Feature Article

Local solution to Greece’s international crisis

Distributism and debt in the eurozone

With no sign of the Greek economic crisis abating and fears of its toxicity for the rest of Europe, bankers were this week meeting EU officials to discuss the country’s debts. Here one economist suggests that the lessons of Chesterton, Belloc – and Argentina – might be helpful in finding a way out of the mire

If you owe the bank $100, that’s your problem. If you owe the bank $100 ­million – or about 340 billion euros, in the case of Greece – that’s the bank’s problem. John Paul Getty’s old aphorism was true when he said it and it is true now, and – despite their bluster  – the banks and other institutions across the eurozone know it.

To avert disaster, there has to be a believable process whereby the bankers can extract huge sums from the Greek economy over the next generation. It may well be impossible. Either way, it is the ordinary people of Greece who will suffer the most, even if their Government defaults.

It is noticeable how much the business of rendering unto the banks dominates all the debate about this, rather than the realities of ordinary life in Greece for the foreseeable future. But is there an approach to local economic survival – a kind of Distributist approach – which might have some chance of keeping civilised life going during the process of extraction.

Nearly 10 years ago, the New Economics Foundation’s Jubilee Research team published a proposal called “Chapter 9/11” which ­suggested a procedure whereby countries could go bankrupt and get protected from creditors as if they were companies. The Jubilee framework would kick in when any indebted country reached the point when debt was undermining fundamental human rights. It was the brainchild of the foundation’s fellow Ann Pettifor, a leader of the Jubilee 2000 debt campaign, and emerged out of the Argentine debt crisis in 2001.

The point was that the International Monetary Fund (IMF) should no longer be plaintiff, judge and jury in these cases. The same might be said in the eurozone about the European Central Bank. The citizens of a bankrupt country should have as much right as the creditors to be involved in the business of deciding how to escape the debt wreckage.

Part of the problem in Greece is that the Greek people are simply confronted with decisions made in Frankfurt, rather than being involved in whatever deal might be possible.

But “Chapter 9/11” still raised an important question – how on earth can a country recover from virtual bankruptcy, especially when it has no currency of its own that can be devalued? Here there is remarkably little debate. The assumption is that decades of serious austerity lie before the Greeks as they dedicate their work and imagination to satisfying the world’s bankers for years to come. In the absence of bankruptcy protection for nations – or the people who live in them – what can they do? What would Belloc and Chesterton have suggested had they been here to advise us? I imagine they would have suggested learning the lessons of Latin America, a decade after the bankruptcy of Argentina.

One of the lessons there has been the ability of new kinds of money to keep people alive while the bankers extract their pound of flesh. The problem with the euro, in this respect, is not that it is too big, it is because it is the only means of exchange available to Greece. Its interest rates are set to favour the financial centres of Europe. For single currencies – whether they are the pound, the dollar or the euro – don’t measure the local needs and assets in individual economies very accurately. What they miss out gets ignored; then it gets forgotten. It’s as if only what distant bankers and speculators say is important.

Currencies are not just measuring systems: they are eyeglasses. They are the way we see the world. If we only have one vast currency, like the Greeks, the economy will tend towards monoculture and, in their case, a rather quiet one while the money gets extracted.

This is not to suggest that the Greek shipbuilders, and the other backbones of the Greek economy, should somehow stop earning dollars and euros. This is how the bankers will be paid. It is that, like all economies, there are at least two layers. And the local layer, which keeps people alive in the hard times, needs extra help to stay alive.

Communities across Greece will be the same after national bankruptcy, after all. There will still be things people need and others willing to do the work, but there will be a serious lack of money to bring the two sides together. That is where we need new, local means of exchange.

This is a lesson forgotten since medieval times, when alongside the gold and silver coins circulated a whole range of tin coins – worthless in international times, but providing the means of exchange around cities and cathedrals.

Argentina plunged into new kinds of money more than a decade ago, and in a similar situ­ation – their currency was tied to the dollar. The IMF was horrified at the notes issued by regional government and stamped them out. But people power came up with its own solution. By 2002, the local money printed by organisations known as “global barter clubs” were supporting around two million people. Inevitably, that pressure was too strong and widespread counterfeiting brought the experi­ment to an abrupt end – though there are still global barter clubs there and in Venezuela.

But a decade on, local money has got more sophisticated. The Central Bank of Brazil took legal action against its new community banks, lost, and is now fully supporting the initiative – the first central bank in the world to do so. There are now 51 community banks in Brazil, issuing and managing social currencies – which are legal food and transport tokens – but also organising low-interest microcredit loans in both currencies. To get these loans, you can bypass the credit-protection agencies as long as your neighbours vouch for you. There are plans for 300 community banks by 2012.

Even more sophisticated are the Commercial Credit Circuits (C3), now in five Latin American countries, and developed by the Dutch consultancy the Social Trade Organisation (STRO), backed by the World Bank, the International Labour Organisation (ILO) and the European Commission. They are designed to increase the liquidity of small to medium-sized enterprises. The C3 factors their debts, insuring them against default and paying out in C3 credits instead, all to speed up the circulation of money in the small business sector. There is usually a negative interest of 0.5 per cent to stop people hoarding credits. All state-owned enterprises (water, electricity, public transport, communication) now accept C3 credit and taxes can be paid in C3 credit too.

A Distributist approach to surviving national bankruptcy, if there is one, would provide these extra means of exchange so that ordinary life can carry on. In fact, providing this kind of alternative to the euro in people’s lives might make some kind of bail-out more acceptable politically.

One more point. It is strange that the European Commission can back C3 in Uruguay, but apparently not in Greece – or other parts of Europe, like our own cities, where small enterprises no longer get support from the banks.