not a political authority and even an intergovernmental body would require the approval of the Bundestag and other EU countries.

The second one is more problematic. The proposal is to use the European Financial Stability Facility (EFSF) to recapitalize major banks  which are heavily exposed on sovereign bonds of Greece, in particular. This would be done under the aegis of the ECB, which will monitor risks, and so doing will the remove the incentive to de-leveraging. In return, the ECB would lower its discount rate to relieve the pressure on Spain and Italy.  The conclusion is that these measures would be sufficient to ensure an orderly default of Greece without 'causing a global meltdown' and the "EFSF could underwrite a “voluntary” restructuring at, say, 50 cents on the euro. The EFSF would have enough money left to guarantee and recapitalize the European banks, and it would be left to the IMF to recapitalize the Greek banks".

The second rescue plan, which was agreed on 21 July still needs ratification from the Bundestag in October.   After the latest austerity measures imposed to Greece - with thousands of public sector jobs to be axed -  there is a chance that Greece  will get (hopefully by mid-October) another tranche to replenish its budget. If Greece meets its 'targets', the rescue plan - perhaps in a revised form- will in fact be used to repay the creditors (such as Deutsche Bank), which, in fact were largely involved in the plan. But in exchange of the 'voluntary' restructuring, banks will ask for being recapitalized, which means benefiting from another injection of tax payers money.

 Europe's debt crisis is now turning into a banking crisis.   Eurozone banks heavily exposed on sovereign debts are likely to cause 'collateral damage' and contagion for other eurozone countries  But, despite the measures taken and the amounts of money devoted to stimulate the economy through banks, the amount of credit provided to the 'real economy' is still very low. In fact, the money which will be mobilised will pay back the banks for their high risk investments. Greek people will not benefit from the new rescue plan, which will just reimburse the banks and continue feeding international speculation. Actually, they suffer from severe budget cuts which affect directly their living conditions:  higher prices, lower wages, poorer health and education services.

Before deciding on a further recapitalization, there are certainly other options which could be pursued while preserving the general interest. In a recent interview, Jacques Delors, former president of the European Commission said: "The ideology of finances which frightens us continues to dominate. It is necessary to restore the balance of politics, economics and people’s needs, which definitely existed during the creation of united Europe".  We risk the collapse of not just the euro but the whole European project, which was built up with political vision and perseverance. Now, the high tide risks to throw away everything and citizens will have to pay a high price for it.

Sign the appeal: http://www.avaaz.org/en/eu_people_vs_banks/?fp

Balanced Budget

Balanced budget is a consistent topic of debate among economists. Mainstream economics advocates that budget deficits are always harmful and provides a series of arguments such as forward looking expectations of economic agents, crowding out effects and other pseudo-scientific ideas . On the other hand, alternative theories of heterodox economics (especially Keynes and post-Keynesian economists) argue that budget deficits may be useful, and even necessary in times of crisis as they provide fiscal stimulus to sustain aggregate demand. A common view is that budgets did not need to be balanced year on year, but over the economic cycle,  that is with a surplus in booming years and a deficit in recession years, which result over the period in a balanced budget. This view was seen as a synthesis between the two schools of thought but it is now being widely contested by the more radical right wing economists.

The Chicago school of economics - which advocates minimum government intervention and self regulated markets - came under attack in the wake of the financial crisis of 2007-08 . In fact, their economic theory was regarded at that time as an intellectual failure with serious economic consequences. Their belief in rational behaviour and self regulation of markets has contributed to the formation of financial bubbles and therefore to the growing income inequality. Many economists from that school argue that fiscal stimulus plans just create debt-financed government spending which crowds out an private investment - in thes sense that debt absorbs the savings that would normally go to private investment-, even if the economy is depressed , and therefore, they don't contribute to economic growth. P.Krugman is right to say that their ideas about the financial crisis were simply a product of  the 'Dark Age of Macroeconomics ! If public funds are used effectively, i.e. they are geared to finance growth enhancing  investments, they can generate high social returns in the medium to long term. In simple words, public spending does not reduce total investment (in the same proportion), but increases GDP which leads to more savings and tax revenues, and therefore reduces the budget deficit.

The economic debate did not, however, turn into a clear and honest political debate. Fiscal conservatism claims that a budget balance is a primary goal for a society, which means in substance less State intervention and eventually less public services provision, especially to the less favoured groups. This ideology is on the rise  in the US (especially the right wing Republicans) and in Europe (especially Germany and its allies) and its motto is 'no budget deficit', whatever that means. In fact, deficits are not all the same and policy measures to reduce it may vary according to different objectives. But the main point of issue is that austerity alone risks to cause a disaster, as acknowledged by many contemporary analysts (see Martin Wolf in FT 28/06).  

In Europe, wise men say with great conviction that the euro crisis was caused by failure to enforce the stability pact, that is to control limits on deficits and debts. The account balance (i.e. the difference between governments revenues and public expenditure) has worsened in almost all countries, but this is not the cause of the crisis, rather its consequence. Ireland and Spain were considered as the best examples of budget discipline, having budget surplus and low debt level. At the same time, France and Germany, the advocates of financial rigour had high budget deficits and breached the Stability Pact rules during several years for which they never got any sanction and even managed to relax the EU budgetary rules in 2005. Conversely, Spain has exceeded the 3% deficit limit only in 1998 and in the last three years its deficit reached 10%.

Now, the strengthening of the so-called 'economic governance' rules - with sanctions to countries which fail to comply with balanced budget rules - calls for stricter austerity measures which will lead to social turmoil and further economic depression. German and French political leaders urge all the euro area countries to adopt the 'golden rule' - meaning the ban on deficits and debt - and to reform their Constitution in due course. Only Spain has managed to do so, with a bipartisan reform due to internal political reasons. But,  the failure of political leaders to explain the austerity measures in their respective countries  further contributes to the economic mess and makes it even more difficult to solve the current crisis.

Budget deficits are not an economic sin per se.  The idea of a (strictly) balanced budget in times of crisis is not economic wisdom,  but rather a heresy , which in its proper Greek sense,  means 'choice'.

The Unbearable Lightness of Poverty

Rising poverty is an interesting indicator of the depth of the Great recession .  We have a two-speed process which hits most severely the poor whilst the richest seem to have escaped the worst of the recession's impact. Let's take the US situation for which data were published yesterday.

Over the past two decades, poverty has risen dramatically as a result of the financial crisis. More Americans are living in poverty than at any time in US history. According to the US census bureau, in 2010, 46,2 m people fell below the poverty line, calculated as an annual income of $ 22,134 for a family of four and $11,139 for an individual. So, nearly a quarter of Americans !

Nearly a quarter of American children are now living in poverty. Their number increased for the fourth year in a row to 22 per cent, the highest since 1993. Child poverty was the fourth highest in 2010 since the mid-1960s, when the federal “War on Poverty”  programme was launched by Lyndon Johnson.

The median household income of Americans dropped significantly since 2000 and by 2.3 per cent in 2010 from the previous year, due to increasing long-term unemployment, which has depressed wages and left many without income.

FT (14/09)  has reported on the data published by the Census Bureau :

According to Brookings, the poverty rate will continue to rise and hit 16 per cent in 2014. If that happens, nearly 10m American will have sunk into poverty since the recession began in December 2007.

 

In policy terms, poverty is considered by policy makers as a 'light' issue  as opposed to the 'hard' issue of debt and deficits. Neo-liberals will claim that poor always existed and that economic recovery will help them get out from that situation. But for this, they reckon austerity measures are an absolute necessity. At the same time,  the growing income gap is an issue for the US government  which is concerned about the effects on aggregate demand if wages continue to stagnate. Obama is right to launch a recovery plan, which will be funded in large part through the elimination of tax cuts for the richest Americans.

In Europe, the austerity measures have left aside the poverty issue, due to the shortsightedness of its political leaders. Ethically, poverty is unbearable for rich societies; economically, it is not sustainable as it further depresses demand and has a negative impact on median wages. We need 'hard' measures to combat poverty, not "light" or constrained policies.

The Great Bank Robbery

Now we understand better what has happened over the last two decades. There has been an enormous bank robbery and the most surprising thing is that there is little discussion about it. We all know that banks have caused the mess we are in, they have been bailed out and now they are even benefiting from the crisis.

According to figures quoted by Nassim Nicholas Taleb ( the author of the best seller ' The Black Swan'), the robbery would amount up to 5 trillion dollars, so more than the amount that the Obama administration will have to cut in the federal budget. There is a clear explanation: banks have taken excessive risks with leveraging, which result in excessive profits and their losses are transferred to shareholders, tax payers and also retirees (for their pension funds). For many years, exposures were hidden and part of the profits continued to be given to investment managers as a remuneration of risk. This is a typical case of 'moral hazard'.

This massive robbery, as we can figure out, is not money invested in public goods such as infrastructure, schools or healthcare but transfers from the productive sector to the banks, which in fact, as Taleb rightly points out, represent a tax on workers and small businesses. The key point here is that a low interest monetary policy favors directly the banking sector as it reduces the rate of return from savings and   transfers the inflation risk to millions of  savers. So, in rescuing the banks, the State is just subsidizing profits to bank mangers and investors. This could explain why banks reimbursed the loans just after one year.

The scandal is the impunity of investment managers, whose remuneration is proportional to the level of risk. It is clear that this is a violation of elementary ethical rules. We should not be naive to believe that a well functioning market would have produced better outcomes and therefore there is no need for regulation and sound corporate responsibility.

The meaning of ethics among bankers and financiers is quite limited: concretely, it is about doing all kinds of financial investment, excluding  tobacco companies or corporations involved in former apartheid in South Africa, but obviously not hedge funds. Banks should do their normal business under strict supervision rules, ensuring that funds are invested in the productive sector and bonuses redirected to promote solidarity with the poor. The world would, indeed, look much different.

Self-destructing Capitalism

Does capitalism have a future ? The question was raised by some economists and analysts who asked (quoting Marx) whether the capitalist system is not self-destructing. In a recent article, N.Roubini writes: "So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong). Firms are cutting jobs because there is not enough final demand. But cutting jobs reduces labor income, increases inequality and reduces final demand".

In his powerful analysis of the contradictions of capitalism,  Marx maintains that capitalism eventually destroys itself as it exploits more and more people until the great majority of the population is converted into proletarians and thus creates the conditions for socialism. Basically, capital drives out labor, and so destroys its own market, as well as the source of wealth creation. Today, the capitalist system is confronted to a similar contradiction as in every one of its periodic crises. It continues to produce an ever-expanding volume of goods and services, which an impoverished population cannot afford to buy. So Marx was right, and of course we cannot blame the great man, who lived from 1818 until 1883 (the year when Keynes was born!) for the crimes committed decades after his death. 

However, the economic problems of modern capitalism differ greatly from those of the 19th century. There are two relevant features which can explain the current global crisis: the first one is the huge concentration of capital  and power of banks and financiers and the uncontrolled mass of money crossing national boundaries; the second one is the massive shift of wealth from labor to capital and the resulting inequalities in income as real wages decline.  

S.Brittan (Ft 26.08)  argues that 'even if the analysis is right the remedy is wrong. The justification for redistribution is ethical. if the only thing wrong with capitalism is insufficient mass purchasing power then surely the remedy is the helicopter drop of money envisaged by Milton Friedman. for this we need not s much a political as an intellectual revolution, namely the overthrow of the balanced budget fetish". 

Governments and central banks are breaking their heads about how to save capitalism.  The origin of the crisis is not an excess of debt, neither a mere problem of redistribution. The causes are much deeper and old remedies are useless. As Einstein said :"The significant problems we have cannot be solved at the same level of thinking with which we created them".

A crisis tax for the rich

There is a bit of hypocrisy in recent declarations made by wealthy people like Warren Buffet, an American billionaire and others who followed in several countries like Luca de Montezemolo, the former president of industrialists n Italy or Etienne Davignon, a Belgian politician and businessman (as well as an influential member of the Bilderberg club). They acknowledged that their tax bill is too low and that all declared that they are willing to pay more taxes. Is that because the super rich are becoming more generous and are affected by a crisis of philanthropy?

The point is that most of these people made money with money and taxes on capital gains are ridiculously low relative to taxation on labour or productive capital. They got richer and richer, and inequality got bigger and bigger. If we look at effective tax rates over time, they have been declining substantially for those who are very rich. most governments introduced substantial tax cuts which benefited to them in a much larger proportion relative to the other categories of the population.

In fact, capitalists who became even richer are afraid of the social consequences of the crisis which led to  austerity programs which hit severely the poor and middle classes. Right wing governments as well as those led by socialist parties were so far reluctant to introduce higher taxation on capital. In fact, left wing parties are even more discredited as they failed to promote social justice and solidarity. It is not a coincidence that Merkel and Sarkozy pledged for a tax on financial transactions together with the'golden rule' on balanced budgets in all euro area countries.  

The rich should therefore pay their fair share, not only for moral reasons but also for economic reasons. A wealth tax (not limited to capital gains) would  alleviate the debt burden of the States which in large part is caused by the economic crisis and the  massive injection of public money into the banking system and other parts of the economy.  In the past decade or so, there has been a massive shift of resources from wages to profits. In other words, the money went to capital, not labour.

Against the 'less tax' slogan of the neo-liberals, we call for Tax justice to reduce poverty and inequality.

A new "Bretton Woods" to save the World

Economic history reveals monetary and financial crises have been recurring for the past four decades. These are not simply accidental as postulated by mainstream economic theory which assumes that markets are always efficient.  It is ascertained that these crises have their origin in a perverse relationship between States and markets as well as the loss of effectiveness of institutions and procedures which were design to regulate the functioning of capitalism.

On 15 August 1971, Richard Nixon's historic speech ended the Bretton Woods system based on fixed exchange rates and convertibility of gold with the dollar at the fixed price of $ 35/ounce. His message could have been written today: "Who gains from the financial turbulence of these months? Not the American worker, not the real economy. Who gain are international speculators who caused this crisis".

For many economists, among which P.Krugman, a flexible currency system is the cause of periodic crises. It creates uncertainty for traders and investors as well as high volatility costs which led to irresponsible behaviour and systemic risks. There are many examples in recent history: the crisis of the lira in August 1992, which led to a devaluation of 30%; the crisis of the rouble in august 1998 which lost 50% of its value followed by a default on its debt; the subprime crisis in august 2007 which led to a massive injection of money from the FED and the ECB but could not prevent the bankruptcy of Lehman Brothers.

These crises are not the product of dysfunctional markets; they are caused by the losing power of States to regulate markets. The structure of capital has undergone radical changes, shifting from productive use towards financial speculation. The financialization of capital accumulation - whereby profit is increasingly generated through financial channels rather than through production and trade - developed over several decades leading up to the financial crises between 2007 and 2010. The consequence of the increased power and dominance of finance is that it has fundamentally transformed the role of States and reduced their margin of manoeuvre, endangering democracy itself.

Financial speculation has just one rule: greed for money. From St Paul to Luther, greed is considered as the origin of evil. Today, it is considered the cause of the decline of American capitalism*. Human greed has not produced shared prosperity but intolerable economic inequality and financial instability. Recent austerity measures to halt the debt crisis nourish that process of dramatic increase of inequality which hits severely poor and middle classes. This perverse trend is not caused, however, spontaneously by the functioning of markets, but it results from concrete political choices in the United States and the rest of the Western world.

These policies were designed to dismantle the legal framework which helped the United States to get out of the great crisis of the 30s, in particular a strict regulation of the financial sector, with a set of norms which provided the banking sector with sound conditions to finance growth. But in the 70s and 80s, those norms were abolished everywhere, leaving entire freedom to markets under the assumption that they are always right. Deregulation became the fundamental norm; it is not that States have lost their economic powers, but the political class in power (including socialist parties) dominated by the ideology of financial capitalism did not consider - also because of vested interests of some of its members - any serious possibilities of controlling the power of money which has become a real plague in our societies. Every country has its own history to tell.

Now, speculation on sovereign debt has forced to introduce austerity policies, certainly not to address large inequalities which become inherent to the system. But, when in the 80s, some Latin American countries could not reimburse their loans, the US intervention (remember the Brady plan) was presented as a kind of assistance to debtor countries in default, while in fact this aid was geared to repay the US and European banks which lent the money. Furthermore, the aid was granted to those countries with special conditions attached to it, in particular rigorous adjustment programmes imposed by the IMF and the World Bank, which led to a decrease in income and slow growth. Is Europe in the same situation, with the same austerity policies? Past experience shows that these policies caused huge disasters to large parts of the population in the countries where they were applied (see the critical analysis of Joseph Stiglitz, who was chief economist at the World Bank).

In fact,  economic inequalities, that the subordination of polity to the anarchy of markets has increased, are seriously undermining our democracies - as well as totalitarian regimes - and they are the main cause of  social turmoil. The entire world seems in the grip of those who ask for social justice and equity, from the uprisings in most Arab countries to the young protesters ('indignados') in Spain and the riots in England.

But the true revolution which may come from the western world would be to abandon decades of wrong and iniquitous policies and to restore a global governance system based on the Rule of Law. It should aim primarily to address economic and social inequalities as well as a system of fundamental rights, including the right to have a decent job to meet human basic needs. We need a new 'Bretton Woods' system, with effective institutions to enforce a global 'Rule of Law' to create an economic harmony among nations based on equal rights and mutual solidarity. Hopefully, a global authority - building on existing UN institutions- should be created, as indicated by the Pope's latest encyclical letter 'Caritas in Veritate'.

Only in this way Mao's words will have any meaning: " There is great confusion under the sky: the situation is excellent".

* See Jeff Madrick, Age of Greed: the Triumph of Finance and the Decline of America, Knopf, 2011.

We should not surrender to sovereign markets

Between 25 July and 6 August, the sovereign debt crisis reached its most critical point as it spread to Italy and Spain where yields on State bonds reached their maximum levels. On 8 August, the European Central Bank (ECB) had to intervene buying back Italian and Spanish bonds to calm down financial markets . There was no other choice but to act : Italy like Spain are too big to fail.

Under the pressure of the European Central Bank and the EU, the Italian government was forced to issue a new plan which includes a series of unpopular measures to reduce public spending - especially on public sector wages and pensions - as well as on the revenue side with a special solidarity tax for higher incomes and higher taxation on capital gains. The whole set of measures is set to have negative effects on poor and middle classes and those who pay taxes whilst it does not affect (or very little) the rich and those who evade taxes.

But the key measure imposed by the ECB (in a confidential letter to the Italian PM) is to bring forward the budget balance in 2013 (instead of 2014) and the introduction of a no deficit clause in the national constitution. This has no precedent in European history: weaker States are losing their economic powers in terms of public spending and taxation. But this is not happening though fiscal integration of the EU nations which requires a much larger EU budget and more powers to the European Commission; it is just a mechanism of inter-governmental coordination and surveillance of national public finances which was introduced with the reform of the Stability Pact.

Yesterday's summit between France and Germany on the euro governance* raised strong expectations, but the outcome is rather disappointing. The two leaders stressed the need for greater economic coordination - which will be led by Herman Van Rompuy, the current President of the EU council. This will involve the inclusion of a 'golden rule' (no deficit) in all national constitutions by summer 2012. The other key proposal is a tax on financial transactions (the so-called Tobin tax) but there is no detail on how it will be applied throughout the EU.

The French-german meeting has produced a pact of the strong based on financial orthodoxy. Italy was a test case of the new economic order. But the pledge for stronger coordination will not suffice to stop the widening debt crisis. The creation of new government bonds backed by all member States of the euro area - which is gaining acceptance by more economists and federalist politicians - is simply ruled out, or at best will be considered in future.

The obsession for debt reduction without growth will just worsen the situation and until Germany refuses to take another direction, it will just produce another economic mess. But Europe requires a political leadership based on a long term vision  to fight international speculation . The solution, or at least part of it, resides in a certain degree of tax harmonization and a common conduct of fiscal policies based on mutual aid and solidarity. This will open a new phase for the euro with the creation of eurobonds which are a tangible and necessary instrument to insufflate a new common spirit.

 Protecting the euro means preserving a true European Union as a global public good. A European Union that defends the general interest of all states and citizens against the individual and selfish interest of strong economic powers. Unfortunately, this is not the vision of a political European Union that prevails today.

*http://www.elysee.fr/president/root/bank_objects/lettre_english_final_version.pdf

Broken Society

The dramatic events in England are a symptom of a growing malaise in our societies. The revolt of youngsters living in suburban areas is the product of the fracture between the haves and the have-nots. There is an analogy with the explosion of anger in the French banlieues, led by young French born with a clear ethnical identity (sons of Maghrebian immigrants). But the backdrop in which the riots exploded (in Tottenham, a suburban area with high poverty and unemployment) is characterized by a deep economic crisis, severe cuts in public spending and growing uncertainty on future prospects.

Z.Bauman* argues that the revolts are caused by young people deprived from access to consumer goods. His point is that these are not bread riots like in Arabic countries although there is some commonality in being equally humiliated. He writes: " For defective consumers, those contemporary have-nots, non-shopping is the jarring and festering stigma of a life un-fulfilled – and of own nonentity and good-for-nothingness. Not just the absence of pleasure: absence of human dignity. Of life meaning. Ultimately, of humanity and any other ground for self-respect and respect of the others around".

It is sad to see these young people without an ideology, guided by consumerism. Their fathers used to protest for justice and liberty. As Z.Bauman puts it " Supermarkets may be temples of worship for the members of the congregation. For the anathemised, found wanting and banished by the Church of Consumers, they are the outposts of the enemy erected on the land of their exile. Those heavily guarded ramparts bar access to the goods which protect others from a similar fate".

It would be wrong to affirm that the young people from the poor suburban areas are just criminals or 'casseurs'. These problems exist in many cities of the world but it is difficult to predict when a small flame turns into a social chaos. Over the last decades, societies have undergone a process of disintegration, becoming less cohesive and more vulnerable. D.Cameron, the British PM, put forward a year ago his project of Big Society, meaning a devolution of State prerogatives to individuals as well as charities to reconcile the British society. In fact, it is just a revisited project of M.Thatcher's extremist ideology which considered that society does not exist, but just individuals. The consequence of this pure folly is a broken society, that is a society with intolerable injustice, with middle classes disoriented by the austerity measures introduced by the right wing government.

Social inequality has become a major political problem in today societies and it often underestimated by political leaders. We need an Ethical revolution to give human dignity to all, not just give access to material or symbolic objects such as sophisticated cell phones.
This is a long, difficult endeavour.


*The London Riots – On Consumerism coming Home to Roost http://t.co/cospqNV, published in Social Europe Journal, August 2011

Corruption and the Rise of Dignity

Corruption is becoming a transnational issue which affects most economies and societies, including the most advanced democracies. The preamble of the UN convention on corruption raises concern about the "seriousness of the problems and threats posed by corruption to the stability and security of societies, undermining the institutions and values of democracy, ethical values and justice and jeopardizing sustainable development and the rule of law". Most countries have ratified the convention with different legislative acts according to their legal and institutional frameworks.

Yet, if a global framework exists to combat corruption - unlike financial markets for which there is a lack of global rules- States seem powerless to defeat this evil which jeopardizes the bases of democratic societies and prevent any effective intervention to address issues of social injustice and inequality.

The origins of corruption may vary greatly, but in a sense, it reflects the changing nature of capitalism. R.Dworkin, in a recent book* argues that modern culture has introduced a false (and apparently persuasive) belief that the most important criterion for 'good life' is wealth and luxury and the power it conveys. The search of wealth as the only value in life, nurtured by the ideology of free market and monetary accumulation has led to corruption as a mere instrument of class domination and therefore as a source of social injustice.

Populist parties seek today legitimation and social acceptance of corruption as an inevitable evil based on the principle "all guilty, all innocent". This is contradiction with the kantian principle that we should honour humanity and morality. But these words seem today meaningless, if we just observe the magnitude of corruption, in its various forms in our democracies. It is not incidental that in the US corruption takes the form of unlimited funding from large corporations to political candidates, which is even considered legal under the consitutional principle of freedom of opinion. But money is not an opinion.

Recent events in Italian political life show the extent of corruption both in public and private spheres and the increasing connection with organised crime. Judges are systematically accused of being "communists" or "terrorists" by corrupted politicians (with the complicity of their allies) to defend their priviledges and their system of power.

The rule of Law, the principles of liberty and justice are not applied onsistently, become obsolete or are circumvented by 'ad hoc' norms. But if democracies are vulnerable and weak to fight corruption, this is also true for totalitarian States, as demonstrated by the recent revolutions in Tunisia, Egypt, Lybia and now in Siria. The search for liberty and justice against corruption has led to an uprising of poor and middle classes living in urban and rural areas, students and young people as well as ethnic and religious groups.

The fight against corruption is therefore essential to address issues of economic development, intolerable inequality, rising unemployment and poverty and more fundamentally the existence of the democratic societies. We need a culture of social justice where dignity prevails over the "culture of corruption". The principles of this alternative culture link the rule of Law to morality and dignity. These are the principles stemming from the Age of Enlightnment, whose ideas have so powerfully inspired our common sense of living together. In Kant's words** we find the essence of these principles: " Morality and the humanity as capable of it is that which alone has dignity".

* R.Dworkin, Justice for Hedgehogs, Harvard Univeristy Press 2011, 422 p. The book is about one's responsibility to living well rather than 'Good Life'. At the end of the book, Dworkin writes: 'without dignity, we are only blinks of duration. But if we manage to lead a good life well, we create something more. We make a subscript to mortality. We make tiny diamonds in cosmic sands"

** I.Kant, Fundamental Principles of the Metaphysic of Morals, 1785, Transl. by Thomas Kingsmill Abbot