WHY ARE BANKS FAILING, MR. GIEGOLD?

[This interview published in Freitag 14, 4/4/2008 is translated from the German on the World Wide Web, http://www.freitag.de/2008/14/08140202.php. Sven Giegold is a spokesperson for Attac Germany. Important articles on global justice, alternative economic theory, financial markets and anti-militarism are available on www.attac.de, www.attac.at, www.zmag.org and www.harpers.org.]




The financial crisis intensifies. Nevertheless the Ifo-business climate index rose for the third successive time. What is the origin of this optimism?

Sven Giegold: It takes a while before financial crises reach the real economy. The International Monetary Fund, the German Central Bank and most economic research institutes are correcting their forecasts downward. There are clear signs that credits are becoming tight. In any case, the crisis will cost massive job losses and strain public budgets.

Why aren’t the central banks successfully stabilizing the markets?

Giegold: Trust is gone even when the central banks lower interest rates and supply liquidity. Lower interests do not help when banks fear becoming insolvent. This crisis will worsen as long as people do not know which institutions are stricken.

Do you regard the current world economic model as failed?

Giegold: Yes, the policy of market opening that refuses social and ecological regulations is a disaster. Markets do not function without strict rules.

Is a renaissance of Keynesianism possible?

Giegold: Keynes believed in the advantages of international trade but was skeptical about opening financial markets. He knew these financial markets tend to crises. Seen this way, we need a renaissance of Keynes to cut the financial markets down to size and shrivel them in relation to the real economy.

What measures do you propose?

Giegold: We must raise new taxes – on capital transactions, stock market profits and foreign exchange businesses. The radical deregulation of financial markets can only be cancelled this way. Closing the tax havens like the British Cayman islands would also be desirable. If capitalism can never function completely without crises, these crises should at least be weaker and erupt less frequently.

Hasn’t readiness for such a policy increased in the last months?

Giegold: Yes. Acting even if all countries do not immediately follow suit seems important to me. States that refuse regulation should feel the repercussions. Free capital transactions with those countries should be restricted.