In the management of the Euro crisis the same mistakes of the 29 crisis are being made again when the markets let themselves be carried to the limit to the point of seeing them sink into deflation-depression. The markets and the banks cannot protect the Euro but they can destroy it by making the states that use it as a shield fragile, one after the other.
Since it is good that banks can fail and their bad managers can pay, as well as their bad shareholders, and since there are no capitalists around ready to take over the capital, why not nationalize them? The "bank-saving" and "state-saving" funds could serve for a "term" (over)nationalisation, with the commitment, that is, if it is convenient, to transform each large bank into a "stew" to be put back on the market in due course .
The troubled waters of the markets would calm down again. Perhaps there would be a gain in terms of competition. It is not said that in the transition there must be losses in efficiency: nationalizations have not always been synonymous with inefficiencies (even Chinese "communist capitalism" demonstrates this). A commitment to reprivatize would be a constructive incentive for state managers not to become boyars and for politicians not to encroach on the field.
Above all, it would not be the usual suspects who would lose: the citizens as depositors or the same as taxpayers. It should be a duty to protect stakeholders (those with rights to claim), not shareholders.
Financial repression and financial liberalization have for years become the two solutions, alternatives and no middle ground, panacea for all ills. Historical experience teaches us to look at things in a less Manichean and more pragmatic way. There are reasons that have pushed in one direction or the other fanatically. They could be summarized like this. Princes and rulers have always been inclined to limit free enterprise in the offer of financial services for two reasons. To exercise its sovereignty over the currency and to satisfy popular opinion.
The easiest way for a government to obtain credit on good terms is to contract it in the currency in which taxes are levied and justice is rendered before the courts in the name and on behalf of the sovereign authority of the moment. The coin with the effigy and arms of one's reigning prince, distinct from the others, expresses this need. It's a much halved power as long as the weapons remain impressed on precious metal discs. It is no longer so when the prince declares bankruptcy against helpless bankers and forced to suffer all the consequences of the case. Only paper money becomes the highest expression of a sovereign national power and this only since the XNUMXth century.
The issuing banks were born as state banks (even if managed by private bankers) to finance extraordinary public expenses, especially in the event of war. England in the eighteenth century already had a bank of issue alongside a tax system based on the promise that the state would honor its debts. The promise is credible and binding because there are new institutions: constitutional monarchy, parliament elected by those who pay taxes immediately, or in the future to cover state debts (a financial innovation, the latter to defer taxes and not immediately strangle taxpayers). In this way England becomes great, industrializes and wins all subsequent wars.
Then meeting the popular opinion of making the bankers less rapacious suited the structural debtors (state and poor) interested in keeping interest rates low, in creating non-profit banks (pawnshops, savings banks and cooperative banks) to curb the bankers. As long as this convergence of interests exists, private banks and financial markets suffer restrictions, in various forms, on their freedom of action. The spaces for private banks are limited by those occupied by non-profit credit institutions and by the size, often marginal, of the stock markets.
However, the system thus devised is at risk of abuse. The more serious ones generally have one consequence: inflation. The money created against huge government expenditures ends up losing value, impoverishing the recipients of fixed incomes and enriching many of those who can sell goods and services at increasing prices. Inflationary flare-ups or persistent price increases end up wearing down society and the national economy.
Running for cover is possible and is done in various ways by binding the spending possibilities of governments, the faculties of the central bank to issue paper or both, through ingenious systems, also passed off as "natural", such as, for example, the forms anchor to the gold of the national currency, to a foreign currency, to a basket of coins. In the recent case of the EU and the ECB, the central bank has even been prevented from lending to the member states but also to the Union. Such a radical renunciation of monetary sovereignty has few precedents. It had happened with the reform of the Bank of England in 1845.
However, when it was realized that the Bank only had tools for deflation and could not lend to banks on the verge of bankruptcy, the parliament "suspended" the law to avoid devastating financial crises for everyone. Usually taking such extreme measures (in the sense of “let the markets regulate themselves”) was justified by an experience of large inflations: during the Napoleonic wars, the German hyperinflation of 1922-23, the inflation of the 70s. There are, however, no serious reasons for amputating a leg to prevent hurting yourself while running, when it can always serve to walk and live better. Only an extreme distrust of government discretion can, in some way, be the basis of such blind and irresponsible measures.
Financial liberalizations had not dared to such an extent. This time the populism card has been played against the abuses of sovereigns in a regime of financial repression and to justify opposing measures. In periods of inflation (but also of deflation) popular distrust, if not hostility, also mounts towards the rulers of the moment accused of incapacity or worse, and sometimes rightly so, of various corruptions.
The simple solution that to restore justice it is enough to liberalize and open the world to competition finds broad consensus when it is believed that banking and finance only supply a commodity like any other (credit) and that by completely liberalizing the sector the same price benefits are obtained low obtained through the liberalization of air transport or telephone services.
After the great crisis of 1929, regimes of financial repression (more or less strong) had spread almost everywhere because banks and financial concentrations were considered the main causes of the disaster. To have a good industrial system it was necessary to bring to reason bankers and speculators attracted by easy and immediate earnings, with behaviors that were contagious for the rest of society and distractions of resources - it was said - from more productive uses. The states then regained possession of a monetary sovereignty that they had surrendered to the markets for decades.
Currently, the judgment on government action is left (to the rating agencies and) to the markets which, based on the volatility they express, appear to have few and very confused ideas, prone to panic. It is up to the governments not to turn them into certainties. Banks that have invested in bad government bonds (but, let's not forget, have made worse investments as well) find themselves in the position of having to be bailed out (often) by those same governments.
As a result, governments will have even more disastrous finances, with further worsening of the ratings of the rescued banks and, in turn, of public bonds. Since, in fact, the capitalist institution of bankruptcy no longer exists (too big to fail), it makes little sense to reintroduce it for states: it would be the insolvency solution like the one declared by Charles V in 1527 a few weeks before the sack of Rome by his troops. The empire was "sacred", but its state was not "de jure" as - for now - ours are.
