Many people have not yet realized that what is happening in Greece will, ultimately, influence the amount of pensions that many French receive or will receive in the coming decades: Indeed, a significant share of savings invested in life insurance is invested in European government bonds, considered the safest by insurers. And if these bonds are not honored, our banks, our insurance companies, their shareholders and customers will be the first victims. So, in good market logic (especially of financial market), it was predictable that we chose once again to charge the taxpayers rather than the shareholders. And this is indeed what is coming.
This also corresponds to the logic of democracy, at least as practiced today: politicians, like central bankers prefer to leave the management of the worse to their successors. Of course, once again we will use some window dressing, claiming, for example, to meet the expectations of the German public opinion, that private banks are contributing to this funding; forgetting to mention that in exchange for a slight effort on the conditions for repayment of their loans, they are given interest rates significantly higher.
In fact, behind these appearances, the dual logic of the financial market and representative democracy leads throughout the West, to return the bulk of public debts to players allegedly apolitical, the central banks, which become the major pivots of what might be called « financial democracy ».
In the U.S., the Fed already has more than 2 trillion dollars in Treasury Bonds. In Europe, the ECB funds, through complex mechanisms (such as TARGET) the balance of payments deficits of countries of the Eurozone, and also by other mechanisms (by supplying commercial banks what they need to lend to States) covers a significant portion of budget deficits.
In the short term, this solution is not unreasonable: in times of recession, with so much unemployment and underutilization of production capacity, inflationary risks are low. And the market, like politics, can be satisfied with such a situation.
But in the long term, this will not suffice. First, because all this requires a long-term credibility of central banks, which cannot be maintained, against all logic, but by political and military force of the country which is issuing the currency; secondly because this political supremacy itself will be threatened by the drift of financial democracy, which is not conducive to financing schools, innovation, industry, environment, and social consensus.
In the long term, when the credibility of central banks will be called into question, a new crisis will appear. When? No one knows. Tomorrow, in ten years. This can come from a crisis of confidence in the dollar, the bankruptcy of a large country of the Eurozone. Or a sudden halt of growth in China and Brazil. Then, the central banks which have become the ultimate means of survival of our financial democracies, will collapse, and democracies with them. This is probably the meaning of the mysterious statement of Jean Claude Trichet, calling for the establishment of a European finance ministry: Europe’s most lucid central bankers, at the end of his career, sees the danger coming and finally calls for a return of politics.
It’s high time that, we use this very special moment to give back to democracy and the market their dual realities: one responsible for the long-term satisfaction of collective needs; the other that of private property. For Europe, it would mean giving the ultimate power to strictly political entities, so that they finally decide to serve the geopolitical interests of the continent.