The crisis, its origin and solution: differences of opinion in the Vatican

11/ 4/2011


Justice and Peace ten days ago published a document requesting a world political authority and the taxation of financial transactions. Now in “L'Osservatore Romano”, the president of the IOR offers a different recipe

Against G20

Andrea Tornielli
Vatican City


Ten days ago, the Pontifical Council for Justice and Peace, led by Cardinal Peter Appiah Turkson and bishop Mario Toso, published a document dedicated to the economic-financial crisis and its possible solutions. The document listed among the causes of the crisis, the economic system “pushed towards an inflationary spiral” , the “excessive liquidity and the speculative bubble that later became a serious crisis of insolvency and trust that propagated itself and was protracted over the years”. For the Vatican dicastery, “The speculative bubble regarding real estate and the recent financial crisis have the same origin in the excessive amassing of money and financial instruments on a global scale”.

The document affirmed that to come out of the crisis, a world political authority is necessary, which would guarantee market transparency. It even suggested three concrete proposals which, for that matter, are not even new: taxing financial transactions, because those who operate in the financial markets should contribute to pay the costs of the crisis; recapitalizing the banks; and distinguishing between ordinary credit activities and those of Investment Banking.

“L'Osservatore Romano”, published this afternoon but with tomorrow's date, bears an article by Ettore Gotti Tedeschi, president of the IOR, with the heading “In front of the prospects of deflation. A new model of leadership”, that sounds like a correction of course and at any rate is a different viewpoint on the crisis.

Gotti, who in the article never once cites the document from the Pontifical Council for Justice and Peace, affirms that “the errors of interpretation and the underestimating of the current economic crisis have been grave and continue”. And he reaffirms how much he himself has often affirmed even from the columns of the Vatican's daily, and that is, that the “true origins” of the crisis are “the decline in the birth rate, and the consequences that have led to the increase in taxes on the GDP to absorb the population's costs of aging”, themes unaddressed by the text from Cardinal Turkson's dicastery.

For Gotti Tedeschi, “the effects of decisions made to compensate these phenomena have been underestimated, above all with the delocalization of production and with the debt consumption”. He continues: “then, not enough consideration was given to the urgency of intervening and the criteria to be followed to deflate the debt produced. Thus, no one foresaw the collapse in trust that led to the redimensioning of the stock markets' prices and the debt crisis”.

For the president of the IOR, “at this point, there aren't many solutions left”, and to reduce the total debt “of the public, the banks, companies, the families – and bring it back to levels preceding the crisis, that is, to about 40 percent less, it is imaginable, but not advisable, to cancel a part of it with a type of preventive agreement on the basis of which creditors would be paid at 60 percent”.

“It is imaginable”, Gotti adds, “though it's a hypothesis with no future, to invent some new bill to compensate for the debt with a growth in the value of movable or immovable goods. It is worth considering – but we hope this is only an attempt – a tax on family wealth, sacrificing however a necessary resource for development and at the same producing time an injustice”.

The president of the IOR considers protective measures inappropriate, as “they would produce disadvantages for consumers and would reduce consumptions which are already in decline”, nor does he agree with devaluing the single currency, because “it would lead to an increase in the price of imported goods”. “Someone, to deflate the debt”, reads the article in L'Osservatore, “must also consider inflation. But inflation does not take place if there's zero economic growth, if salaries are frozen, if the shadow of unemployment looms and if even the prices of raw materials are in decline”. A passage that leads one to believe Gotti does not share the analysis of the document of the Pontifical Council for Justice and Peace, retaining instead that today the problem is not inflation – as the Vatican dicastery suggested – but deflation.

“There is no inflation”, writes the president of the IOR, “in part because cash is not circulating, but above all because the liquidity created by the central banks has substituted that produced by the banking systems to sustain due growth. The main problem today is not inflation but deflation. The markets are favoring liquidity. This is because in a deflationary system, the value of money grows, while during inflation it decreases”.

To make the economy progress without increasing the public debt, the author of the article affirms that it is necessary “to correlate interest rates to the GDP”. “In countries with a public debt above 100 percent of the GDP, it is evident that, to obtain a 1 percent growth without causing the debt to rise, interest rates cannot exceed 1 percent, thus penalizing savings».

“The solution”, Gotti concludes, “is in the hands of the governments and the central banks, who must carry out a coordinated strategic action of reindustrialization, the reinforcement of credit institutions, and support for employment. This will take time, a time of austerity in which to reconstitute the fundamentals of economic growth. But above all, governments must inspire trust in the citizens and the markets through a mode of governing that is suited to the times, that, besides guaranteeing technical competence, would also be a model of leadership. That is, an instrument to reach to objective of the common good”.

No reference to the hypothesis of a world political authority, nor even a hint at the possibility of taxing financial transactions. In the end, another point of view about the crisis, printed in the Pope's newspaper, hardly ten days after the presentation of a document on the crisis generated by a dicastery of the Holy See.


Source