Kairos Hearing 1994.


Questions and proposals concerning the political responsibility of the European Union for the international financial order in view of sustainable development and social cohesion

The year 1994 marks the 50th anniversary of the Bretton Woods conference which inaugurated the present world economic and financial system and its institutions, the International Monetary Fund (IMF), the World Bank and what later became the General Agreement on Tariffs and Trade (GATT), now the World Trade Organisation (WTO). Since then important changes have taken place, in particular the transnationalisation of the global capital markets making political regulation and taxation difficult, if not impossible, and creating more and more economic instability. The debt crisis is causing evermore human and social suffering in the South and the East, and there is increasing structural unemployment and degradation of social conditions in the West as well. The global ecological crisis is gathering momentum.
This is why we non-governmental organisations (NGOs), churches and grassroots organisations consider to put to you, as representatives of the European Parliament and the European Commission, the following questions and proposals.

PART I:

THE POLITICAL RESPONSIBILITY OF THE EUROPEAN UNION FOR THE INTERNATIONAL FINANCIAL ORDER WITH RESPECT TO SUSTAINABLE DEVELOPMENT IN THE SOUTH

As the EU develops into a political and monetary union it will have co-responsibility for the international financial order and for development policy as well as for the consistency of both. Meanwhile the finance ministers of the EU member states carry the political responsibility for international monetary institutions and policies. This period of transition, therefore, is a time when actors of civil society must engage in a dialogue with those politically responsible for possible changes in the future. Grassroots movements, solidarity movements, the churches and other NGOs take the perspective of the impoverished parts of society and of the endangered environment. There can be no doubt that the present system has led to more and more impoverishment of ever larger sectors of the world population and to more and more ecological destruction while at the same time wealth has been accumulated by fewer and fewer actors. As for the monetary system, dangers have arisen for every country because the transnational financial markets have moved from nearly every political control and taxation. By the processes of deregulation particularly since the 1980ies they have developed highly speculative and unstable patterns to such a degree that a global crisis might arise at any time.
This is the reason why many respected institutions have developed proposals for a new international financial and economic order 50 years after the Bretton Woods Conference which inaugurated the present one. Among these we mention:

• UNDP, Human Development Report 1992 and 1994
• EC-Commission, FAST-Programme, Towards a New Bretton Woods, 1993 (Doc. FOP 325)
• EC-Parliament, Resolution on International Monetary Cooperation, 14/12/93 (Doc. A3-0392/93/PV48II v. 15.12.93/PE177.122)

It is significant that all of them contain elements of Keynes' original proposals for the Bretton Woods Conference which were intended to provide mechanisms for a more balanced development of world economy. This European proposal was not accepted, however, by the USA, which at that time was the only economic and financial super-power. This situation has changed. The EU member states collectively and Japan carry weight today with the USA.
The UNDP distinguishes long-range and transitional changes in order to develop a viable political strategy. In the following questions and proposals we maintain this distinction.

A. What is your response to the following long-range questions and proposals from the perspective of your political responsibility?

1. Should and how can there be a democratic UN "Development Security Council"/Economic Security Council (with the participation of popular movements and NGOs)
   • introducing new criteria of assessment for economic effectiveness, oriented towards sustainable development including social and ecological indicators
   • introducing a new global tax system, incorporating these indicators, for social redistribution (including reparation for 500 years of inequitable trade) and for ecological sustainability
   • introducing adequate trade-related measures at a global level in order to create a more balanced and just exchange of commodities and services between the North and the South (according to the Human Development Report 1992 the developing countries are annually losing about US$ 450 billion as a consequence of imperfect world markets and unequal partnership between the North and the South in addition to the US$ 50 billion net capital transfer resulting from debt servicing. These US$ 500 billion losses are ten times higher than the US$ 50 billion of all development aid taken together)?
2. Should and how can there be a tax on surplus countries who do not rebalance their trade relations through increased imports from their deficit trading partners within a given time (cf. Keynes)?
3. Should and how can the IMF be transformed into a democratically established global central bank linked together with a system of regional and national central banks respectful of political, social and ecological priorities and responsible to the respective ministries (or other political institutions) of economy and planning with, among others, the following functions:
   • issuing of a global currency, like the special drawing rights (SDRs), as "parallel money" to national/regional ones independent of anyone or more dominant national/regional currencies
   • controlling the actors on the transnational capital markets in terms of securities in the credit business, making speculation against national central banks impossible etc.
   • giving short-term credits for trade balance deficits?
4. Should and how can the World Bank be changed into a global structural development fund not issuing credits but redistributing global taxes on interests and speculation in the transnational markets, the peace dividends, eco-taxes and gains made through unequal opportunities in the markets by analogy with the European Structural Funds? How could people's organisations be included in the mechanisms of distribution in the beneficiary countries?

If you do not agree with these kinds of new institutions and regulations what is your long-range perspective in order to overcome the following problems and potentially devastating effects of the present system?

• the undemocratic character of the IMF and the World Bank
• the inability of most countries to overcome their trade deficits
• the difficulty, if not impossibility of taxing gains on transnational markets
• the impossibility of securing a sound credit business on transnational markets
• the impossibility of a European development policy with social and ecological indicators within the present monetary system
• the net capital transfer from poor to rich countries and capital owners through credits of the IMF and the World Bank.

B. What is your response to the following short-range questions and proposals from the perspective of your political responsibility?

1. What measures could be taken to democratise the Bretton Woods institutions within the present system?
2. With regard to overcoming the debt crisis in order to stop its devastating economic, social and ecological effects on the over-indebted countries in the South and the East, what is your response to the following measures:
   • amortising the debt owed to Western States realising that the debt, incurred particularly in the past twenty years, has in effect been repaid through spiralling interest rates, one of the effects of which would be to reduce the pressure on workers in those countries migrating to industrialised countries
   • giving tax deductions on non-payable debt only to those banks which cancel that debt (instead of nominally maintaining them)
   • developing an insolvency law for public actors such as indebted states (by analogy with chapter 9 of US insolvency laws, cf. K. Raffer's proposals)
   • abolishing bank secrecy not only for drug but also for capital flight money, closing tax havens for flight capital and helping return the capital flight money of corrupt elites to the indebted countries by international agreements
   • developing an international system of legal assistance against corruption, capital and tax flight establishing an "economic interpol" and enlarging the mandate of the International Court of Justice to deal with economic and financial issues arising from relations between states, e.g. including court trials against governments which support flight of capital and taxes
   • letting the International Court of Justice decide on the legality of the debt of those countries where undemocratic governments (partly installed and supported by the West, as in Brazil, Guyana and the Philippines) have contracted debts in unconstitutional ways
   • allowing international teams to negotiate the conditionality of debt rescheduling.
3. With regard to structural adjustment programmes:
   • leaving aside the neo-liberal model which has proven to be not only economically ineffective but in many respects crippling and instead including social and ecological criteria
   • supporting those countries which try "Alternative Adjustment Programmes" (ASAPs) including not only social and ecological criteria but soliciting the participation of the people as is occuring presently in Guyana
   • again delinking the Lom�-agreements from the neo-liberal structural adjustment model and relying rather on alternative structural adjustment programmes
   • abandoning the imposed export orientation in agriculture as one of the crucial elements of the structural adjustment programmes and instead ensuring food security and environmental protection in the South as well as a more mixed economy which would be environmentally sustaining.
4. With regards to Transnational Corporations:
   • combatting the development of cartels and oligopolies through more effective international laws, institutions and judiciary systems because they change the terms of trade even more to the detriment of the South and the East
   • combatting transfer price manipulation which eludes proper taxation
   • strengthening the structural funds for the stabilisation of the prices of raw materials
   • ensuring that host countries which provide the infrastructure for the functioning of TNCs should have an adequate share of taxation.

If not these, which other measures would you propose?

PART II:

THE POLITICAL RESPONSIBILITY OF THE EUROPEAN UNION FOR THE INTERNATIONAL FINANCIAL ORDER WITH RESPECT TO EMPLOYMENT AND SOCIAL COHESION WITHIN EUROPE

As the EU develops into a political and monetary union it will have co-responsibility for the international financial and economic order. This includes responsibility for employment and social cohesion within Europe. Under the present system the gap between poor and rich has widened in Europe as well. Structural unemployment and new forms of poverty are growing, public over-indebtedness leads states to cut social benefits. On the other hand, banks are increasing their profits and capital is able to avoid taxes and speculate against central banks by using the mechanisms of the transnational markets. Moreover, the stability of the financial system is being undermined by financial "innovations" and speculations on the deregulated markets. This is one of the reasons leading the European Parliament to pass the above-mentioned resolution of Dec. 14, 1993. However, this resolution only looks at the dangerous effects of the globalisation and deregulation of transnational private capital on the political control of monetary institutions and the stability of the financial system. The socio-economic aspects of this phenomenon must be dealt with as well.

A. What is your response to the following long-range questions and proposals from the perspective of your political responsibility?

1. Should and how can there be an alternative global monetary and economic system which can responsibly deal with the globalisation of capital as sketched out under I.A.1., and taking into account the interests of the European societies? Particularly, how could there be a new cooperation between the EU, the USA and Japan to develop this new system as suggested by the EU Parliament?
2. Should and how can the trend towards complete detachment of the central bank system from political control be reversed and the political responsibility for social cohesion be reinforced? The present trend gives unfair advantages to owners of capital and the strong currency countries and regions.
3. Should and how can traditional smallholder agriculture, the landscape, rural economies and natural resources be protected in Europe, when the large-scale export-oriented agrobusiness is increasingly being strengthened and when agricultural policies continue to be deregulated, thus dismanteling all forms of agricultural protection?

B. What is your response to the following short-range questions and proposals from the perspective of your political responsibility?

1. Should and how can compulsory registration of financial assets and accounting of financial profits be introduced?
2. Should and how can tax havens for flight capital be closed either by taxing the tax havens or by prohibiting capital export to these places?
3. Should and how can bank secrecy be abolished not only for drug but also for capital and tax flight money?
4. Should and how can the profits on interest and speculation as well as the use of natural resources be taxed globally in a comprehensive system?
5. Should and how can there be an international system of legal assistance against corruption, capital and tax flight?
6. Should and how can the mandate of the International Court of Justice be enlarged to deal with economic and financial issues arising from relations between states, e.g. including court cases against governments which support capital and tax flight?
7. Should and how can an "economic Interpol" be developed in order to combat capital and tax flight, corruption, economic crime etc.?
8. How can the EU strengthen the public tax offices in order to efficiently curb tax flight � one of the main factors behind the deficits in public budgets leading towards a policy of social cutbacks?
9. Should and how can the tax system in the EU be reformed towards getting higher taxes on gains from financial assets and real estate and, on the other hand, decreasing the tax burden on productive labour and capital?
10. Should and how can transfer price manipulation, the development of cartels and oligopolies be combatted through more effective international laws, institutions and judiciary systems?
11. Should and how can TNCs be made more transparent especially in relation to transfer of assets?
12. Should and how can the EU further the participation of workers in decision-making through legally assured transnational workers' organisations matching the transnational structure of capital?
13. Should and how can consumers be more effectively protected against the misuse of the power of commercial banks, while at the same time giving tax advantages to alternative banks?
14. How can the EU support small farmers on marginal land and thus avoid the countryside becoming deserted, instead of subsidizing strong agricultural enterprises in well-endowed areas?
15. Should and how can comprehensive EU instruments be developed that will protect the rights and welfare of migrant workers to live and work in the EU member countries?

If you do not agree with these proposals what other institutional and political measures do you propose in dealing with the monetary causes of structural unemployment and social problems?

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