Ecuador’s President Rafael Correa has been re-elected by a landslide.
Shortly after he was first elected, Ecuador was hit hard by the international financial crisis.
How is he so popular? Because unemployment has fallen to 4.1%, a 25-year record low, poverty is down by 27%, spending on education has doubled, spending on healthcare is up, the economy is sound. How? Not by austerity. Correa pumped money into the economy. He re-regulated the financial sector. He took control of the central bank.
The contrast with Europe couldn’t be greater. Here, austerity’s results are: Spanish unemployment is 26%, but 55% for under-24s; Irish unemployment is 15%, and would be higher but for emigration; debt and poverty are rising.
The European Central Bank (ECB) is not under government control; it is ‘independent’. It can lend to reckless banks (via national central banks), it can lend to governments to pay the debts of reckless banks (our promissory note arrangement, via the Irish Central Bank), it can lend to governments to buy assets, potentially worth little, from reckless banks (Nama), but, amazingly, it cannot lend to governments to spend on education or health. That’s a strange ‘independence’. If eurozone governments need to borrow money for these things, they have to do so from the reckless banks they have just bailed out, and at higher interest rates than those banks pay when they borrow from the ECB. The Government says the ECB loan to pay the Anglo promissory note spreads the repayments (for which we get nothing in return) over a longer time, at a low interest rate, reducing the pain. The same argument can be used against the Government’s austerity policies; reducing the budget deficit (for which we get lots in return) over a longer time would be less painful.
They say borrowing from the ECB, with its low interest rates, is good. With the promissory note, they say it helps the budget deficit and a return to borrowing from banks. Both are a problem for the same reason: the State needs to borrow and the banks have been charging too high an interest rate. The Government has to borrow from these banks to fund the State because, unlike these banks, the Government can’t borrow, for this purpose, from the ECB, with its low interest rates. That’s why we had a punitive bailout. If we could get cheap loans from the ECB, bypassing the banks, we would reduce the deficit more gradually, but less painfully. But that would require the ECB to be run like Ecuador’s central bank.
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