Financial crisis should provide impetus for real change of our flawed economic system by Claude Turmes, MEP vice-chair of Greens in European Parliament Against the backdrop of perhaps the deepest economic crisis ever faced by the European (and global) economy, EU leaders will meet at this week's summit (15-16 October). Top of the agenda will be to ensure their response to what is one of the deepest economic crisis ever faced by Europe's economic system is effective. The initial knee-jerk reactions in many member states resulted in an everyman-for-himself approach, which in some cases accentuated problems elsewhere. What is now needed is a coherent and common European approach, based on a clear long-term strategy and not just ever-accumulating bail-outs; only by doing so will the crucial confidence be restored to the economy here and beyond. This approach must entail a reform of the fundamentals of the economic system that has been defined by global capitalism. The current financial crisis is just one symptom, albeit a traumatic one, of the flaws of our system. Systemic malaise The obsession with perpetual GDP growth, based on speculation and notional measures of wealth, has come at a high cost. This growth has been built on the damaging and unsustainable exploitation of scarce resources - whether of fossil fuels (like oil and gas), minerals, timber, agricultural or marine resources. The narrow and self-interested approach of those involved means that, all too often, this exploitation has been carried out without any respect for the sources and regard for the long term consequences, such as on ecosystems, biodiversity or the climate. Worse, despite all the 'growth' generated by this short term speculation and exploitation, the gap between the rich and poor has widened. The concept of 'sustainable development' is not new. Efforts to reconfigure the global economic model along the lines of sustainable development have been in the political mainstream since the 'Earth Summit' in Rio de Janeiro in 1992. Progress has been limited. However, this current shock to the economic system should be seen as an opportunity to address the fundamental problems of the system, not as an excuse to stymie these necessary reforms. It is not surprising that polluting industry sectors are trying to use the current financial crisis as an excuse to, once again, delay the reform of the outdated energy and resource system, on which our economy is based, and delay urgently needed action on climate change. These industries have based their business model on the maximisation of profits in the short-term, with no regard for the long-term economic consequences of their actions - in this sense the most polluting car manufacturers or utilities are no different from the
most reckless financial firms, whose speculation and lack of regard for their operating environment has led to the current crisis. And the US automotive crisis shows that ignoring fundamental truth like peak oil can eliminate whole car companies which did not adapt in due time. There is more than a sense of 'groundhog day' about this. We only need to look back to the early 1990s, when energy-intensive industry sectors lobbied successfully against an energy tax. Then, they argued for a more marketbased system but those same sectors are now screaming blue murder about the market-based Emissions Trading Scheme. The same is true for car manufacturers who saw off attempts to impose binding efficiency standards, with the obvious regressive consequences. EU leaders must not fall into the same trap again. Allowing polluting industries to dictate the terms of energy and environmental legislation, is the same as asking the former CEO of a failed over-speculative bank to draw up the rules for the banking sector. This approach has failed before and can only fail again. Curing the system Just as the financial sector needs a new of rules to prevent high risk speculation at the expense of customers' assets, we need a new set of rules for other elements of the economy that have failed. A set of rules that ensures that finite natural resources and the ecosystems on which they depend, cannot be terminally over-exploited for the short-term profits of irresponsible industries. Clearly, the first immediate priority must be resuscitating the banking system and creating an environment in which it can start to function again. However, this is only the very first step. We need to cure the overall systemic problems of our economy and not just treat the symptoms as they arise. Member state governments will have to be vigilant in ensuring that small and medium enterprises (SMEs), as the backbone of the economy, continue to have access to sufficient credit. The 30 billion loan facility provided by European Investment Bank is a good first move in that direction. Enough revenue must be set aside for lower income households, which have been particularly hit by inflation over the past year, such as through higher energy prices; not only through direct means but also by adjusting real incomes to take account of inflation, such as through automatic indexation. This will help prevent a drastic and damaging decline in economic activity. The European economy needs to become more resource efficient and shift away from resource over-exploitation. This necessarily entails reducing our dependence on oil and, to a lesser extent, gas imports. This dependence undermines domestic growth and leaves our economy at the mercy of unstable states, with damaging inflationary consequences. Achieving this will require investment, both public and private. This will have a key role in the realising the fundamental systemic shift through investment in
areas like improving the efficiency of the housing sector, more efficient industrial production processes (and more efficient products), improving energy infrastructure (supply networks and sources like renewables) and so on. The housing sector was a prime victim of our current speculation crisis. While there is likely to be a scale back in new construction, a crash program to stimulate renovation of existing buildings is crucial to this shift. Research (such as on the German KfW loan program) has shown that every €1 of public money can trigger €5-8 of private investment, with additional relatedeconomic activities/services creating new sources of revenue to compensate for the public subsidies. Such a program would also reduce energy bills, help reduce climate damaging emissions and also reduce EU gas imports from Russia, giving us more negotiating strength vis-à-vis other major gas importers. More efficient industrial production is a 'no-brainer', whether for producers or consumers: greater efficiency will improve profit margins and should reduce prices, thereby stimulating consumption. It is clear how public investments in this area could also be recouped in revenue from increased commercial activity. Reforming the outdated energy system, on which our economy is based, to make it more efficient, less damaging and more sustainable, in economic and environmental terms, will also be crucial. Investment in the supply networks will both help improve their efficiency (reducing the significant losses incurred in transporting energy) and remove obstacles to a meaningful expansion of renewable energy sources - whether through tapping the enormous potential of offshore wind or of solar power from desert areas. This would also bring enormous employment benefits - helping to compensate for losses in other sectors. The potential for the growth of a 'green collar' workforce is gaining increased currency among economists, with the example of Germany (where around 250,000 are employed in and around the renewable sector) cited as proof. As the ILO-Study on green jobs shows by 2030 at least 20 million additional jobs can be created in the renewable sector. Obviously, we must ensure that the excesses and damage of our previous system of over-exploitation are not repeated. A more sincere commitment to development policy is in the interest of both developed and developing countries. Industrialised countries also have responsibility for assisting developing countries to meet the challenge of mitigating and adapting to the impact of climate change. This will need to go hand-in-hand with effective measures to halt biodiversity loss. However, it is important to throw some perspective on the effort required for this shift. First of all, unlike much of the funding made available to 'bail out' irresponsible banks, this funding will be invested in employment and economic growth generating activities. While estimations on the cost of global
climate change mitigation vary - with Lord Stern's latest estimate at around 2% of GDP - most analysts accept the costs of inaction will be much greater and that the mitigation investments will also bring about net economic benefits. When this is compared with the trillions of dollars now being pumped into the black hole of the financial system, it is not hard to see where the value for money lies. Pavlovian lesson The current financial crisis is naturally absorbing the attention of all governments at present and they urgently need to find the means to breathe life back into the banking system. However, they must resist pressure from the same old industrial laggards to shy away from necessary systemic reforms. The pavlovian lesson must be learnt from previous crises. EU leaders should realise that this crisis offers a real opportunity to transform our economic system into one that is sustainable and future-oriented. The good lesson of the banking crisis is that public banks which took lower risks in their investment policies see now massive influx because citizens and business have rightly so more trust in them and also ethical banks and investment funds get more attention because environmental and social standards prevented them from relying on the casino-economy. We urgently need a Keynesian investment offensive in Europe that will promote the sustainable development of our economy in a way that avoids the damage caused by the previous model of speculation and over-exploitation. This includes an investment plan for renewable energy, energy saving and efficiency measures, a climate- and economically-friendly building sector and sustainable transport. We also need to inject more support to education and training to equip Europe for the future. EU leaders must open new avenues to finance this investment: for example by increasing the European Investment Bank's powers to provide credit for the necessary investment for our environment. Only by taking this opportunity can we move beyond the vicious circle of boom and bust in which our current model seems to have us trapped to a new system that will offer generations-to-come a future based on stability, sufficiency and sustainability.