Nine years with euro crisis – time to think anew
By Trond Andresen, Steve Keen and Marco Cattaneo
A new means of payment can be part of the solution for the eurozone’s unemployed.
We have now seen nine years of social crisis and huge unemployment in many euro countries. An entire youth generation has barely experienced anything but being out of work. Still no solution has been found or implemented. The time is overdue to think outside the box. We propose a solution that has circulated internationally for several years: some of us have argued for this since 2011. Both households and businesses should be provided with an additional national means of payment, “Electronic Parallel Money” (“EPM”).
Our proposal works like this: EPM transactions take place via mobile phone, PC and card. The transactions are logged on a server in the country’s central bank. There are no EPM coins and notes in circulation. The government (and local authorities) have EPM accounts in the central bank. These are debited when the public pays wages and pensions, or purchases goods and services. All citizens and enterprises also receive a user account there.
EPM will greatly reduce unemployment and enable people and businesses to exchange goods and services. It will alleviate the social crisis and reduce pessimism in economics and society. Such a solution is now being discussed in Italy, triggered by the acute budgetary conflict with the EU.
New EPM is created as needed in the central bank. The public sector pays both in EPM and Euro. The ratio can be adjusted based on how the economy develops. Taxes are collected in a corresponding mix of the two currencies. The EPM will have value since it can be used to pay taxes. While government and other public sectors pay expenses and collect taxes in the same and fixed ratios, the euro/EPM mix used in private sector transactions can be freely chosen by the parties involved, and will thus vary.
We are very aware that an EPM proposal will be met with opposition from the EU’s elites, and many columnists in the financial press. However, the scheme will not be illegal according to EU monetary policy: the EPMs are legally government bonds that are extinguished when holders use them to meet tax claims. In addition, they do not exist physically – there are no EPM banknotes or coins, thus avoiding conflict with the euro’s money monopoly.
One can expect that the public’s initial confidence in the EPM will be very low, not the least because of widespread skepticism with national authorities who have not managed to counteract the crisis for nine years. For the analysis, it may be useful to define two terms, “trust” and “need”. Although trust is very low from the beginning, the need is very high: one should expect some initial use of the EPM because the options ‘no sale’ or ‘no job’ are worse. Over time, other actors will observe that transactions with the EPM are taking place, which will increase trust – which leads to more acceptance of a certain percentage of EPM in payments.
Eventually this will also include wages. When firms receive a share of EPMs in payment, they will ask their employees to accept a share of EPMs in wages. And employees will then often have the choice of accepting this or unemployment. This again causes businesses to become more willing to accept EPM in payments. We get a positive spiral.
After an initial period of political turbulence and low confidence, the EPM will approach a value not so far below the euro, because one EPM counts as one euro in the payment of tax. And as long as the economy is far away from full employment and the business sector has significant spare capacity, the inflationary impact of more money due to the circulation of EPM will be minimal.
A parallel electronic national currency will – with immediate effects – improve the situation for most residents of euro-crisis countries. It will also give the countries a much stronger position to negotiate euro debt forgiveness or easing the debt service burden.
Our proposal allows for a gradual and controlled movement towards a national currency, if desired (and yes, we are aware that this will be met with resistance from the EU system). Or for that case, the opposite: to later turn 100 percent back to euro if that option is considered better. It gives the National Assembly in a crisis country time to consider and make decisions in both directions, based on experience with the EPM.
Sadly, our observation over many years is that it is almost impossible to get public and academic conversation about alternative solutions that can make a big difference. This text is thus an exception. The authors are an engineer and two economists respectively. We wish to emphasize a point (provocative for some colleagues) about the difference between the social sciences’ and engineering culture, and which can explain to some extent why it is so difficult to implement even obvious solutions: social scientists and economists are – in contrast to the engineers – mostly concerned with describing the state of things, not finding solutions. Engineers look for solutions.
An economist who was very aware of this shortcoming was John Maynard Keynes. He expressed it somewhat sarcastically:
“Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”
Our EPM proposal ignores “reputation”, and proposes a means to succeed unconventionally when all conventional methods have failed.
Trond Andresen, Associate Professor, Department of engineering Cybernetics, NTNU
Steve Keen, Professor of Economics, Kingston University, London
Marco Cattaneo, founding member “Fiscal Money Group”, chairman CPI Private Equity, Milan
From: pp.9-10 of WEA Commentaries 8(5), December 2018