PARIS, Sept. 6, 2012 (Nouvelle Solidarité) – With the Belgian state (once again) pressured to bail-out the Belgo-French giant bank Dexia, leading political forces in Belgium have put again the Glass-Steagall solution on the table.
Last weekend, Socialist Belgian Prime Minister Elio di Rupo, visibly aware of the latest outcry for such a solution by some quarters in the UK and the US, as communicated to them by the LaRouche movement Agora Erasmus, has been quite explicit. In the leading Belgian daily La Libre Belgique, when asked on Sept. 1, what kind of banking reform he was considering, answered:
“One of the big problems is the size of banks. In the UK, the banks represent 600% of GDP, in Denmark 500% of GDP, in the Netherlands, France and Belgium, they represent between 360 and 400%. As soon as the banks have a problem, the impact on the nations is gigantic. We have to exit the financial systems own logic of privatizing profits and socializing losses. The financial assets circulating in the financial world aren’t any longer, in a sufficient way, dedicated to the real economy. That isn’t normal. There exists a demand, in Belgium as in other countries -for example in the United States – to break up the banks: on the one side the deposit banks, on the other the investment banks. Ideas are being worked out, in Belgium at the national bank and on the European level.”
La Libre Belgique then tries to downplay this by asking the PM “There is a lot of ideology in this debate.” Elio di Rupo (Belgian PM): “Yes, true. But the situation is untenable. It is madness. When Dexia, Fortis (now part of BNP-Paribas), had difficulties, they knocked on the door of the State. To help them, the Belgian State had no other choice then to lend money and increase its volume of debt. But the same banks now are giving us lessons and claim the state is too much indebted.! One has to stop being un-serious. My conviction is that we have to arrive at breaking up the banks, to reduce their size and protect the assets of the citizens in a way we can avoid States having to intervene. Legislation has to be adopted which makes it so that the consequences of all risk behaviour goes to those engaging in it. We need clauses inflicting direct penalties in the same time to the management and the share holders in case of manifest errors. Because today, people are afraid. Up till 2008, people believed banks were safe places to manage their belongings. Now we realize that in reality they are gambling with the money of the depositors.”
The PM’s message created quite a shock with some right wing Christian democrats saying that Belgium can’t go back to “archaic” savings and loans policies. More interesting was the comment of leading Flemish economist Paul De Grauwe (London School of Economics, Leuven University) in Le Soir. In 2008, ten days before the G-20 summit, De Grauwe published an article calling the G20 to convene a Bretton Woods II conference whose center piece of legislation needed to be a global Glass-Steagall banking separation. Reached by EIR in 2010, De Grauwe said that such a Glass-Steagall was impossible since the “momentum” in 2010 was gone since the “perception” of a systemic crisis was gone.
Reacting on the Belgian PM declarations, De Grauwe seems waking up and writes in Le Soir on Wednesday Sept. 5: “Breaking up the banks: good luck Mister Prime Minister!”:
“Four years after the outbreak of the banking crisis, the Belgian government makes a proposal for fundamental reform of the banking system. It proposes to break up the banks. On the one side there will be the deposit banks, on the other, the investment banks. At last, one would say. Since year, quite a few economists have insisted that such an operation is essential for the stability of the financial system.”
De Grauwe then outlines how the suppression of Glass-Steagall generated the current crisis and how states are taken hostage by the universal banks. Therefore, says De Grauwe, we have to break up this asymmetry. And there exists only one way to do that: the break-up of our banks which are today in the same time deposit banks and investment banks. This break-up is essential to maintain financial stability and for our well being. It will not be a picnic for the Prime Minister. The banking lobby is ready for a disinformation campaign. Here are the arguments they will throw to our heads.” De Grauwe then goes through all the sophistical arguments to oppose a full fledged Glass Steagall: “too many practical problems, you can’t do it unless everybody does it also, our banks will be less competitive, we will achieve less economic growth, etc.”
De Grauwe concludes: “The task of the Prime Minister will be tough. He will be confronting a financial lobby which will mobilize vast resources to make a break up of deposit and investment banks a failure. A lot of courage will be required. I wish him a lot of success”