Practice teaches us that things could be done differently

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Arnold Merkies was recently elected to the Dutch Parliament as a Member for the radical left, EU-critical Dutch Socialist Party, for which he is now parliamentary spokesman on economic and financial affairs. ‘The crisis is no natural phenomenon,’ Merkies insists, ‘but the result of human failure.’ He remains, however, optimistic. ‘From experiences in for example Iceland you can see that another economic route is not only possible, but can also be successful’.

Arnold Merkies was interviewed by Arjan Vliegenthart for the Dutch Socialist Party cadre bulletin Spanning. Translation by Steve McGiffen.

Spanning: Our economic planning, national and international, has been really shaken. But do you believe also that much has changed?

In the last few years a great deal has happened. Banks have gone bust, states have jumped to their aid and are now experiencing problems throughout Europe and beyond. In that sense a lot has happened. But also in recent years  a striking amount has failed to happen. I only have to point to the October, 2012 edition of the IMF’s Global Financial Stability Report, in which is stated that five year after the onset of the financial crisis the worldwide financial sector is little changed. The system, they say, is still in all cases far too complex and banks can easily evade new rules.  

How realistic is it that the financial system will be reformed during the next few years?

Eventually the financial system will be reformed. How quickly and effectively that is going to occur depends on the political will to carry out change. Right-wing politicians are really holding this back. They compare the crisis to a natural disaster which has overcome us. In reality the financial system and the way in which we organize our economy is determined by ourselves. That means that it’s also down to us to change it.

But how realistic is that? Can the Netherlands on its own change the European, let alone the global system?

Of course international solutions have to be found. The movement of capital across borders is much greater than it was in the past. European countries must cooperate when it comes to surveillance. The Netherlands can certainly make a difference, though. It’s just that this influence has in recent decades been used for the bad, by being a major booster of international deregulation. Now the Netherlands can show that it’s learned, by arguing instead for strict rules and even by setting a good example.

Won’t that be at the expense of our prosperity?

That certainly isn’t the case. Look for example at Iceland, which was hit much harder by the banking crisis than we were. You will see that the country has drawn lessons from the poor choices it made in the past. In the meantime it’s opted for another course, and the banks’ losses passed on to the creditors rather than the taxpayer and the welfare state was protected. According to the IMF this new policy is beginning to bear fruit. In the runup to the crisis many economists said that a big financial sector was good for the economy.  Recent studies show, however, that the growth of the economy will be hindered if credit available to the private sector from the banks exceeds more than 110% of GDP. With a banking sector 4.5 times greater than our economy the Netherlands is way above this level. A more modestly proportioned financial sector need certainly not be at the cost of prosperity. On the contrary, if banks were to apply themselves once again to what they’re for, supporting the real economy, that could deliver prosperity.

Arnold Merkies is an economist and Member of Parliament for the Socialist Party of the Netherlands.