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Crisis has been one of the most frequently uttered words since the second half of 2008. Bad news came out of the box in an endless stream – bankruptcy, unemployment and bad debts. Due to intense efforts to stimulate global financial machinery, the economy finally started to see signs of recovery by late 2009. Now many observers are still pondering how the economic system went so awry, and Guy Verhofstadt, former Belgian Prime Minister, is one of them.
Guy Verhofstadt is leader of the Alliance of Liberals and Democrats for the Europe group of MEP’s in the European Parliament. Prior to his current post he served as Prime Minister of Belgium heading three separate governments from 1999. In addition to his duties as a politician, Guy has written a number of books including The United States of Europe, The New Age of Empires and The Financial Crisis: How Europe Can Save the World.
In his latest book, Guy points out that the current financial crisis confirmed the inevitable: the bankruptcy of the American model of growth, which is based on putting off paying bills indefinitely and leaving debts to future generations. Thanks to artificially low interest rates, every family, business, and even government, no matter rich or poor, big or small, is borrowing for investment, purchases and expenses. This mode has resulted in economic overheating and financial bubbles, huge trade deficits, budget deficits and massive public debt.
This is the first major crisis of the era of globalization. Many international organizations have taken action to fight back, including the G8, G20, IMF, OECD and World Bank. But in Verhofstadt’s view, it is Europe that can, and should, lead the way to global recovery.
The European Union has over 49 million people, a consumer market larger than the U.S. Its GDP reaches 15 trillion Euros, while the U.S.’s hovers around 10 trillion. Although the debt ratio is rising, the EU maintains a relatively high average rate of savings, about 11 percent of its GDP. The middle class accounts for 70 to 75 percent of the population, ensuring sufficient savings and social stability. It successfully balances trade and overall budgets. And last but not least, the Continent has a new currency, the Euro, which protects its member states from dramatic devaluation, as well as functioning as a lever to boost the world economy.
But Verhofstadt acknowledges that European banks have accrued a large number of debts through the acquisition of highly toxic financial packages, which have eroded the influence of European banks. He therefore put forward a threefold solution.
He suggests the re-capitalization of the banks, and the creation of a European “bad bank” to manage all the toxic products from the European banks, as well as cleaning up the banking sector and establishing a new financial supervisory system. The next step is restructuring the European economy on the same scale to address issues like mobility and aging problems. To achieve these ambitions, the current European recovery plan should be plumped up by at least a further 400 billion euros. Verhofstadt believes that the European Investment Bank should issue European bonds to finance this scenario.
Noting the various recovery efforts of its 27 member countries, Verhofstadt, the staunchest advocate of the European Union, further suggested a European investment plan and a possible euros bond market. He pleads for increased European integration and less protectionism. “Europe has no other option in the new world order than to go in a more federal direction, in a more united way of thinking and doing.”
Emphasizing the role the EU can play in the crisis, Verhofstadt also advocates a multi-polar trend, which will promote more fair and democratic international relations. He applauds the excellent performance of emerging markets like the BRIC. China, for example, carried out a bailout of RMB four trillion to combat a sharp slide in exports and foreign investments. But he also points out that China’s transformation to an industrial- and service-oriented economy is far from over, which means it can’t exhaust all of its potential on global economic recovery.
Verhofstadt calls for unity with the developing countries and for them to be given full play in the WTO. Compared with developed countries, the developing ones are more vulnerable in the financial crisis. They are also easily stunted by the effects of protectionism, policies that have prevailed over the last several months. Without the support and participation of developing countries, it is impossible for human beings to fight against the global issues of climate change, poverty, migration and other shared challenges.
Guy Verhofstadt is leader of the Alliance of Liberals and Democrats for the Europe group of MEP’s in the European Parliament. Prior to his current post he served as Prime Minister of Belgium heading three separate governments from 1999. In addition to his duties as a politician, Guy has written a number of books including The United States of Europe, The New Age of Empires and The Financial Crisis: How Europe Can Save the World.
In his latest book, Guy points out that the current financial crisis confirmed the inevitable: the bankruptcy of the American model of growth, which is based on putting off paying bills indefinitely and leaving debts to future generations. Thanks to artificially low interest rates, every family, business, and even government, no matter rich or poor, big or small, is borrowing for investment, purchases and expenses. This mode has resulted in economic overheating and financial bubbles, huge trade deficits, budget deficits and massive public debt.
This is the first major crisis of the era of globalization. Many international organizations have taken action to fight back, including the G8, G20, IMF, OECD and World Bank. But in Verhofstadt’s view, it is Europe that can, and should, lead the way to global recovery.
The European Union has over 49 million people, a consumer market larger than the U.S. Its GDP reaches 15 trillion Euros, while the U.S.’s hovers around 10 trillion. Although the debt ratio is rising, the EU maintains a relatively high average rate of savings, about 11 percent of its GDP. The middle class accounts for 70 to 75 percent of the population, ensuring sufficient savings and social stability. It successfully balances trade and overall budgets. And last but not least, the Continent has a new currency, the Euro, which protects its member states from dramatic devaluation, as well as functioning as a lever to boost the world economy.
But Verhofstadt acknowledges that European banks have accrued a large number of debts through the acquisition of highly toxic financial packages, which have eroded the influence of European banks. He therefore put forward a threefold solution.
He suggests the re-capitalization of the banks, and the creation of a European “bad bank” to manage all the toxic products from the European banks, as well as cleaning up the banking sector and establishing a new financial supervisory system. The next step is restructuring the European economy on the same scale to address issues like mobility and aging problems. To achieve these ambitions, the current European recovery plan should be plumped up by at least a further 400 billion euros. Verhofstadt believes that the European Investment Bank should issue European bonds to finance this scenario.
Noting the various recovery efforts of its 27 member countries, Verhofstadt, the staunchest advocate of the European Union, further suggested a European investment plan and a possible euros bond market. He pleads for increased European integration and less protectionism. “Europe has no other option in the new world order than to go in a more federal direction, in a more united way of thinking and doing.”
Emphasizing the role the EU can play in the crisis, Verhofstadt also advocates a multi-polar trend, which will promote more fair and democratic international relations. He applauds the excellent performance of emerging markets like the BRIC. China, for example, carried out a bailout of RMB four trillion to combat a sharp slide in exports and foreign investments. But he also points out that China’s transformation to an industrial- and service-oriented economy is far from over, which means it can’t exhaust all of its potential on global economic recovery.
Verhofstadt calls for unity with the developing countries and for them to be given full play in the WTO. Compared with developed countries, the developing ones are more vulnerable in the financial crisis. They are also easily stunted by the effects of protectionism, policies that have prevailed over the last several months. Without the support and participation of developing countries, it is impossible for human beings to fight against the global issues of climate change, poverty, migration and other shared challenges.