Citizens’ control of finance
Finance plays a key role in the economy and directly affects the public interest in at least three aspects: management of means of payment, of credit and of the value of money. As a result of the progressive deregulation that has been happening since the 1970s, finance has come to assume an excessive place and excessive power in citizens’ lives, influencing various sectors of the economy and public policies.
Lessons not learned from the 2008 crisis
As recently stated by the Catholic church, the reforms instigated by the G20 and the Basel Committee, then implemented at European level by directives, have not led to a drastic reduction in the risks weighing on society. Above all, they have not called into question the role played by finance in our economies. The central banks’ policies of quantitative easing rescued the financial system but have not served the real economy, as was reiterated recently by a member of the Executive Board of the European Central Bank.
The 2008 crisis highlighted these dysfunctionalities, but a few reforms, even those heading in the right direction, are not enough to make the necessary paradigm changes. This is explained among other things by the resistance of the financial players, who are often very close to the political decision-makers and regulators. At the end of the day, speculative activities remain too attractive, shadow banking is no better regulated, banks are still too big, and credit is insufficiently aligned with the economy – the market activities of the major European banks still represents more than 70% of their activities compared with less than 30% in the real economy.
Deregulation that entrenches inequality and puts a brake on essential transitions
Constant financialisation puts a substantial brake on change to economic models; change that is necessary if we are to meet the challenges of social and ecological transition. Moreover, financialisation has a structural effect on societies, among other things by aggravating inequalities of inheritance and income. At the same time, bringing states’ national debt to the market has led to a situation of overindebtedness. This overindebtedness prevents them from implementing ambitious public policies in the areas of social protection, investments to help deal with the climate crisis, and development in countries of the southern hemisphere. This is all the more so since these states’ private creditors often favour austerity measures, which are counter to the public interest and doomed to fail in the light of this very overindebtedness.
The financial regulations are largely drawn up by bodies that are independent of the political powers (for example, the central banks and their international groupings). Counter-intuitively, the major players in the finance sector are overrepresented in these organisations. Moreover, the majority of developing countries are excluded even though they are subjected to the negative effects of the financialised system.
Taking back control of financial regulation
The ‘Finance to Citizens’ report by the Secours Catholique-Caritas France organisation is rooted in the social doctrine of the Church and proposes a collection of measures designed to ensure that finance serves the public interest.
Just as financial activities affect all citizens, it is appropriate that account should be taken of citizens’ expectations in the definition and implementation of the regulations governing the scope of financial activities. It is therefore essential to open up the rule-making bodies to citizens and to developing countries, and to make them more answerable to national parliaments.
This will facilitate the reorientation of financial flows towards socially and economically useful activities (such as the energy transition), in particular by activation of monetary tools (designated monetary creation and compulsory reserves fixed according to the needs of the various sectors) and prudential ones (increase in the ratio of equity capital demanded by banks for harmful activities such as those involving fossil fuels).
These measures will enable the short-term logic of financiers to be broken, and should be augmented with a far-reaching revision of the financial system, essentially by at last controlling shadow banking, by fixing sound prudential rules and by limiting the activities of banks to those that serve the public interest.
A few months away from the European elections, it is time to put financial regulation back on track and to return it to the service of our citizens. It is therefore crucial that the policy-makers and candidates reinvest in this issue, which should be at the centre of political debate.
Advocacy Officer for Finance at Secours Catholique – Caritas France
Director of Finance Watch
Author of ‘Finance to Citizens’, available from www.lafinanceauxcitoyens.org
See the full “Finance to Citizens” report
Translated from the original text in French
The views expressed in europeinfos are those of the authors and do not necessarily represent the position of COMECE and the Jesuit European Social Centre.