Kairos Hearing 1994.
Responses by the representatives of the EU Parliament:
We will now change the floor so that the representatives of the European Parliament can bring their point of view in our midst. These are the representatives of the European Parliament in their own new building. Each of them will speak about 10 minutes in response to what has been said before and in relation to the questions which have been prepared and asked. The first who I can give the floor is Christa Randzio-Plath. She took the initiative for a motion in the European Parliament in relation to international financial stability. So we are glad that you can be in our midst, and you have the floor.
50 years of Bretton Woods: Back to the future?
The fiftieth anniversary of Bretton Woods gives us the opportunity to ask basic questions about the state of the world. The monetary and financial conference carried out under the auspices of the UN in July 1944 had been informed by the experiences of the world economic crisis of the 30s and the Second World War. The creation of international structures to secure world peace and to encourage a stable world economy for economic development and prosperity were signs of the times. The UN, GATT, and the Bretton Woods system came about in the 40s. The world trade organisation originally requested was finally realised fifty years later in the context of the Uruguay round of the GATT talks. The Bretton Woods agreement, signed on July 23 1944, encompassed a world monetary system with fixed but adaptable exchange rates, the IMF with its objectives of furthering monetary cooperation, furthering stability of exchange rates, supporting the growth of world trade, assistance by the creation of a multilateral system of payments, the conferring of credit in the event of short-term balance of payments difficulties among its members with regard to special withdrawals, and also the World Bank, which originally helped finance the rebuilding of West Europe and which today gives long-term credit to developing countries.
The flourishing of the Bretton Woods system of stable exchange rates lasted twenty years. In this time currencies tied to the dollar were stable, there were few alterations in parity, and it was the time of the economic recovery of the post-war era. In 1973 the Bretton Woods system finally collapsed, following the USA's removal of obligation to exchange against gold in 1971. The closing of the technological gap between the USA and the remaining western industrial nations, a continuous balance of productivity deficit in the USA, but also an increasing setting-aside of the restrictions on capital movement, restrictions which had maintained the gold standard of the Bretton Woods system for a long time these were some of the reasons for the collapse of the system.
Fifty years after the signing of the Bretton Woods agreement, we can establish that the goals of a stable world economy and development and prosperity for all still have not been achieved. The international cooperation above all of the leading industrial nations, also supported by the G7 process, may well hinder the development of new wars between developed countries; but these threaten to be replaced by economic wars. The industrial nations are suffering from the phenomenon of mass unemployment and increasing social breakdown. The gulf between North and South has increased instead of diminished, even if a number of developing nations have crossed the threshold into being industrialised. The consciousness of the ecologically destructive potential of unrestricted belief in growth has intensified world-wide, but despite the Rio conference, effective measures with regard to trading have not been realised. After the collapse of the Bretton Woods system, stability in the world monetary system has not been reached again, and we are witnessing the arrival of the new phenomenon of the incredible expansion of the international capital market with its potential for destruction and destabilisation.
The features of the world economy fifty years after Bretton Woods are globalisation, growing interdependencies, new technological revolutions, and a surplus of liquidity at the same time as a shortage of productive capital. The demand for stronger international coordination and cooperation to answer the most urgent social and economic questions is just as current as fifty years ago. But the old concepts will not do any more; we need new ones.
We are not talking about new demands, but rather about insights into new restraints on trade in the context of a global, perfectly-functioning currency market. A world-wide stabilisation of exchange rates ultimately, we are talking about between US dollar, yen, and mark is not easy, but possible. The international financial markets developed into a casino long ago, where roulette can be played legally. A turnover of up to 1,000 billion US dollars in a day on the currency markets corresponds to forty times the average daily turnover of the world trade and service markets, and has no connection any more with financing of world trade or an efficient world-wide distribution of resources. This has a negative influence on the real economy. We have to get rid of this excessive liquidity and dam the flow of speculation which disturbs trade and economy. Internationally binding rules, and therefore also a reform of Bretton Woods, are urgently needed to steer a new course in international monetary cooperation.
Helpful in this direction could be:
- target zones for world currencies, which have to be supported institutionally, together with appropriate rules to make possible an appropriate and regulated accommodation of exchange rates, and a transmutation of rights to special withdrawals into a form of anchor currency;
- a tax on currency exchange;
- an internationally binding ban on speculation with credit;
- an improvement of the inspection of financial institutions and banks on an international level through increased cooperation;
- the creation of a greater level of transparency on the capital markets, and especially bringing forward extremely dynamic innovations in financial instruments;
- an extension of the minimum capital requirements to market crises, especially to those with open currency positions;
- the monitoring of a minimum reserve, levied world-wide, which could slow down the creation of credit by and between banks;
- the setting-up of a world trade council under the auspices of the UN, after the model of the security council, so that economic policy could be more efficiently and more strictly coordinated;
- the further development of the World Bank into a world social agency;
- a strong incorporation of the developing countries in and through a democratisation of the world financial institutions.
Suggestions for reform to create international stability in exchange rates and to stabilize the international financial and currency markets
The substantial short-term variations in the nominal, and particularly the strong changes in the real exchange rates make trade and investment harder. They endanger goals of national stability, and therefore hinder labour-intensive growth, investment and trade. A particular consequence is the excess of liquidity. This must be lowered in a regulated fashion by the world financial institutions. It is a significant development if there are more than forty times as many currency as trade and service deals on the markets. The volume of money and the speed of its circulation, together with a continuing stream of new products on the financial markets, disguise the high risk of a continuing stream of new crises, which will be harder and harder to master.
One suggestion would be to subject all transactions on the currency market to a proportionate purchase tax, for example one per cent of the sum of the transaction. Compared to goods and labour, financial capital is very mobile. Interest rate differences between individual countries are responsible for great movements of capital, and occasion thereby substantial changes in exchange rates. As a result, independent national policies for stabilisation have narrow boundaries set for them, if you are trying to avoid serious fluctuations in exchange rates. This tax would reduce the short-term volatility of exchange rates. It is questionable, however, what the long-term effects would be. Its effectiveness is also dependent on all states taking part, including off-shore centres.
Another suggestion for reform of a more medium-term has to do with target areas. It starts with the establishment of balanced exchange rates between the most important world currencies, which would be established as the centre for relatively broad bands of exchange rates, such as plus or minus ten to fifteen per cent. The aim of fiscal policy then becomes to prevent slipping out of these bands. A binding responsibility to maintain the target areas is not anticipated, however, just a public responsibility in reporting laid on the governments that tolerate leaving the target areas. This way longer-term movements of the real exchange rate from its balanced value would be limited, with its unwanted consequences on international trade and national goals of stability. In this system, to avoid misalignments, intervention in the currency market is only permitted to defend the target areas in the direction of the balanced rates, which would have the effect of creating a tendency for the exchange rates to move towards the balance. The publication of the target areas would give capital investors an anchor for their expectations of exchange rates. Developments in economic policy which would threaten a movement out of the target areas would thereby be stopped before they started. The concept of target areas requires international cooperation, because target areas can only be established with the agreement of the participating countries. The width of the target areas should make acceptance of this suggestion easier. Problems arise through the non-binding nature of the suggestion, through insecurity as to the establishment of the fundamental balanced exchange rates, and through the lack of concretisation as to what the consequentially requisite microeconomic measures should be.
In this, an internationally agreed expansion of money supply oriented towards exchange rates would help. This suggestion arises through the necessity of stabilising the growth of supply in the world at a level which is inflation-free and of returning it in two stages back to fixed exchange rates. This end is achieved by the target areas concept. A global money supply with internationally binding regulations should decrease the possibility of worldwide inflation or deflation. The global money supply has to be just as free from chance influences as from national interests of countries such as, for example, the USA. After all, the USA was the land of the leading currency of Bretton Woods. It is questionable whether the limiting of international coordination to monetary policy will be sufficient, because the development of exchange rates can also be influenced by measures relating to fiscal policy. Apart from that, up to the present the political will to enter into international obligations with regard to control of money supply has been missing. In any event, both past and present experiences with fixed exchange rate systems demonstrate that if you have stability and accommodation in the monetary area alone, remaining divergences in the realms of commerce and of income compromise the efficiency of a monetary system. The problems of Bretton Woods demonstrate that just as well as the experience of the EMS.
Three arguments go against set exchange rates worldwide: the exchange market is the first just-about perfect world market, which functions 24 hours a day and on which the market information is almost completely and immediately available, as a result of technological revolutions. At the same time, mobility in the market is high. The volume of the exchange market its daily turnover has increased to over 1 billion US dollars bears no relation any more to the traffic of goods and services. It far exceeds the capability of the central banks for intervention, knocks holes in the sovereignty of nations, and therefore threatens potentially democratic systems. The currencies of the western industrial nations have become the playthings of speculation, which doesn't even stop at exchange rates secured by economic fundamentals. Apart from that, there is the danger that steering towards or maintaining unrealistic currency relations will bring about or sharpen inequalities. False exchange rate relations are more expensive today than they were twenty years ago.
The damming of spontaneous speculation, in which billions can be won to the detriment of the people, is an important task for the new Bretton Woods institutes. Along with coordination and cooperation, concrete steps have to be taken. The introduction of a speculation tax as an additional tax on turnover, which can and should feed a world development fund. But more effective for damming speculation is an internationally binding ban on speculation with credit. That will also have the effect of reducing international liquidity.
Institutional reform and supplementary structures are necessary
The establishment of target areas and the creation of openness if a country leaves or has the potential danger for leaving the target areas can be effective in bringing about transparency and the ability to plan on the capital markets. But experience teaches that such a system on a voluntary basis is not binding enough, and powerful industrial nations such as the USA, Japan or Germany could quite easily have a different concern from that of maintaining stable exchange rates. Such a system on a voluntary basis makes the planning of investors easier, but does not guarantee the important aim of stable exchange rates for trade.
It is necessary to supplement target areas with institutional structures a world monetary authority with binding regulations for all participants. This would enable an appropriately-timed and ordered adaptation of the exchange rates. But the efficient success of such a system depends on the international capital market becoming transparent and controllable, and on destructive speculation being avoided. This requires supplementary instruments for the world monetary authority and/or for the participating nations.
A stabilisation of the exchange rates of the most important world currencies requires in addition a better coordination of economic policies. The existing G7 structures have not proved up to the task. What is needed is a world economic council under the aegis of the UN, on the lines of the UN security council. This council would have the task not only of securing coordinated and cooperative economic policies to support worldwide stability in exchange rates, but also beyond that to develop measures which would be just and equitable in the face of the retarded development in the countries of the South, as well as in regard to an ecologically sound and efficient economic method in the countries of the North. Globalisation of the world economy and increasing interdependence mean that national strategies will not do. In order for economic methods to comply with social and ecological demands, communal aims have to be formulated and realised in a more effective way than for example the Rio summit might lead us to expect.
With regard to the overcoming of underdevelopment, the instruments of the IMF and the World Bank have failed. Indeed, the programme of adapting to existing structures has effected the opposite, inasmuch as the social consequences of these demands have been totally neglected. We need a world social fund. Structures have to be made more democratic. And therefore we have to reform the financial sources of a world social fund, and automatically-flowing sources of income have to be put in place, such as a worldwide tax on exchange. The World Bank has to be further developed into a world social agency, which finances projects in developing and transforming countries, and which includes all partners involved in the projects. Measures for structural adaptation which have been carried out with the involvement of the World Bank set most particularly the various developing and transforming countries insoluble problems with the consequences of social and political overthrow, and ridiculous increase in and overproduction of many of their products with which they can compete on the world market. Africa above all has to be released from this treadmill. And a canceling of debts has to be part of it too. The programmes of adapting to existing structures have to give their central role to enabling the South and the East to improve their living conditions. They have to be socially, ecologically, politically and culturally acceptable.
Thank you very much.
Thank you very much. I'm glad to give the floor to Dr. Walter Romberg. He was Minister of Finance in the transitory government in Eastern Germany, and he will speak from the perspective of Middle and Eastern Europe.
Thank you, Mr. President. I thank you for inviting me, and for the opportunity to tell you something of my thoughts in relation to the development of Europe. Perhaps many people will be surprised at the fact that similar problems are developing more and more inside Europe as exist already between the North and the South. I would like to say something on that subject: As an East German, there are certain elements that I have experienced very strongly. Since the start of the process of unification, we have experienced 85% of the industrial capability of East Germany going over into West German hands. Here we have at the moment devastating consequences of a wrong-headed privatisation policy, and we have a deregulation of the economy which has been made programmatic. As far as the international financial system is concerned, Middle and Eastern Europe and the former Soviet Union have been until now a marginal area. In consequence, as I have read, the gross outpayments of the International Monetary Fund in Eastern Europe were in 1993 only $ 300 million, indeed even less net. Despite that the growing together of East and West Europe in economic, political and social terms in the forthcoming decades is the central task of the continent of Europe.
The decisive question is this: How is this continent to grow together? What political and social complexion will it take on? And there are two ways and this lands me right in the middle of the North-South problems:
At the moment this way is not obvious; rather the reverse for example in Poland, one of the countries which is most advanced in the process of reform and integration, we can already see a reduction in research and development potential of 50% of 1989 values. This same process has gone much further in East Germany. But now I shall really start to talk about East and Middle Europe similar facets can be seen in other areas.
- The first way: Eastern Europe will be left solely to the dynamics of western economic interests. It will be made into a low-pay and low-cost area of the extended workbench of Western Europe and into a market for the dumping of West European goods.
- The second way, a different way: A coordinated and communal policy between the European Union and East Europe, for example in the area of industrial policy, which would entail an independent commercial, research and also technological capability in Eastern Europe, and would permit East Europe to develop equal cooperation and partnership with West Europe.
These two different ways imply different policies and financial policies. The first way corresponds to the interest and principles of conservative and neo-liberal politics and sadly also to the current main trends in the European Union. As far as I am concerned, this has to be spelt out clearly. In the foreground, we see advancing deregulation and privatisation. The second way requires macroeconomical steering and coordination of the process of growing together in the social sphere as well.
For Middle-east Europe and beyond we would need an development strategy in economic policy and corresponding concepts of advancement. In particular the following would be part of it:
At the moment we are experiencing steps and offers which, in regard to the interests of East European countries and the establishment of cooperation in partnership with them, need to be rejected. By which I mean Western steps to integration or suggestions for reform for the East European nations, or conditions attached to Western financial aid, which drive holes in the necessary independence of these countries, and deliver them up to international financial and industrial capital. Let me give you just two examples:
- Synchronisation of macroeconomic policy and coordination of the effects on external economies; creation of an effective economic area in Middle-east Europe, that is the Visegrad nations and also the Baltic republics. Sadly, such a concept is still not on offer.
- In addition, a council for the corporate coordination of the European Union and Middle-east Europe to work out macroeconomic scenarios and methods of development for the development of Middle-east European economies; realisation of plans, on the lines of five-year plans, for setting the crucial points for allocations.
- And above all in this connection, the establishment of a contractual relationship for the joining of the Middle-east European nations, of that economic area, to the European Union; namely, clear criteria, steps, timetables, conditions for acceptance, financing.
It is important for the cooperation of East and West Europe, that strategical crucial points are established for financial requirements in the context of a development strategy for integration. Despite all ambivalence, let me point to the programme for the transeuropean infrastructure network. But it is vital that equal partnership and cooperation with East European countries is supported in such a way that technology policy is made together, that industrial policy is made together, that therefore technology programmes are created, intensive programmes which transcend borders, which create communal centres for development of technology, such as Germany/Poland, or Austria (if it joins in) and the Czech Republic, and so on. We need directed and better forms of capital assistance for a broader East-West cooperation between smaller and medium-sized concerns, so that we can draw them together in Europe. For this we need loans with lower interest, and risk capital. And we need a stronger advancement of regional economic areas through a corresponding programme of financing for the Visegrad countries and the Baltic republics.
- The very strong request to increase the dismantling of social functions, social services in larger structures, as in Russia or the republics of the former Soviet Union, functions which because of the structure cannot quickly be replaced a social net can't be built quickly. Here, in the interests of a flourishing development of these countries, a process needs to be developed which moves in stages, rather than demanding that the process be hurried up.
- Or, as I read recently in the context of a study for the European Union about the development of agriculture in East Europe, in which many sensible and helpful suggestions are made: they also deal with the creation of means of banking and credit for agriculture, and for example they demand or recommend that for the making available of credit funds are built up from the privatised land of Middle-east European countries in the World Bank and in other international banks, which would then take up land which belongs to East European countries as part of their portfolios, and trade with these in the international market. I have no need to tell you in this gathering what the consequences of such suggestions might be! We have just heard a report from the Philippines.
The international financial institutions, the World Bank, the International Monetary Fund, also the European Bank for Reconstruction and Development, are clearly tied to neo-liberal principles. Their policies aim for maximum deregulation and privatisation of the economy and other social areas, and for the most wide-ranging non-interventionism, that is reducing the responsibility and influence of the state. The necessary change of strategy in the international financial institutions presupposes a change of strategy in the leading states (G7, G10); and we cannot do without a general strengthening of the coordinating and steering functions of national and supranational organs in the area of commercial development. A presupposition is, of course, that policy in the relevant countries in Middle-east Europe actually requires a stronger state intervention. The strengthening of a political will in this direction is the task, among others, of the unions, and especially the task of the East-West Trade Union. It is necessary that unions, organisations which do not govern, appropriate such policies, so that in these countries as well a clear decision in favour of an appropriate change of strategy is clearly heard.
The last speaker is Mr. Wilfried Telkmper. He is from the Committee on Development and Cooperation of the European Parliament. You have the floor.
After fifty years of Bretton Woods we see that one fifth of the world's population commands about two thirds of the international GNP and world trade. This same fifth produces three quarters of greenhouse and ozone-destroying gases and consumes four fifths of energy. The North-South confrontation is heightened by the ecological crisis. Over half a billion people go hungry, one billion are living in abject poverty, 40000 children die every day from poverty and hunger. Such a résumé after 50 years makes it quite clear that this policy has failed.
In order to avoid repeating what my colleagues have said regarding what we can do about it here in the European Parliament I would like to comment on a few political conditions which, in my view, are essential for a reform. Here in Western Europe we are currently growing into a Western European Union, based on the Maastricht Treaty. This treaty defines development policy for the first time since the beginning of the European Community as a community task. Ways of resolving development problems are, however, highly contradictory. The approaches tried in the 80s, as has been said, are no longer manageable they are at most significant for a few newly developing countries. These approaches considered neither the social nor the ecological aspects, and so we have to develop another policy. The policy we want is one leading to an international economic order seeking to satisfy basic needs and give all people maximum freedom and opportunity for self-fulfillment without disregarding differing sociocultural values and destroying natural resources. That may be termed a general goal.
Regarding debts, we are all against the North continuing to earn from net transfers. Third World debt of over 1500 billion dollars has to be cancelled. The member states of the European Union together claim about a third of both private and public debt, but hardly take any independent action in international crisis management. Yet due to its great weight in international financial institutions, the European Union could well initiate a debt remission programme. At present the IMF and World Bank together are receiving a quarter of the debt servicing from the South. An international debt relief conference should work out the details, also on how to get back the money that corrupt elites in the debtor countries have been putting in their own pockets for years.
At the beginning of this discussion we heard a contribution about Poland. The Central and Eastern European states must enjoy immediate cancellation of that part of their debts inherited from the old economic systems, money which was put to no good use, as can be shown. Any democratic government that has inherited this is doomed to fail without debt relief before it has a real chance to reorganise.
What are the preconditions now for such a policy? The first one, I think, is democratisation at all levels. And that also includes more democracy in the rich Northern states, i.e. in the European Union. We have to realise that we have a political system here that is not democratic. At present we are witnessing a performance, even a tragedy, in this regard. At the meeting of the European Council in Corfu a new president of the EU Commission is to be nominated. The heads of governments cannot agree, like the new monarchs. We in the European Parliament have not even been asked our opinion and may be asked to approve the decision later.
In this institutional structure we still have the situation that the legislative, the meeting of heads of government here in Brussels, is also the national executive which does not preserve the division of powers. And this legislative even meets behind closed doors, which would be impossible in a democratic nation state. That means that we are still in a state of bureaucratic centralism organised on an inter-governmental level.
My colleague has just indicated to me that this is no longer the case. Certainly the Maastricht Treaty initiated a small-scale procedure in which dialogue takes place between EU institutions. But that does not cut ice at the crucial levels of power. That means for me that we have first to fight in our member states for democratic structures in the EU and then for them to spread worldwide.
The second way of getting away from previous policy, represented by the Bretton Woods system, is to promote decentralised structures. Centralism should only exist where cooperation is necessary and has to be discussed. Political power has to be moved lower down in the spirit of subsidiarity to which the EU constantly appeals.
A third important point in advancing a new policy is another value system than that established in the West in the last 50 years. We must place people in the centre of development again and not self-accumulating capital. That means that we need to establish international conferences contributing to a new international economic order with an ecological and social orientation.
In addition, we need a reorganisation of the Single European Market. This must no longer have competition as its highest principle, but must have ecology and social policy as essential areas of policy.
Only with such development will anything change at the world level, in my opinion. Change has to occur here in the system of the metropolises. And that is happening and we are contributing to it. Such a development can only be pushed through by a policy from below. That means one in which social forces, non-governmental organisations, churches and unions are much more involved than to date.
We politicians in this European Parliament or, more exactly, in this western European assembly must form a bridge, perhaps that is happening today, to the movements, the NGOs, the governments, the Commission, the Council of the European Union. We must work to set up networks with the resources of this Union or of these nation states, which will take forward this decentralised policy, this policy of subsidiarity.
My last point is that the industrialised society needs to be restructured. The EU goals so far have, I believe, only continued the policy of Bretton Woods. We need e.g. to raise the price of energy, and raw materials for our industrialised society, since many of them are non-renewable. We need true costs for traffic and transport and also a decentralisation of production so that products no longer need to be shipped around the globe to the detriment of the environment.
I believe that these new conditions are extremely important for the centres of industrial production, the North American, West European and South-east Asian markets. Only through a new international cooperation and reorganisation of the international finance institutions can we arrive at the point where all people have equal rights on this earth.
Thank you for your contribution. Now we have reached the moment of the possibility of a dialogue.