The Sovereign Doubt Crisis

A European solution for all of us

Marco Alexander Peel

February 2015

Index
1 Sovereign doubt .........................................................................................................................................5
1.1 Past future tense ............................................................................................................................5
1.2 The mother of all crisis .................................................................................................................5
1.3 Change is in the air .......................................................................................................................6
1.4 Chinese takeout ............................................................................................................................7
1.5 Press Reset ....................................................................................................................................8
2 Euro Crisis................................................................................................................................................10
2.1 Not very productive ....................................................................................................................10
2.2 Hot air .........................................................................................................................................13
2.3 Eur 0 or my 0?.............................................................................................................................14
2.4 Bail In or Bail Out ......................................................................................................................17

2.5 Shock therapy ................................................................................................................19

3 Austerity ...................................................................................................................................................21
3.1 Blowing bubbles .........................................................................................................................21
3.2 Magic realism .............................................................................................................................22
3.3 Dj vu ........................................................................................................................................23
3.4 The rain in Spain .........................................................................................................................24
3.5 German efficiency ......................................................................................................................25
4 Cohesion ..................................................................................................................................................28
4.1 A bad hair day .............................................................................................................................28
4.2 The Trojan hearse ........................................................................................................................28
4.3 Weimar 2.0 ..................................................................................................................................30
4.4 EUthanasia ..................................................................................................................................32
4.5 A Mediterranean Pact ..................................................................................................................33
5 Accountability ..........................................................................................................................................36
5.1 The man who brought down the Bank of England .....................................................................36
5.2 The R in Cash ..........................................................................................................................37
5.3 Curb the bear, cut the bull ...........................................................................................................38
5.4 Too big or not too big ..................................................................................................................39
5.5 Hung over....................................................................................................................................41
6 Economy ..................................................................................................................................................43
6.1 Its not about the size of your gun ..............................................................................................43
6.2 Perpetual growth .........................................................................................................................44
6.3 The art of science ........................................................................................................................45
6.4 Free to choose .............................................................................................................................46
6.5 The business of big business .......................................................................................................47
7 Transparency ............................................................................................................................................51
7.1 Anonymous Inc. ..........................................................................................................................51
7.2 A most taxing problem ................................................................................................................52
7.3 Made in grease ............................................................................................................................54
7.4 Clear as mud................................................................................................................................55
7.5 Open information ........................................................................................................................56
8 Development ............................................................................................................................................58
8.1 Proper breeding ...........................................................................................................................58
8.2 Alien invasions ............................................................................................................................60
8.3 A small world ..............................................................................................................................61
8.4 A free lunch .................................................................................................................................62
8.5 Fair Trade ....................................................................................................................................63

9 Real Costs.................................................................................................................................................65
9.1 Warming up to global warming...................................................................................................65
9.2 A bad case of gas .........................................................................................................................66
9.3 Paying the piper ..........................................................................................................................67
9.4 Walking the walk ........................................................................................................................68
9.5 Real Costs....................................................................................................................................69
10 Sustainability .........................................................................................................................................72
10.1 No carbon footprint ..................................................................................................................72
10.2 Science fiction ..........................................................................................................................73
10.3 Integrated circuits......................................................................................................................74
10.4 Urban explosions ......................................................................................................................75
10.5 A green thumb ...........................................................................................................................76
11 Equal Opportunity ..................................................................................................................................78
11.1 Not fair ......................................................................................................................................78
11.2 Private vs Public........................................................................................................................80
11.3 Legal vs illegal ..........................................................................................................................81
11.4 Fiscally Fit ................................................................................................................................82
11.5 Farewell welfare ........................................................................................................................83
12 Participation ...........................................................................................................................................86
12.1 Human wrongs ..........................................................................................................................86
12.2 No ones interest is everyones interest ....................................................................................87
12.3 Defragmentation .......................................................................................................................88
12.4 Divided we rule .........................................................................................................................89
12.5 Less is More ..............................................................................................................................90
13 Integration ..............................................................................................................................................92
13.1 Unity in diversity ......................................................................................................................92
13.2 Europe or myope? .....................................................................................................................93
13.3 Tricky and Treaty ......................................................................................................................94
13.4 Gobbledygook and Eurospeak ..................................................................................................97
13.5 Brussels sprouts.........................................................................................................................98
14 And beyond... .........................................................................................................................................99
14.1 Reaching for the stars................................................................................................................99
14.2 Bipolar ....................................................................................................................................100
14.3 Quality control ........................................................................................................................102
14.4 A European Constitution .........................................................................................................103
14.5 A Citizens Constitution ..........................................................................................................104
15 Europe of the People ............................................................................................................................107
15.1 Wars and Pieces ......................................................................................................................107
15.2 Lean and mean ........................................................................................................................109
15.3 Eurosceptic elections ..............................................................................................................110
15.4 Conclusion ..............................................................................................................................112
15.5 Authors Note..........................................................................................................................114
Resources....................................................................................................................................................115

1 Sovereign doubt

1.1 Past future tense

The problem is not the problem. The problem is your attitude about the problem. - Captain
Jack Sparrow, Pirates of the Caribbean
In Greek Mythology, Europa was a nymph, seduced and raped by Zeus disguised as a bull.
One can hardly imagine a better metaphor for a continent enticed and deflowered by speculation.
Mount Olympus must be thundering with laughter.
In 2002, the Euro was introduced in several European nations, and soon became the second
most important currency in the world, widely prized for its stability. Around the same time, most
of the Eastern European nations, finding their way to democracy after decades of Soviet
domination, joined the European Union (EU). Greece, Spain and Portugal, having shaken off
their own dictatorships to join a mere generation ago, were well on their way to attain the levels
of freedom, stability and prosperity enjoyed by France, Germany and the United Kingdom.
Never before had Europe come so close to achieving such lasting peace and widespread wealth.
So with so much to look forward to, what happened to our future? In the wake of this
lingering global recession, we seem to have lost all sense of purpose, perspective or proportion,
to slowly squander much of what weve gained along the way.
The ongoing succession of crises and scandals has shown the sins and shortcomings of
both the EU and its member states, of our economy and society in general. And whatever our
leaders may say, unless they intend to keep digging their heads into the sand until there is none
left, there is little in the way of light down at the end of the tunnel.
The general mood of distrust and dissatisfaction in Europe today is dangerously close to
taking us back where we were a hundred years ago, to the conditions that spawned the World
Wars. A dangerous mix of growing inactivity, inequality and intolerance. Not the kind of
inheritance we want to leave our children. We should know better. We are better.

1.2 The mother of all crisis

There cannot be a crisis next week. My schedule is already full.
- Henry Kissinger
In the past seven years, Europe has stumbled from one crisis into another. Financial Crisis,
Great Recession, Sovereign Debt Crisis, Euro Crisis. We give each a new name and definition,
declare it over when it doesnt get any worse, and move on to the next one. Instead of turning

crisis into opportunity, we have apparently mastered the art of institutionalising it. Stuck on top
of the hurdle, we wobble back and forth, afraid to fall backwards, but equally afraid to lean
forward and move on.
While it may be tempting to blame the EU or the Euro for the mess we are in, they are not
the underlying cause. They are merely common tools that can be used to make things better, or
abused to make them worse. Like any double edged sword, what matters is not the instrument,
but how it is used. And right now we need whatever we have to do whatever it takes. We are all
in this together, and unless we row together, we are not going to get anywhere.
In a world that is ever more complex and interwoven, both crises and opportunities
transcend borders to grow in scope and size, and nation states are ever less able to influence
global issues. One cannot play a game of football by oneself, let alone win. Neither can one take
on a series of interrelated problems one by one, for tackling one will invariably affect another.
Lack of credit, expanding debt, dwindling sales, rising unemployment, higher taxes, declining
services, general economic, social and political stagnation; are just different symptoms of the
same underlying ailment. The visible tips of the iceberg. Ignoring what lies below the surface is a
sure recipe for trouble.
What we face is no ordinary cyclical economic downturn, a simple adjustment to the
system. It is the system itself that is failing. It has reached its economic, environmental and
social limits to further growth. Like the agricultural and industrial revolutions before, the
information revolution is already changing the way we live, the way we work and interact, to
create new economic, social and political realities. And as we move towards a new phase of
human development, civilisation itself is in crisis.
The signals around us are confusing. The old solutions no longer work. We are no longer
sure what is true or false, right or wrong, which only benefits the corruption of a system already
in decay. That is the real problem: an existential crisis, a crisis of values.

1.3 Change is in the air

It is not the strongest of the species that survives, nor the most intelligent... It is the one that is
the most adaptable to change. - Charles Darwin
Change is life. It is what evolution and progress are all about, the way forward. If we try to
stop it, at best it will pass us by. Development as we know it is unsustainable. Not only
environmentally, but economically, financially, politically, socially.
Yet we can see the world today as either a glass half empty or half full. On the one hand we
have economic crises and social turmoil, obscene wealth and abject poverty, obesity and hunger,
overconsumption and underemployment, complacency and unrest, dwindling resources and
environmental destruction - in short an unsatisfied, unbalanced and unsustainable world. On the
other we have new scientific and technological breakthroughs that offer exciting possibilities for

clean energy, open information and advances in health, education, trade and welfare. Whether we
drain the remaining half of the glass or fill up what is missing is up to us. More than ever, we
have the means and the knowledge to adapt to a changing world, to solve our problems, and
make things better. For all of us.
In this tangle of ever more complex problems and interests, it is easy to tear out our hair
and wonder what we can possibly do, when we can hardly keep up with whats going on. How
can we know where to go, let alone how to get there, if we barely know where we are?
We know more than we know, and we can do more than we do. It only takes a few steps in
the right direction for others to follow. We can all play a part, for many small steps make a giant
leap. No one can move the world on their own, but together we can.

1.4 Chinese takeout

1. May you live in interesting times.
2. May you attract the attention of the authorities.
3. May you get what you wished for.
You probably wont find these blessings in a fortune cookie, for they are known as the
Three Chinese Curses, in order of increasing severity. They can cut both ways: blessing or curse.
No news is good news, is also boring. Change makes the headlines, not continuity. And we
live in interesting times indeed. It is said that the Chinese word for crisis stems from the words
danger and opportunity. Like so many things attributed to the Chinese this may not be true, but
the concept itself makes sense: every crisis is an opportunity. All we need to do is discover it and
make the best of it. If we dont, others will, and surely not to our benefit.
Attracting the attention of the authorities is nice if it can get you something you want, but
not so nice if you have something to hide. We all tend to have a certain fear of our leaders, a
certain awe of their power, but in any true democracy, they are chosen by us to serve us, and
without our support or our silence, they are nothing. Others vie for their attention to get what
they want. Lobbies and corporations with vested interests that may or may not coincide with our
own. And in these interesting times, they will do whatever it takes to get whatever they want.
King Midas famously wished for a golden touch. He got his wish and literally choked on it,
as food turned to gold in his throat. It is human nature to wish for the wrong things. For the easy
way out. The instant fix. It would be nice if someone else would simply step up solve our
problems for us. A miraculous doctor to keep us slim and fit. A benevolent banker to make us
rich. A faithful servant to clean up our mess. An inspiring leader to tell us what to do. And yes,
many of our problems can be solved by others. But in whose benefit, and at what cost?
That is where the real danger lies. For if we dont take an active interest in our own affairs,
who will? Let us welcome these interesting times, for if anything, they have shown us the
festering greed, deceit and corruption hidden below the surface of business as usual. Let us make

sure those in authority ignore us at their peril, while we strive for what we really wish: a better
world.
We can only influence change if we embrace it. In order to that, we need to know where we
are, why we are here, and where we want to go. To find the right answers though, we must first
ask the right questions. For doubt is the beginning, not the end of wisdom.

1.5 Press Reset

The future starts today, not tomorrow. - Pope John Paul II
In an ever more interconnected and interdependent world, nation states have less and less
influence on events and forces that transcend their borders. Large corporations with multinational
operations elude responsibilities by shifting operations and channeling resources to operate
where labour is cheap, rules are lax, and taxes are low. Damage to the global environment affects
us all, but we can only influence our own part. Britain, France or Germany cannot stand up to the
interests of the US or China. We need an effective channel through which to defend our
individual rights and common interests, and exercise our collective responsibilities, to ensure
timely justice and long term sustainability.
The European Union is a unique experiment in ever deeper cooperation and integration
between sovereign nation states. As it evolves, borders and differences become less of a barrier,
and historical rivalries give way to common goals and interests. It is a work in progress, a next
step in political evolution.
As long as integration is an open and democratic process, it doesnt really matter where it
takes us. But that is precisely where the problem lies, for the EU admittedly suffers from a severe
democratic deficit. The values and ideals are there, the institutions are there, but one sometimes
wonders who or what they really serve.
The lingering economic recession has not only revealed the excesses and failures of the old
socio-economic models, but the basic flaws and weaknesses of the EU itself. The way we live
and work is not only unsustainable, it is unacceptable, and the EU as it is has become part of the
problem by retrenching into solutions from the past that have already failed in the past, instead of
embracing the need for change.
Attempts at local containment of debts that involve us all, and the insistence on austerity
without fundamental reform and general support, will only prolong the symptoms. And it flies in
the face of the fundamental EU principles of cohesion, subsidiarity, proportionality and
sustainability.
The EU has the means and the instruments to regenerate the economy into one based on
real costs and fair trade. As citizens we have the knowledge and the potential to work towards a
more equitable and sustainable society. All we need to do is take the principles and values we

already have to their logical conclusion: a transparent and democratic union, of the people, by
the people, for the people. A few small steps together can get us further than we ever dared hope.
We should use this Sovereign Doubt Crisis to revive and reform our common project, lay
the foundations for a sustainable economy, ensure a truly free and fair society, reduce the
democratic deficit, and involve the people in taking the right decisions and making the necessary
adjustments. That should be our goal. Nothing less.
Whether you think you can or you think you cant - youre right. - Henry Ford

2 Euro Crisis
2.1 Not very productive
It is well enough that people of the nation do not understand our banking and monetary system,
for if they did, I believe there would be a revolution before tomorrow morning. - Henry Ford
It is said numbers dont lie. Technically, neither do words. Numbers, like words, can be
juggled around to hide, exaggerate, distract or deceive. One plus one will always be two, but that
does not necessarily guarantee a meaningful pair.
In March 2013, the president of the European Central Bank (ECB) made a presentation to
European leaders in Brussels on the economic situation of the Euro Area. Included were some
revealing graphs showing the relationship between growth in productivity and compensation per
employee, to prove increases in wage costs had outpaced gains in productivity in countries with a
current account deficit like France, Italy, Spain and Portugal, leading to loss of competitiveness,
while this was not the case in countries with a current account surplus like Germany and Austria.

If we recreate these graphs from the data available online at the ECB Statistical Data
Warehouse, we notice that growth in Labour Productivity is calculated on Real GDP (PPP) per
employee as stated, but that growth in Compensation per employee is calculated on Nominal
Prices (face value in Euro). Real values take inflation into account, nominal values do not.

When the respective growth of inflation is taken into account, the resulting graphs tell a
completely different story. Instead of showing increases of compensation per employee in France
or Italy outpacing that of labour productivity from 2000 to 2010, they show that real
compensation in fact closely followed gains in real productivity. Instead of showing that
compensation per employee in Germany followed that of labour productivity, they show that real
productivity grew 12% in ten years, while real compensation fell by 5% over that same period. In
other words, as German workers became more valuable, their wages actually lost value.
The same graphs for Spain, Portugal and especially Greece (curiously omitted in the ECB
presentation) are even more revealing, for instead of showing rampant wage increases, they show
that gains from productivity increases were only partly passed on to workers. They also show the
devastating effects of the crisis. The last three years completely wiped out the gains in
purchasing power of the previous nine.
Gains from productivity can be used to lower prices and improve competitiveness, to
compensate labour for better performance, or to increase profits and benefit shareholders. While
Germany apparently focussed on profits and competitiveness, France rewarded efficiency and
Italy simply maintained purchasing power. The size of the cake, how much we collectively earn,
is an economic problem. How it is divided though, is a political choice.
National productivity figures are based on averages and estimates, and should be
interpreted within their context. Spain for example, with an economy based on construction and
tourism will naturally show lower levels of productivity than Germany, with an economy based
on manufacturing and trade. And while relative productivity may be lower in Spain than in
Germany, wages are also lower.

Conditioning increases in nominal wages to gains in real productivity as the ECB pretends,
makes neither economic nor political sense. Economic and social cohesion is one of the
fundamental pillars of the Treaty of Rome. Cohesion to be achieved through the promotion of
growth and reduction in disparities between the levels of development of EU regions and
Member States. The insistence on austerity in the weaker nations, hardest hit by the economic
crisis, only increases economic and social differences within the Union. The damage may well be

lasting, is totally unwarranted, and in effect, unconstitutional, for it contravenes the founding
principles of the EU.

2.2 Hot air

Because that's where the money is. - Willie Sutton, when asked why he robbed banks
Hot air is used to inflate balloons. It is also the main ingredient in marketing or politics,
and now, apparently, finance and economics. The concept of inflation was conspicuously absent
in the ECB presentation at the Euro Summit, but so was the possible over-valuation of the Euro.
Normally when countries go into recession or lose international competitiveness, they can
attempt to boost quality or productivity by investing in innovation or motivation, reduce costs to
cut prices either by reducing wage costs and government spending, or devalue the currency. That
last option is obviously no longer open to Greece or Spain as long as they form part of the Eurozone. Or is it?
Using the same criteria as the ECB to compare the loss in relative productivity between the
EU and the USA with the increase in exchange rate between the Euro to the US dollar, we could
conclude that the diminished competitiveness in Europe is not so much a problem of rising wage
costs as an overvalued currency.

The USA is the major EU trading partner, but not the only one, and the Euro may have
been somewhat undervalued on introduction, so the comparison is indicative at best. At the time
of the Euro Summit in March 2013, one Euro traded at about 1.30 US Dollars. Prominent
economists like Professor Paul the Grauwe of the London School of Economics estimated the
correct value of the Euro at the time to be between $ 1.15 and $ 1.20, in which case it was 10%
overvalued. The exchange rate has since gone down to that level (February 2015), but only
because the dollar became stronger, and is now also overvalued...
The simplest way to devalue a currency is to print money, either on paper or a balance
sheet. This doesnt create wealth, it simply redistributes it, for it doesnt make the country richer,

just the government, at the expense of everyone else. Obviously not something to be done lightly,
since confidence in a government or currency is fragile, and very difficult to recover once lost.
Minor devaluations go practically unnoticed by most people, for prices of local goods and
services dont visibly change. As long as one Euro still buys the same bread or beer, it doesnt
matter how many Yen it is worth unless you travel to Japan or buy a Japanese car. Devaluations
lower local costs in the global market, thus making exports more competitive.
A controlled devaluation of the Euro could be part of a three-pronged strategy: lower costs
in debtor nations, adjust prices in creditor nations, and free funds for restructuring debt. Price
levels would be maintained in the (poor) south, while they are allowed to adjust for inflation in
the (rich) north. In the south, the exports would pick up, while imports are discouraged. In the
north, more dependent on fossil fuels, wages would rise to maintain purchasing power. The extra
money could be used for public works to reduce unemployment, buy sovereign debt to keep
borrowing costs low, and take over troubled assets to improve overall liquidity.
This way, the adjustment would be less one-sided, drawn-out and painful, and the burden
more evenly shared. A common liquidation of bad debt and treatment of bad assets would
prevent any further economic fallout or contagion. It should not come without conditions of
course, for there are real needs for political and economic reform, but not the way they are
carried out now.

2.3 Eur 0 or my 0?
Failing to plan is planning to fail.
Like most things in the EU, the Euro was served up half-baked because the cooks couldnt
agree on the ingredients and didnt want to burn themselves on the oven. Without coordinated
fiscal policies and a weak central bank, it was a leap of faith. Money, after all is about trust more
than anything else. The introduction of the currency in 2002 went surprisingly well, and the Euro
soon became the second most important currency in the world.
While official inflation figures may be somewhat understated - 1 Euro coins worth 166
Pesetas in Spain for example quickly replaced the 100 Peseta coins used to pay for a coffee at the
bar (a 66% increase!) - the transition was smooth, and the single currency helped fuel steady
economic growth for the next five years. As long as things went well, nobody complained.
Market economies have cycles of booms and busts that follow from national macroeconomic policies and overall global conditions. A single monetary policy without proper
balances or controls, magnified the effect of these cycles and limited the ability of individual
states to react. The common interest rates were too low for booming countries, overheating their
economies with cheap credit to fuel inflation; and too high for countries in recession, leading to
stagnation or contraction through lack of affordable credit. Unable to print money at will,
national central banks could not insure the availability of credit or guarantee the payment of debt.

Banks typically lend short and borrow long, which means they have highly liquid
liabilities, but rather illiquid assets. Clients can reclaim their savings back almost instantly, but
selling investments in things like real estate takes time. So when many people demand their
money back, the bank has a liquidity problem. It has the money on paper, but not in hand. The
same goes for governments. They have liabilities in bonds, which can be sold easily, but assets in
the form of infrastructure and tax claims which take time to sell or collect.
Central banks can step in as lenders of last resort, by lending to banks or buying
government bonds during a liquidity crisis. The ECB has not fully fulfilled that role. While it
provided loans to troubled banks, these formed part of programs that were clearly limited in size
and scope. This may or may not have been enough to the plug holes, but a limited commitment is
never enough to restore full confidence. The failure to fully guarantee government bonds, turned
the recession into a liquidity crisis for several member states, and a crisis of confidence for many
others.
When we look at some further economic indicators for the same countries discussed
before, we see some interesting similarities. The annual growth in nominal GDP shows the same
sudden drop at the start of the crisis, a quick short recovery, except in Greece, and a second drop.
A double dip recession is a clear sign that the underlying problems have not been solved.
The comparison between cumulative growth of nominal GDP and government debt, shows
the general economic stagnation and increase in public debt. The EU reference level for
manageable government debt is 60% of GDP, something none of these countries have been able
to maintain. The only nation that qualified before 2008 was actually Spain, though its level of
public debt has grown rapidly since. Debt levels in Italy, Portugal and especially Greece were
already high and have gone on to reach near unmanageable proportions.
Germany has shown a steady improvement in employment figures since 2005, and has
largely been able to maintain that trend despite the recession, though not without significant
sacrifices. Unemployment has steadily grown in Italy and Portugal, especially amongst younger
workers, but has skyrocketed to dangerous levels in Greece and Spain. More than one in four
people there are now unemployed, and more than one in two for those under 25.
While Italy and Greece reached worrying levels of government debt by 2011 (120% and
165% of GDP), that of Spain (69%) was still significantly lower than those of Germany (81%)
and France (86%). But concerns over Greek debt have affected the credit rating and costs of
Spanish bonds. The level of Spanish debt has since significantly increased (to 92% of GDP in
2013), and the risk of contagion remains, for the failure of one nation threatens the rest. The Euro
is like a house of cards or a chain of dominos. Only as strong as its weakest link.
The same can be said for employment, for in an open market, problems dont tend to stay
where they are. Massive unemployment floods the market with people desperate for work. This
brings down the price of labour and affects job security for all, increasing levels of poverty,
exclusion, social unrest and discontent.

2.4 Bail In or Bail Out

A bank is a place that will lend you money if you can prove that you don't need it. - Bob Hope
In April 2013, the ECB published a series of statistics on Household Finance and
Consumption in the Euro Area, including the following table showing mean (average) household
wealth per country:

These figures were widely published in the media, with the argument that poor Germans
and Austrians should not be asked to bail out rich Greeks and Spaniards. But is the average
Spaniard really three times as wealthy as the average German, as suggested?
To begin with, Spanish households are 30% larger (2.68 people) than their German
counterparts (2.04 people). Secondly, home ownership is higher in Spain (82.7%) than in
Germany (44.2%), and real estate is by far the largest contributing asset to household wealth in
these series. Furthermore, the data for Spain is from 2008, at the height of the real estate bubble,
and actual values are less than half of what they were at that time.
Whether home ownership is an asset or a liability is debatable. Home ownership tends to
be higher in less developed nations where it provides certain long-term stability and security, and
lower in more developed nations where it limits short-term liquidity and flexibility. Without a
source of income, selling your home will simply leave you out on the street.

Besides households, companies and governments also posses wealth. Calculations of

wealth are rather subjective, and vary greatly according to the underlying criteria, as we can see
in estimates for the same 10 nations by Credit Suisse and the World Bank below. In these and
others though, Germany consistently appears amongst the richer nations, which only proves that
German wealth is largely held in corporations and public holdings, rather than households.

A more useful measure than wealth is a nations Capital Stock, which together with human
capital forms a measure of its capacity to generate income. Not surprisingly, a comparison of the
capacity to generate income turns out to be rather similar to a comparison in generated income
(GDP).

From these figures we can more correctly conclude that the average German has about
twice the capacity of the average Spaniard to generate income, and an actual income stream that
is 33% higher. A reality diametrically opposed to what the ECB figures seemed to suggest, and
one can wonder at the underlying wisdom or intention of such a divisive publication from the
Frankfurt based institution during a German election campaign, in the midst of a European crisis.
Creative counting and accounting have landed us into this crisis. They wont do much to
help us out of it.

2.5 Shock therapy

Severities should be dealt out all at once, so that their suddenness may give less offense...
- Niccolo Machiavelli
Instability brings about change. Not only because it forces change, but because it justifies
it. Machiavelli advised his Prince to take unpopular measures in times of general distress,
reasoning that people worried about filling their stomachs or saving their hides are less inclined
to speak their minds, and the more they are overwhelmed, the less likely they are able to respond.
Canadian activist Naomi Klein calls this the Shock Doctrine. The idea that you can shock people
into a state of numbness that renders them completely pliable. A principle that has been used to
torture people into false confessions, scare them into compliance or silence, induce them to
violence or division, and manipulate them into doing things they are not naturally inclined to do.
The ongoing crisis has served to force through cuts in salaries and pensions, justify tax
increases, dismantle social security systems, reduce personal liberties and deregulate the market
in favour of vested corporate interests. A convenient excuse to increase the power of those who
already abuse it. Unfortunately rather than forming part of any solution, many of these measures
are part of the problem.
Doesnt it seem strange that we listen to the advice of the very people that got us into this
mess in the first place? The same politicians and bankers now insist we should cut costs and pay
our debts. Fair enough, cutting costs is always good, as long as its about trimming fat, not
muscle. When you start cutting into essential services, whether you are an organism or an
organisation, you compromise your ability to function and recover. It is the beginning of the end.
Yet that is precisely what we are doing.
An economic recession easily degenerates into a vicious cycle. When people have less
money, they pay less or buy less. If people or governments buy less, others sell less and earn less.
Increasing taxes leaves people with less money to spend, and makes products or services more
expensive. You need to invest to generate progress. In research and development, education and
innovation, health and infrastructure.
The United States government reduces taxes and increases government spending during a
recession. Why does the IMF or the European Bank insist on doing the opposite? They may have

their reasons, but on its own, it is a recipe for disaster. Rather than a plan to save us all, it looks
more like the desperate scramble of a few to hold on to what they can.
Most people or organisations are neither particularly good nor bad in themselves, but easily
swayed or cowed by the strongest arm or the loudest voice. One should never attribute to malice
what can be explained by ignorance or incompetence, but the tendency is clear, and the threat
very real. Not only our peace and prosperity are at risk, our freedom and democracy are.
If you dont have a strategy, youre part of someone elses strategy. - Alvin Toffler

3 Austerity

3.1 Blowing bubbles

I landed in this country with $ 2.50 in cash and $ 1 million in hopes, - Carlo Ponzi
From 1997 to 2007, the average cost of buying a house in Spain almost tripled, from
1,000 to 2,900 per square metre. Even adjusted for inflation, that still amounts to a doubling in
real value (1,000 to 2,000 in 1997 Euros). Between 2001 and 2008, the number of houses
increased by 25% from 20.9 to 26.2 million, while the general population grew about 10% from
40 to 44 million. Building cranes dominated the skyline as urban sprawl expanded at an even
faster rate, and the construction boom fuelled the economy.
The bubble burst with the financial crisis, bringing the economy to a sudden stop. Real
estate prices are still falling, though possibly not fast enough. Cities are surrounded by halffinished or empty buildings, and it is estimated there is enough housing to cover demand for the
next ten years. So what happened?

The introduction of the Euro made it easier for northern Europeans to buy vacation or
retirement homes along the sunny coasts, and lower interest rates made it easier for young people
to obtain a mortgage and live on their own. But that doesnt fully explain the figures.
Prices rose so fast, people made down-payments on houses they could neither afford nor
had any interest in, with the sole objective of selling them later on. The math is simple: pay 10%
to reserve a 100,000 apartment on plan, and by the time you need to pay the next instalment
during construction, sell it for 120,000. Put up 10,000 to pocket 20,000. A nice way to
double your money in six months. Like any pyramid scheme though, the last ones to enter the
game obviously ended up with an overpriced, unsellable load of bricks.
While speculative demand fed the boom, corruption greased it, compounding the general
interest. Construction and real estate have always been businesses where it is easy to shift money

or margins around one way or another without attracting attention. Good for making fortunes or
laundering them, especially when business is brisk.
Urban land is traditionally scarce and concentrated in Spain, while agricultural land
consists of relatively unproductive, wide open spaces. The difference in price between land for
farming or building is huge. So getting your land reclassified from rural to urban by the stroke of
a pen is like winning the lottery. A lot of millionaires were made this way. And a lot of
politicians, planners and lawyers took their cut along the way.
Tailoring building and zoning codes to individual interests can hardly pass for urban
planning. What is built in stone tends to last for decades, and the price for poor planning, design
and construction is left to future generations.
Bankers, investors and developers from all over Europe, especially France and Germany,
eagerly played their part in the Spanish housing boom, and took their share of the profits. It is
only fair they now accept the corresponding responsibilities as well.

3.2 Magic realism

Too much sanity may be the worst madness, to see life as it is and not as it should be. - Miguel
de Cervantes Saavedra, Don Quixote
In many ways Spain is still a land of Conquistadores. Gallant knights in armour with a
deeply rooted culture of plunder and patronage inherited from the Roman Empire. The Roman
Empire prospered by conquering new lands and distributing the spoils to buy loyalty. The
Spanish did the same by reclaiming the peninsula from the Moors in the middle ages, and
moving on to colonise and exploit the Americas, conveniently discovered by Columbus as the
last Moorish kingdom of Granada fell in 1492.

It is a culture that traditionally values status and connections rather than merit or skills, a
stroke of fortune rather than hard work. In the land of Don Quixote, where heroes tilt against
windmills, fiction may seem more real than fact. Corruption hides under a veneer of
respectability. Public jobs and contracts are awarded on the basis of open exams and
competitions, but often tailored or graded in favour of the desired candidate. And one favour
deserves another...
Under the surface, Spain is also a very divided country. The bitterness of the civil war that
led to forty years of dictatorship under Franco from 1935 to 1975 still lingers, with the opposing
sides entrenched in the dominant political parties.
The transition to democracy in the late 70s though has thoroughly embedded the ideals of
freedom and equality. Since it joined the European Union in 1986, average income has doubled
in comparative prices, and Spain has taken its place among nations with the highest levels of
human development, enviable systems of public healthcare, education and welfare.
With an economy heavily dependent on construction and tourism, it was hit hard by the
global recession. Unemployment ballooned by May 2013 to a staggering 27.2% of the workforce
and 57.2% of those under 25. 6.2 million people out of work, more than the entire population of
Ireland or Finland. While these numbers may be distorted by a significant underground economy,
large numbers of highly qualified young people are also under-employed and under-paid in
temporary jobs that offer little future, and forced to live at the expense of their parents long after
finishing their studies.
Spaniards are proud people. They will spend their last Euro to buy you a beer just to prove
they can. This means they wont readily complain about their situation. It isnt apparent on the
busy streets and plazas, but there is a lot of misery behind closed doors, simmering underground,
like a volcano.
The recent avalanche of corruption scandals that have come to light however, offer a ray of
hope. The general public outcry and indignation shows that people are no longer willing to
silently accept the hypocrisy, nepotism and graft of their leaders. They demand transparency and
accountability, a clear sign that the values of democracy are being embraced.

3.3 Dj vu
History repeats itself, first as tragedy, second as farce. - Karl Marx
After the Olympic Games in Barcelona and the Universal Exposition of Seville in 1992,
the Spanish economy went into recession, and property prices plummeted. A year later, the Bank
of Spain was forced to step in and restructure Banesto after a deficit of 605 billion pesetas was
found in the books. Several members of the board of directors were tried and jailed, and the bank
was later taken over by Banco Santander. The operation cost an estimated 200 billion pesetas in
public funds (worth about 2 billion today).

In 2010 several regional savings banks merged to form Bankia, the third largest lender in
Spain. A year later, reported profits of 328 million had to be revised by a board of trustees after
intervention by the Bank of Spain to show a loss of 4.3 billion. True to Spanish custom, 20 of
the 27 former members of the board of directors were politicians, many of whom confessed they
never even understood the financial accounts they signed off. The value of the bailout has
already surpassed 22 billion Euro.
The construction bust has left Spanish banks with a lot of over-valued real estate and bad
loans backed by insufficient collateral. During the boom, they recklessly offered mortgages for
up to 40 years and 100% of property value on the prospects of growth. Now their money is tied
up in assets they cannot sell, they dont have enough to lend. It is a problem of liquidity.
Spaniards often joke their economy is based on inheritance - the elite pass on their
positions to their siblings, while the rest work all their lives to pay off the mortgage so their
children can survive on what they leave behind. About 83% of the population own their own
home. Yet in spite of the recession, default rates on mortgages are low, probably because the
consequences are so dire. Since prices have dropped, the value of a house, if there is a market for
it at all, may no longer cover the value of the mortgage, so repossession could leave one not only
homeless, but still deeply in debt.
Mortgages are typically issued up to 70% of property value, precisely to take into account
possible devaluations in market price. Additionally, the risk of default on any loan should be
included in the calculation of interest. Banks are the experts on finance, not home-owners, so
repossession should logically cancel any mortgage debt. Spanish law is a bit more complicated
though, and many mortgages were signed on questionable advice with additional collateral.
Many parents who guaranteed their childrens loans for example, now face debts that were never
theirs. It is a form of debt slavery, a national tragedy in which the banks cannot deny their
responsibility.
An estimated 500 homes are repossessed each day. There is no market for their sale. Why
not convert those mortgage contracts into rental agreements, at least temporarily? Surely there
are other possible solutions that could ease the problem for all sides?

3.4 The rain in Spain

"Institutions will try to preserve the problem to which they are the solution." - Clay Shirky
The exposure of large Spanish banks to devalued local real estate, and high levels of both
private and public debt, continue to spark talks of another European bailout. Till now, EU aid or
advice has come with only one message: cut costs and raise taxes. In a situation like Spain,
advice that borders on lunacy.
The conservative party (PP) has already broken every campaign promise they made, which
were very few to start off with, for they hardly need any to oust the ineffective and unpopular

socialists (PSOE) in the last elections. Unable to turn the trend, and mired in corruption scandals,
they now have little credibility left themselves.
They have raised income taxes. Which should stimulate the underground economy. Sadly
that doesnt pay taxes. Neither do those who have lost their jobs, or those rich, adventurous or
desperate enough to leave the country. It doesnt do much to stimulate investment either.
They have raised value added taxes (VAT) from 18 to 21%. With a quarter of the economy
estimated to be underground, that should boost the black market. By raising the price of goods
and services another 3%, people will buy less, not more, which wont help business either.
They have made serious cuts in education. There are 60,000 architects in Spain, 75% of
whom have little or no work, and 31 different faculties of Architecture with 30,000 students
enrolled. Yet the cuts affect mostly public primary and secondary schools, where teachers are
already underpaid and overworked, and education levels were already lagging.
They have made cuts in health care, limiting universal coverage. Public hospitals have up
to four times as many highly trained doctors as their private counterparts, for half the work, on
irrevocable contracts, so they are still there. They work from 9:00 to 14:00 and refer the more
lucrative patients on to their own private practices in the afternoon. Since there is no more
money for medical supplies, operations are contracted out to private hospitals, which still need to
be paid...
They have made cuts in government salaries and public pensions, neither of which were
particularly high to start off with. Except for those in political office, who can accumulate
salaries and earn public pensions of up to twice the legal maximum. A member of parliament
needs only 7 years in office to receive full benefits. Anyone else has to work 35. That wont do
much to stimulate the economy or alleviate discontent either.
The number of politicians and political appointees in Spain is estimated to be between
400,000 and 450,000, though no credible lists exist. Trade Unions, Savings Banks, Public
Companies and large corporations are largely run or supervised by political appointees. Several
public or semi-public organisations have overlapping tasks and responsibilities with conflicting
interests.
Government reform should be about improving things. Unfortunately, those who decide are
precisely the problem. Cutting away at essentials to maintain the superfluous is not going to
solve anything, just make things worse. According to Olli Rehn, European Commissioner of
Economic and Monetary Affairs, It will take 10 years to fix the Spanish Crisis. (January 2014)
An admission of failure in itself, for by then a whole generation will have been lost to
unemployment or emigration.

3.5 German efficiency

There is nothing so useless as doing efficiently that which should not be done at all. - Peter
Drucker

The argument for austerity is the need to improve productivity and competitiveness. One
can wonder if productivity and competitiveness always make sense, or whether we use the right
instruments and criteria to measure them. Perhaps Spain should become more like Germany, but
Germany has its own problems, which may not make it much of a model to follow.
The German economy is focussed on exports. A substantial positive balance in the current
account (more exports than imports) is unsustainable though. It is a win-lose, beggar-thyneighbour relationship with other nations.
In team sports, players abilities count for little if they play as individuals. A primaMaradonna wont win the game if he doesnt pass the ball on to someone who can score, no
matter how artfully he dribbles it across the field. Competition is good where it brings out the
best in a person or a company, and spurs them on to push their limits, to reach their potential. But
cooperation and coordination make a team. A good team has synergy: it is more than the sum of
its parts, it is a win-win relationship.
Europe is more than the sum of its nations. That is the whole point of integration. And we
all benefit from closing the gaps and inequities. Development brings stability and well-being,
and creates new clients and partners. But only if we play on the same team.
There is a worrying correlation in the EU between government finance and current
account. Debtor countries, those with significant government deficits like Greece, Spain and
Italy, tend to have significant deficits in their current account, while creditor countries like
Germany, Belgium and Denmark, those that finance the loans to cover those deficits, have
current account surpluses. So money from exports in the richer north is basically used to finance
imports in the poorer south or east, in effect increasing dependency and widening the gap
between them.
This is no model of cooperation, it is strategy for domination. The end result will be that all
southern and eastern assets end up under northern ownership. German companies like
Volkswagen have already taken over companies like SEAT (Spain) and Skoda (Czech Republic),
and this trend is set to continue. It may be a sign of German efficiency, but more so of European
ineffectiveness.
The graphs below highlight the relative size of the German market. Only 9 other member
states had a government deficit of less than 3% as required under EU guidelines. They also
indicate the position of The Netherlands as port of entry of foreign goods into the EU, the
exception of Ireland, burdened by a huge government deficit despite a positive balance in trade,
and the value of Luxembourg as financial/fiscal paradise .
European nations and regions each have their unique problems, but their causes and effects
concern us all. It is in difficult times that one discovers ones friends. Now, more than ever, we
need to stand together.
When a measure becomes a target, it ceases to be a good measure. - Charles Goodhart

4 Cohesion

4.1 A bad hair day

As you sow so shall you reap.
By 2011, Greek public debt had ballooned to 356 billion (165% of GDP). In the absence
of a coordinated European effort or guarantee of payment, Greek bonds had been relegated to the
category of junk bonds by ratings agencies, and were trading at around 65% of their nominal
value. In March 2012, private bond holders took a so-called voluntary haircut of 53.5%, wiping
out more than half the value of their investments. Old bonds were exchanged for new ones at
31.5% of nominal value plus a 15% cash bonus, and more than 100 billion in debt was written
off the books.
Till recently, Greece had the highest spending on defence per capita in the EU due to
historic tensions with Turkey. According to the Stockholm International Peace Research Institute
(SIPRI), it was the worlds fourth largest importer of conventional weapons, and the top recipient
of German arms exports.
Military spending ( 5.4 billion in 2010) is only a small part of the problem, but highly
enlightening. French and German weapons were bought with loans from French and German
banks. Greece signed a 2 billion controversial deal for submarines with Germany, on which it
still owes another 1 billion, about the same amount it was required to slash from pension
payments to secure the latest EU aid package. Why not simply return the submarines to avoid the
cuts?
Greek public debt is a big problem in Greece, but represents only about 3% of total public
debt in the Euro-zone. Failure to address it properly though turned it into a big problem for all.
Ordinary investors and even financial analysts dont necessarily see much difference between the
Greek, Italian, Spanish or Portuguese economies. They are all in Europe and in recession, even
though the underlying causes and symptoms differ.
The forced voluntary haircut may have brought temporary relief, but the problem is still
there. Excessive debt is a vicious cycle. The more you accumulate, the more expensive it
becomes, and once you need new debt to pay off old debt, things just go from bad to worse. With
an economy shrinking under the weight of ineffective austerity measures, it is unclear how
Greece can be expected to maintain the burden of any debt, however restructured.

4.2 The Trojan hearse

Beware of Greeks bearing gifts. lesson of Troy

What was done to Greek bonds is questionable at best, both in moral and economic terms,
for it was coerced rather than voluntary. What happened in Cyprus as a result however, is
shameful. Cypriot banks had substantial investments in Greek bonds, and therefore took huge
losses. As these banks were ostensibly favoured by Russian millionaires, the EU conditioned
possible bailouts to a 6.75% levy on all savings.
The proposal led to panic in the banks and protests on the streets, and was rejected without
a single vote in favour by the Cypriot parliament. Laiki, the second largest bank collapsed under
2.5 billion in losses, though individual savings up to 100,000 were guaranteed and transferred
to Bank of Cyprus, which was partially nationalised.
When a large bank fails, it can cause a lot of damage to the economy. Even if small savings
are guaranteed; bonds, shares, insurances, investment funds and pension plans may be wiped out.
That is a problem for everyone. It may be unfair to ask taxpayers to bail out a national bank, but
asking small savers to do so is even worse, for it punishes those who saved their money rather
than spent it.
People are supposed to trust banks to keep their money safe. Thats how the system works.
The proposed levy on savings in Cyprus, made people all over Southern Europe wonder how
safe their money was. How the EU expected to restore confidence with such a message is
anyones guess.
Greece accounts for about 2% of European wealth and population, Cyprus barely 0.2%.
Their problems should have been no more than a minor inconvenience to the EU. By failing to
take proper action we allowed a minor wound to fester into a major sore. The infection of the
Sovereign Debt Crisis spread from one nation to a smaller one, only to threaten several larger
ones. And wherever it spread, local people paid the price of collective failure. Banks from
European creditor nations have billions outstanding in loans to European debtor nations. To
pretend it is only a problem of the latter is not only one-sided, but blind.

4.3 Weimar 2.0

We learn from history that we do not learn from history - Georg Wilhelm Friedrich Hegel
Economists often argue over whether to stimulate supply or demand. Supply-side
proponents insist on improving efficiency and cutting costs in production to improve
competitiveness. In other words: lower prices. Demand-side proponents maintain people should
have more money to spend so they will buy more products. The only thing they agree upon is
lowering taxes, which both lowers costs and increases purchasing power. Where the arguments to
increasing taxes come from is anyones guess...
In reality, supply and demand need to be in equilibrium for an economy to function. Too
much demand raises prices (inflation), and oversupply makes prices fall (deflation). Supply and
demand are two sides of a scale. Placing all your bets on one side will simply tip it. And thats
exactly what the EU is doing.
Improving efficiency and productivity always makes sense. So does cutting unnecessary
costs. But austerity doesnt. It is a consequence of last resort: if you have no food, you go
hungry. A dark, dangerous path, for if you go hungry you lose energy, if you lose energy you
have less chance of procuring food, and eventually you die of hunger. The same goes for an
economy. You can cut costs till there is nothing left. It is known as Austericide. Like the
medieval practice of leeching, draining blood may get rid of the poison, but probably kill the
patient in the process.
The experience of the Weimar Republic with hyperinflation, where the Reichsmark went
from 250 Marks to the British Pound in January 1921, to 25,000,000,000 in December 1924, has
made Germans somewhat allergic to inflation. The inflation spiral was stopped by the
introduction of the Rentenmark, which cut 12 zeros off the worthless Reichsmark and was
backed by real assets (gold standard). By then, the middle class had already been wiped out,
together with their savings.
Since the reunification in 1990, West Germany has ploughed around 100 billion a year
into East Germany without much success in stimulating economic growth or closing the gap in
standard of living. The last decade, the government has implemented strict austerity measures to
improve competitiveness, with more success, at least on paper. So it is no wonder the Germans
are reluctant to sink more money into Europe and insist on austerity.
With this, they conveniently forget what happened to the Weimar Republic after 1924. The
Wall Street Crash of 1929 hit Germany especially hard. Vital American loans were suddenly
recalled. The heavy burden of war reparations demanded by the Treaty of Versailles (2 billion
Goldmarks plus 26% of German exports) made it difficult to devalue the currency in the face of
recession. With a fractious parliament and no majority, the government under chancellor
Heinrich Brning used emergency powers to pass draconian austerity measures in an effort to
maintain a balanced budget. The resulting bankruptcies and massive unemployment fed the hate
and desperation that brought Adolph Hitler to power. His war machine basically saved the

economy from total ruin, which explains the acceptance, if not support of the Nazis by the major
banks, industrialists and population in general. A sobering thought to keep in mind.
The economic contraction and levels of unemployment after 2008 in Greece shows
remarkable similarities to those of the Weimar Republic after 1929.

And Spain alone has just as many people unemployed now as Germany did in 1933, on a
smaller overall population.
The people of EU debtor nations have shown admirable restraint against the often unfair
and unequal austerity measures forced upon them, but it is unclear how far that one-sided line
can be pushed. Division only fosters extremism. The signs are already there, and they are not
good.
Austerity is not only hard to swallow, it doesnt work. The attempts of Herbert Hoover to
balance the US federal budget after the Wall Street Crash of 1929 by cutting costs and raising
taxes only deepened and prolonged the Great Depression. At the time, it was believed the
recession would solve itself by purging the rottenness out of the system (leave-it-aloneliquidationism). In practice, the general liquidation of debts led to distress selling, which caused
prices to fall and the value of shares to plummet, herding even healthy companies into
bankruptcy. This led to rising unemployment and poverty, pessimism and lack of confidence,

hoarding and less spending, which in turn led to falling prices, etcetera. A vicious cycle. In such
an environment, cutting public spending and raising taxes only make things worse, leading to the
necessity of more cuts and further taxes. (Irving Fisher, theory on Debt Deflation)
This is exactly what is happening in Southern Europe. Unless the downward spiral is
broken, further cuts and taxes will only lead to further cuts and taxes. Unemployment is already
out of control in Greece and Spain. We need to invest to get people to work. And when the
market fails, the government should step in with public works. That is how Roosevelts New
Deal took the US out of the Great Depression, and how the Marshall Plan helped Europe rebuild
after World War II.
The shadow of World War II still looms over Germany, but it is time to lay aside the
rancour and guilt of generations past, without forgetting the lessons of history. The end of the
war left Germany in ruins, with levels of debt it could not possibly repay. Under the London
Debt Agreement of 1953, the USA and its European Allies, including Greece, agreed to write off
over 60% of that debt, and to forgo demands for extensive war reparations, in order to secure
peace and stability in Europe. The German post-war economic miracle was only possible thanks
to the grace and generosity of other nations.
Germany has been one of the greatest advocates of European Integration, and should take
up the responsibilities of its leading position, remembering where it came from. And place its
money where its mouth is.
Growing popular movements such as Syriza in Greece and Podemos in Spain reasonably
demand an audit and restructure of national debts. It is an opportunity to rethink the role of the
EU.

4.4 EUthanasia
Any man can make mistakes, but only an idiot persists in his error.
- Marcus Tullius Cicero
Euthanasia is the practice of intentionally ending a life in order to relieve suffering.
Eurosceptics must have a field day with the fact this comes from the Greek words eu (good) and
thanatos (death).
One can easily understand the resentment of Greeks and Spaniards to the austerity
measures pushed forward by a EU led by Germany. People have been hard hit by a crisis they
have had little part in creating, and making them pay for it only adds insult to injury. But they
should realise the EU and Germany have only limited influence on the internal affairs of Greece
or Spain. They can demand more balanced budgets, but where spending is cut or taxes are raised
is decided by national governments.
One can also understand the unwillingness of German or Dutch taxpayers to continue
funding Spanish or Greek irresponsibilities. But they should realise Spanish or Greek taxpayers

are just as unwilling to do so. They are on the same side. German or Dutch workers may be more
efficient or productive, but they also earn more as a result. Spaniards and Greeks may have
longer lunch breaks due to the midday heat, but work longer hours in total. The speculative
housing bubble in Spain, and the corruption of government spending in Greece were also
greedily funded by Euros from the north. Agricultural subsidies were used as political bargaining
chips in Brussels, and as political pay-offs to regional clients and constituencies. French and
German loans bribed and financed the purchase of French and German weapons.
Wealthier European nations have poured billions over the last decades into European
Structural funds to aid the development of poorer member states and regions with mixed results.
West Germans have poured billions into East Germany in the last ten years to close a social and
economic gap that is still there. The problem may not be so much the money itself, but how it
was spent, and that was a common project.
Pointing fingers is not going to solve anything until we all accept our own responsibilities.
Turning the EU or other member states into scapegoats to hide our own deficiencies is a
dangerous form of hypocrisy that will only benefit the vested interests of keeping things as they
are. Both in the EU and the Eurozone, those in trouble clearly outweigh the rest.

We are all in this together, and only when we see and accept we have the same interests in
true economic recovery and transformation, in a truly free and fair open market, in reducing
unfair competition and tax evasion, in eradicating corruption, in building a peaceful, prosperous
and sustainable society, will we be able to effectively do something about it.

4.5 A Mediterranean Pact

Light is the task where many share the toil. - Homer
The first step towards a genuine European recovery could be a Mediterranean Pact,
between the EU and Portugal, Italy, Greece and Spain, to reconvert their economies into drivers
of sustainable development, the vanguard of a truly green revolution. To become the models for
what can then be implemented in the rest of the EU and exported to other nations. Support from

the north would come in exchange for concessions in the south in terms of real reform and
integration.
These Mediterranean nations have a number of problems in common. Bloated
bureaucracies with competing administrations, entrenched political castes with cushy perks,
public sectors rife with corruption and nepotism, widespread tax evasion, and large underground
economies. That is where the knife should cut the bacon.
These nations also have other similarities. Large populations of well-educated young
people, eager to move ahead. A lot of work to be done on improving living and working
conditions, upgrading infrastructure, reforestation and cleaning up the environment. They have
embraced democracy, opened their markets and adopted the single currency. They have huge
untapped cultural and natural resources, and a lot of sea and sun. In short, tremendous potential.
The details would have to be worked out on a country by country or regional basis, but in
overall lines, a Mediterranean Pact could part from the following premises:
Commitment from local governments to:
Reform labour laws to induce flexibility and mobility, and promote systems based on
merit and productivity rather than seniority. It is not about keeping bad jobs, but creating
good ones. Not about reducing labour costs, but ensuring fair compensation.
Reduce the size and costs of government, not the scope of services, by eliminating
cumbersome procedures, bureaucratic excesses, wasteful entitlements. Government jobs
should pay well, but have no privileges beyond those found elsewhere.
Improve government services by eliminating obstacles, providing open and accessible
information, and integrated single-window virtual portals for administrative procedures.
Overhaul the political system to improve honesty and transparency, representation and
participation.
Combat corruption, by improving law-enforcement and legislation, persecution of
perpetrators and protection of witnesses and whistleblowers.
Eradicate submerged and criminal economies, by legalising certain activities to better
control them, strict law enforcement, fiscal incentives and possibilities to collaborate or
come clean in exchange for reduced fines or charges.
Minimise tax fraud and evasion by simplifying and reducing taxes and by strict
persecution and punishment, especially in the larger and more persistent cases.
...
Commitment form the EU to:
Improve the effectiveness and transparency of the European Union, and reduce the
democratic deficit.
Enable the ECB to act as a lender of last-resort, to buy sovereign bonds, and emit
Eurobonds without limit. One Euro should cost the same in Athens as in Berlin.

 Set up a generous Sustainability Fund for the necessary investments, to be re-channeled

to other countries and objectives upon repayment.
Assist in the implementation of free and equal access to information to enable fair trade
and the calculation of real costs.
Share knowledge and invest in projects, infrastructure, R&D and new technologies in the
Mediterranean area.
Create a European agency for the exchange of fiscal and criminal data, and coordination
in the investigation and persecution of tax evasion, organised crime and corruption.
Coordinate financial and fiscal policies under a European minister of Finance.
Guarantee the defence of all member states under a single ministry of Defence.
...
Joint investments in sustainable development
Implement policies and incentives that favour fair trade on the basis of real costs.
Involve government businesses and educational institutions in research and development
(R&D) to improve technological innovation and reduce environmental impact.
Start massive reforestation programs to secure biodiversity, maintain moisture, attract
rainfall, stabilise climatic conditions, purify air and water.
Develop master plans for cities, general infrastructure and land use on the basis of
sustainable development, historical and biological conservation.
Enforce proper waste reduction, management and recycling policies, incentives and
facilities.
...
Young people form different member states could form part of varying multi-disciplinary
task forces to propose, implement and control local campaigns and projects to insure
effectiveness, a continuous process of improvement and cross pollination of ideas and
experiences. What is learnt can then be applied elsewhere. The returns on investments can be
used for subsequent programs in Eastern European countries, the rest of the Mediterranean basin,
and so on...
Nobody in Europe will be abandoned. Nobody in Europe will be excluded. Europe only
succeeds if we work together. - Angela Merkel

5 Accountability
5.1 The man who brought down the Bank of England
Money is made by discounting the obvious and betting on the unexpected. - George Soros
On Black Wednesday, september 1992, investor and philanthropist George Soros made his
first billion by betting $ 10 billion against the British Pound, causing it to lose 15% of its value.
This singular fact raises several interesting questions:
- How can one man bring down a countrys currency?
- If this was his first billion, where did the 10 billion bet come from?
- The operation destroyed value rather than create it, so who paid for it?
- Er, phila-what...?
While the operation itself was complex, the idea is simple enough: borrow 5.2 billion ($
10 billion) and dump them on the market in exchange for other currencies, so supply outweighs
demand. Spread rumours that the pound is overpriced and will soon lose value. Once the pound
has devalued, buy back 5.2 billion (now worth just $ 8.5 billion) and repay your loan,
pocketing the difference. This is known as selling short.
To be fair, the British Pound, pegged to fixed European exchange rates at the time, was
admittedly overvalued, with the economy in recession. Whether, when and how much the pound
would have lost without a coordinated attack is anyones guess, as is the overall cost or benefit to
the economy. Trying to maintain confidence, the Bank of England purchased several billion
pounds on the market, at a total cost of 3.3 billion ($ 5.5 billion), before the government caved
in and allowed the pound to devalue. The British pound, and one could say the whole of Britain,
lost 15% of its net worth at the stroke of a pen, though eventually this paved the way to
recovering exports, employment and economic growth.
If Mr. Soros had written a polite note to the Prime Minister stating he would bring down
the Bank of England if he wasnt promptly paid one billion dollars, he would have surely saved
everyone a lot of trouble, and a lot of money to British taxpayers, if not the pound itself. And he
would now be in jail. Which makes one wonder...
Economists argue that operations like these play on inefficiencies in the market to make it
more efficient. Could be, but at what cost? Even so, playing a high risk game with your own
money is one thing, playing it with someone elses is another.
Speculation is the engagement in risky commercial or financial transactions in the hope of
a quick or substantial profit. Investors will tell you the difference between speculation and
gambling is that the former is about calculated risk, while the latter is about random chance. If
you believe that, you shouldnt play poker. Casinos make a lot of money on calculated risk. The
real difference is that in gambling players bet against each other, knowing they can win or lose,

while in speculation players bet against others who may or may not be willingly or knowingly
involved. Speculation is about playing against the rules.

5.2 The R in Cash

Finance: the art or science of managing revenues and resources for the best advantage of the
manager. - Ambrose Bierce
The Financial Crisis of 2007-2008 which still casts its shadow wasnt the result of any
specific operation. It was caused by a general shift in the focus of banks from long term stability
to short term gain, and the conversion of instruments designed to reduce risk into objects of
speculation.
As the economy as a whole and the underlying operations and transactions became more
complex and urgent, so did the financial instruments needed to deal with them. In order to
properly assess risks, improve services and increase profits, banks attracted the best and brightest
minds by offering generous salaries and bonuses.
Continuous demands for results, ever faster, and remuneration based on performance, led
to an increasing focus on short term gains. The stress of a financial trader in an exchange is
similar to the compulsive addiction of a gambler in a casino. The adrenaline is the same. And so,
apparently, is the result.
As long as house prices kept rising, selling subprime or second-chance mortgages with
smaller down payments or less certainty at higher interest rates offered good short term returns,
but mortgages are long term investments and prices dont always rise.
Derivatives are financial instruments that derive their value from an underlying asset. Flour
mills and farmers for example can take out options or futures on the price of wheat to reduce
their exposure to rising or falling prices. When anyone can take out such derivatives to speculate
on prices though, whether they have any interest in the underlying asset or not, things can get out
of hand. The objectives of insurance and speculation are polar opposites. Contracting a fire
insurance policy on your neighbours house is a compelling enough reason for arson if you dont
like him. But imagine if half the people on the block did it. Or half the city. If the house burns
down, the insurance company is suddenly faced with paying out damages not just once, but two,
ten or a thousand times over, to people who have suffered no losses. The risk is no longer a
simple calculation, but a complete nightmare.
The more complicated derivatives become, and the further they are from actual interest in
the underlying assets, the more difficult it becomes to asses the underlying risks. And it gets
worse as they are combined or cut up into segments. Collateralised Debt Obligations (CDO)
based on combinations of mortgages with more or less chance of default and divided into junior
and senior debt, fudged rather than spread risk, as did many other similar securities.

The Bank of International Settlements estimated the 2012 global face value of over-thecounter derivatives to be $ 689 trillion. World gross domestic product, or what we all earned that
year, was $ 69 trillion, or good for just 10% of that. Go figure...
Banks dont only handle derivatives, but invest in them for their own benefit as well, which
complicates things even more. Worse, it can lead to serious conflicts of interest as banks compete
with their own customers, or even bet against them. Since banking is based on trust, it is
basically a house of cards, for when one instrument fails, confidence in the rest tends to follow.
And when banks are seen to place their own interests above those of their clients, they no longer
deserve that trust.
With financial trading ever more efficient and computer dependent, investors increasingly
use the same programs and strategies, reducing margins for both profit and error. A single step
can trigger a stampede. Large investment and pension funds, insurance and banking corporations
invest in each others financial products, becoming inexorably entwined and entangled, and have
grown so large that the failure of one can have unforeseen consequences, triggering a domino
effect to bring down the global economy. That is what happened. And it will surely happen again.

5.3 Curb the bear, cut the bull

Lead me, follow me, or get out of my way. - General George Patton
The collapse of the Swedish real estate bubble in 1991 led to a severe lack of credit and
widespread bank insolvency, much like what happened in the US, Ireland and Spain in 2008. In
response, the Swedish government took the following steps:
It guaranteed all bank deposits and debts of the nations 114 banks,
It took over bad debts of banks in exchange for shares (ownership),
Norbanken and Gtabanen were bailed out and nationalised,
Bad debts were transferred to asset-management companies Securum and Retriva,
A Bank Support Authority was established to assist in bank recapitalisations
Stability and confidence were restored and the economy soon recovered. The bailouts
initially cost about 4% of Swedish GDP, a large part of which was later recovered by the sale of
the assets it had taken over, mostly real estate, and re-privatisation of the nationalised banks.
An interesting lesson, which Europe has largely ignored, and Sweden seems to have
forgotten, as investors there happily fuel a new housing bubble.
Had Europe taken similar action in the current banking crisis it would have been long over.
Measures like these, however can only be taken with unlimited funding, something only a
sovereign national bank can guarantee as lender of last resort. National banks within the Euro
zone no longer control monetary policy, so are no longer sovereign in that sense. The European
Central Bank (ECB) is though.

Bad debts in Spain or Greece dont only affect Spanish or Greek banks, but French,
German and other banks as well, and many of those banks are too big to fail on a European level,
and too big to save on a national level. By trying to solve a European problem on national levels,
the countries hardest hit by the crisis are forced into a spiral of increasing public debt.
Bank bailouts in effect convert private debt into public debt. Private losses are socialised
by passing them on to the people. Whether these losses are paid for by new government bonds,
additional taxes, reductions in public spending, currency devaluations or a losses on savings, the
mistakes of a few are paid for by the many. Without proper guarantees, this easily turns a crisis
into a scam.
The ECB finally issued more than one trillion Euro in loans (LTRO: Long Term
Refinancing Operations) in 2011 and 2012, to improve bank liquidity and lower government
bond yields. These were only partially effective because the scheme was flawed.
To start off with, there was a limit. One trillion is a lot of zeros, but a limit none the less.
Second, these loans allowed banks to lend money at 1%, and invest it in government bonds at
5% or more. Increased demand for bonds brought down the interest rates, and the resulting
profits undoubtably improved bank liquidity, but it also increased the exposure of banks to
sovereign debt.
If we could all borrow at 1% to invest in government bonds, we could all retire, sip
Daiquiris on a Mediterranean beach and forget this whole crisis thing. There is no such thing as a
free lunch though. Such a scheme simply privatises benefits on public funds. If the ECB wanted
to lower government bond yields, why not simply buy government bonds directly? If it wanted to
improve bank liquidity, why not simply take over troubled assets?
At the end of 2012, the ECB announced it would indeed buy sovereign bonds (through
OMT: Outright Monetary Transactions) when necessary, finally taking up its rightful place as
central bank. These OMTs come with such stringent austerity conditions, that as yet no nation
has asked for them. As a credible commitment though, it was enough to stabilise the markets.
ECB president Mario Draghi has kept his promise to do whatever it takes to contain the
Sovereign Debt Crisis. But containing a problem isnt the same as solving it. Like holding the
wolf by its ears, it is still there, and restructuring the financial system, restoring stability and
public trust will take more than regulating core capital requirements and establishing mutual
support and supervisory mechanisms.
Before we fix the financial system though, we should ask ourselves what it actually should
and should not do. What it can and what it cant. And that is not the task of a central bank. Nor
should it be.

5.4 Too big or not too big

The bigger they are, the harder they fall.

While large banks have become too big to fail, they have become too big to save. Danske
Bank for example has assets to the value of 192% of Danish GDP, Nordea 183% of Swedish
GDP, and ING 159% of Dutch GDP. That makes them almost impossible to save on a national
level.
On a European level, this becomes less of a problem, at least in theory, which is one of the
reasons behind the proposed EU Banking Union. Deutsche Bank (DB), the biggest bank in the
world, has assets worth $ 2,8 trillion ($ 2,800,000,000,000), or 17% of total EU GDP, in line
with JP Morgan Chase, the largest American bank, with assets worth $ 2,3 trillion, or 15% of US
GDP. Figures that still give a headache, even without causing trouble.
Curiously, the most common way to deal with a troubled bank is to merge it with a bigger
one. A rather odd solution: if the problem is too big, make it bigger. Perhaps because for some,
the bigger the problem, the bigger the opportunities...
Larger banks may be more diversified in terms of risk and have more resources to count
on, but they also have more weight. If they fall, they fall harder, and the impact on the financial
system and society is far greater.
One can wonder if it makes sense to even try to rescue such institutions. In the first place,
they have more power than we should feel comfortable with. They can get away with things they
possibly shouldnt, and have basically become too big to prosecute. Accountability is hard to find
and even more difficult to enforce. And when things go wrong, the consequences can be dire.
Rather than merging banks, we should be cutting them up. To reduce this risk, and eliminate
internal conflicts of interest, we could start by separating insurance from investment and savings
from speculation, for they are incompatible.
Too big to fail is an admission of failure in itself. Too big is simply too big. People make
and break corporations, and societies are about people. Companies fail all the time. It is not the
banks that should worry us, but the small savings and pensions of the people who placed their
trust in them. That is what we should guarantee. Whatever it takes.
The financial sector doesnt produce anything, it doesnt create wealth, it merely
redistributes it. Typically by borrowing it from the future. During the years of plenty it has grown
from a provider of necessary services to reach economic goals into an economic goal onto itself.
It has taken the best and the brightest out of the productive economy, and paid them more than
they are worth to simply move numbers around like a box of magic tricks. Worse, its obsession
for short term results has hijacked our entire socio-economic system by appointing profit as
judge, jury and executioner.
But finance is not he motor of the economy, nor can it ever be, its just the grease. Like
money itself, finance should be a means, never a goal on its own. It is an instrument, created to
serve us, not the other way around.

5.5 Hung over

The best way to avoid a hangover is to stay drunk. - Dorothy Parker
If you are willing to run a risk, charge for it and profit from it, you must also deal with the
possible consequences. After all, that is what you are paid for as bank or investor. The irony is
that now they didnt have to pay for their mistakes, the banks are making us pay for ours by
bailing them out, and allowing them to profit from the continuing instability of the crisis along
the way.
After reporting a loss of 24 billion ( 28 billion) in 2008, Royal Bank of Scotland (RBS),
one of the largest banks in the world, was rescued by the British government, which injected
45.2 billion in exchange for an 83% share of ownership. Since then the bank has consistently
reported annual losses, yet continued to pay out generous bonuses to personnel, despite general
public outcry. In 2012, it lost 5.5 billion, and paid out 607 million in bonuses, including
215 million to investment bankers, those responsible for the 390 million fine on RBS for
rigging the Libor rate used for inter-bank lending, in other words: fraud.

Lloyds Banking group was similarly rescued with 20.3 billion in exchange for a 41%
share in 2008. It reported losses of 570 million in 2012, yet paid out 365 million in bonuses.
It has also set aside 6.7 billion to compensate clients for mis-selling Payment Protection
Insurance (PPI), in other words: deceit.
95 people at RBS and 25 at Lloyds earned more than 1 million pounds in 2012. Share
prices of these banks have lost more than half their value since intervention, so re-privatising the
banks would recover less than half the bailout costs. Meanwhile median real wages have gone
down in the UK since 2009, to back where they were about a decade ago. Income taxes may
have gone down, but any net gains have been more than offset by indirect taxes. The economy is
stagnant at best, and the number of unemployed has grown from 1.6 to 2.6 million people.
Similar stories can be found all over Europe. ING received a 10 billion bailout from the
Dutch government in 2009. Though it has shown positive results again since 2010, public outcry
has limited bonus payments, at least till the bailout is repaid. Deutsche Bank is facing several

investigations, on accusations of tax evasion, failure to report money laundering, obstruction of

justice, financial misrepresentation and manipulation, as well as various lawsuits by clients.
If a doctor botches an operation and the patient dies, he goes to jail. If an architect makes a
miscalculation and the building collapses, he goes to jail. If a banker gambles his customers
savings and clears the vault, he gets bailed out. Or a bonus. Am I missing something here?
We cant convict someone for doing something that wasnt considered a crime at the time.
Speculation isnt a crime. Unfortunately. Neither is ignorance. Fortunately. A lot of these fancy
financial instruments that seem so flawed in perfect hindsight, were so complicated that the
bankers who sold them didnt even fully understand them, let alone the regulatory or legislative
authorities. That doesnt take away that a lot of dubious moves and bad decisions were made, on
a very large scale. Many people received staggering salaries and bonuses to devise and market
seriously flawed or fraudulent financial instruments, and many gained obscene returns by
knowingly abusing them. In any free society, everyone is fully responsible for his or her actions
and accountable for the consequences. So are they.
Honest people make mistakes too, and banks have cleaned up much of their act. Yet the
financial sector still pays some of the highest wages in the economy. It is almost as if they live on
another planet. If people are expected to help clean up the mess they mostly created, they should
at the very least pay their part.
The financial crisis hit Iceland harder than other countries because of the relative economic
importance of its banks. Too big to save. When they failed, the government let them go under,
cancelled their debts, guaranteed the savings of the people, and put the bankers on trial. Perhaps
it is time we did something similar.
The best way to rob a bank is to own one. - William K. Black

6 Economy
6.1 Its not about the size of your gun
You never change anything by fighting the existing. To change something, build a new model
and make the existing obsolete! - Buckminster Fuller
The use of steam-powered machines fuelled the industrial revolution. It opened the way to
mass production and distribution. By breaking up production into simple repetitive tasks on
assembly lines, reliability and efficiency increased as costs fell. Trains, ships and later trucks and
planes enabled bulk transport, lowering transport times and costs. For any product or service, the
more was produced, the more was sold, the cheaper it became.
The laws of economies of scale that fuelled the industrial age of the last century however
are losing their relevance in an era of computer aided design and production, and information
driven marketing and distribution. Henry Fords famous retort that one can choose any colour as
long as it is black, no longer holds in the automobile industry, where cars are increasingly
customised on demand with little or no additional cost to the automated production process.
Ten years ago a publisher needed to sell several thousand copies for a book to be
profitable. With Print on Demand (POD), one can print and sell a hand-full today for the same
unit price as a best-seller. Machines dont have to be laboriously reset, virtual retailers dont need
to hold physical copies in store, and smart distribution allows cheap single deliveries. Social
networks like Facebook, Twitter and other social platforms can even provide free individual
marketing. Costs are no longer a barrier.
Additionally, as society becomes more affluent, people demand more than just cheap
products and services, and emphasis shifts from quantity to quality. In order to remain
competitive, production and distribution therefore need to adjust towards increasing
performance, variety, and above all, flexibility.
Customised, automated production is slowly leading to a shift in dependence on cheap
collective labour to skilled individual input. Whether it was prisoners in Roman mines, serfs on
feudal lands, slaves on American cotton fields, children in Victorian England or women in the
sweat shops of the Far East, the affluence of society has always relied on exploitation in one
form or another. That is changing. We no longer need people to do the dirty work. And when we
do, we can afford to pay them properly.
Anyone with a well connected computer can in theory produce, market and sell almost
anything from his own garage, and compete in price and quality with any large producer,
marketer or retailer. The economy no longer needs those powerful corporations that dominate it
today to function effectively and efficiently. When we all realise that, we have taken a huge step
in the direction of freedom of choice, equal opportunities and fair compensation for all.

6.2 Perpetual growth

The myth of unlimited production brings war in its train as inevitably as clouds announce a
storm. - Albert Camus
Global wealth has grown spectacularly during the last century, far more than the general
population, which already increased exponentially. Economic theory holds that progress comes
through economic growth. But is that really true? Are there no limits?
It is human nature to want more than we have, use more than we need. For reasons of
security and power alone, enough is never enough. But needs themselves change. Once we have
fulfilled our need to eat, we will try to find safety and shelter. Once we have that, we will attempt
to insure our continuity and health. After that, acceptance, belonging and recognition, till we are
at last free to move on towards self-fulfilment and explore our full potential. There are many
ways to climb the hierarchy of needs, and the higher up we move, the more difficult it becomes
to measure them. Progress isnt necessarily linear or objective.
The Japanese economy has shown little or no growth the last two decades. Yet other
development indicators, such as education, general health, life span, gender or income equality,
have persistently improved. The United States in contrast grew ever stronger in economic terms,
with little to show for it in terms of improvement in public services or purchasing power of the
lower and middle classes. In fact the income gap between rich and poor has widened.
All nations show strong growth rates when they shift from closed, agricultural, rural
societies to open, industrial, urban societies. And that growth invariably slows down once they
reach a certain level, when the majority can make a decent living. It is an S-curve, with a long
slow start, a sudden increase and gradual stabilisation.
We see the same S-curves in population growth, life expectancy or pollution levels when
countries move from underdeveloped to developing to developed. The graphic effect of the
industrial revolution. Growth eventually slows down, though it wont stop until we all have
everything we ever wanted, by which time the sun will long have ceased to shine.
Economic growth is basically limited by the speed at which it fulfils its needs, uses up its
resources or destroys its environment. An economy based on food will stop growing when
everyone has enough to eat. Full is full. An economy based on oil will collapse if it doesnt find
alternative forms of fuel before the oil runs out. Empty is empty. An economy based on cheap
labour will implode when standards of living rise to eliminate cheap labour. Nobody wants to
stay poor. And an economy that destroys more than it produces reduces rather than increases
overall wealth, which contradicts the whole purpose of growth.
The consequences may not be immediate, but when we cross those limits, and in many
ways we have, sooner or later we pay the price. For, per definition, growth itself is unsustainable,

an arithmetic truth traditional economic models curiously seem to ignore. 7% growth will double
an amount in 10 years time (100% increase), and multiply it by 1,000 in 100 years.

6.3 The art of science

Not everything that can be counted counts, and not everything that counts can be counted. Albert Einstein
In an imperfect world, there are no absolute rights or wrongs. At most, we get to choose
between two or more greater or lesser evils, on which we seldom have the necessary information
to make a full evaluation. Additionally, we can only measure what we can both accurately
observe and define. Things that are objective, like weight or heat. We can observe things that are
subjective, like anger or beauty, but we cant really measure them, as they may mean different
things to different people under different circumstances. This is a problem, for the most
important things in life, like health, fairness or happiness, tend to be subjective. Maslows
Pyramid illustrates this nicely: as we progress up the hierarchy of needs, these become more
immaterial, subjective and difficult to quantify.

Science and reason have their limits. We cannot describe what hasnt been discerned, and
we cannot calculate what we cant compare. In order to progress, even science requires a leap of
faith, for all scientific laws start with a theory, and all scientific theories start with a hunch. In
order to move beyond the box, one has to start by thinking beyond it. And that is an art.
We tend to qualify things in terms of what we can measure, like wealth in terms of money,
or education in terms of diplomas, but those only express quantity, not quality. And we tend to
classify whatever we cant qualify, to pigeon-hole it into black or white, local or foreign, right or
left, modern or classical, based on outward characteristics. While this may simplify things, it is
also a form of discrimination, for appearances can be deceptive. Clothes only make a man
because we tend to favour convention, but a thief in a tailored suit is still a thief, and a lie is still
a lie, even if it tells us what we want to hear.
The thing that defines us as human beings is not that we can think, for so can a rat, if at a
more basic level; or even that we can think things through, for one can program a computer to
play chess. It is that we can think outside the box. Imagination enables us to create something
new. Empathy enables us to see things from another point of view. Conscience enables us to
comprehend the consequences of what we do or dont, both directly and indirectly, and evaluate
them not only in terms of what they mean to ourselves, but what they may mean to others.
Whether we call it faith, morality, equanimity, humanity; we have the ability to tell right from
wrong. We may not always agree or get it right, for there are more than fifty shades of grey
between black and white; and we may not always act as we probably should, for there are many
sides to a story. But deep down, we know, even if we lack the courage to admit it.
As the possibilities and requirements of the economy evolve, so should the way we
measure progress and development. GDP only measures how much a country produces in a
strictly material sense, and it makes no distinction between hospitals or bombs, schools or
prisons, food or fragrance. Whether growth is obtained by planting rice or cutting down forests,
making a million people better off or just one. The old economic indicators are as obsolete as the
old economic solutions. Growth and profit, investment and return are just part of the overall
picture. We must find ways to express the wealth in human interaction and creativity, in health
and happiness, in life and nature...

6.4 Free to choose

None are more hopelessly enslaved than those who falsely believe they are free. - Johann
Wolfgang von Goethe
The economic foundation of any free society is a free market, where people can exchange
skills, services or products to mutual advantage. A market that is open to all and dominated by
none. This is often conveniently forgotten. For whether a market is controlled by government,

large corporations, other interests or forces, it is still dominated, and therefore per definition not
free.
Milton Friedmans premise that capitalism is driven by greed is often misrepresented as:
greed is good. Its not. But a free market, and in fact freedom itself, are undoubtably driven by
self interest. And as long as that self interest does not compromise that of others, it is good. For
progress and gain tends to rub off where others are free to join in or follow, because that is
exactly what will happen. Healthy competition will encourage improvement and innovation, will
make us better, stronger, motivate us to reach our full potential.
Freedom of choice is based on the notion that human nature is essentially good. For we do
not willingly buy products or services we dont trust, we do not willingly participate in traffic or
society in general if we cannot count on others to do their part. It is an imperfect system at best,
for we cannot always count on others. We can rely on the individual guidelines of morals or
faith, the collective pressure of social norms or religious precepts, or the penalties of particular
contracts or general laws only up to a certain point. There will always be an element of trust. And
the degree of freedom of choice we actually enjoy is directly proportional to the level of trust we
are willing to extend.
As we evolve towards a society that is ever more free, the acceptance and exercise of
individual responsibilities reduces the need for collective pressure or regulation to keep people
under control. That is why religion is seen more and more as a matter of personal choice, and
why developed nations become less planned and bureaucratic. Less restrictions mean more
freedom.
Progress and freedom tend to reinforce each other. As people progress, becoming healthier,
better off, more educated, they want more freedom to explore and exploit their own potential. As
more people are free to do so, more ideas come forth, more initiatives are taken to make things
better, more progress is made. Greater participation leads to diversity and challenge, which leads
to invention and innovation, which leads to progress and development. This happens without
interference from higher up or further out, simply on the basis of self interest. We can try to plan
it, guide it or control it to a certain degree, but the less we interfere, the better.
That we shouldnt need rules, doesnt mean we can do without though. There is no such
thing as a free or open market if it is not also fair and accessible. Laws are not there to limit
peoples actions, they are there to protect them against the actions of others, another thing that is
often conveniently forgotten.

6.5 The business of big business

The problem in this world is to avoid concentration of power... - Milton Friedman
In business, size is power. The revenues of the largest corporations already surpass the
Gross Domestic Product of many of the nation states in which they operate.

Note that seven of the ten are in the oil and gas industry, and another two produce cars.
Successful businesses have a natural tendency to grow, preferably till they control a market
or society. Once investors and shareholders take interest in a company, the need for consistent
returns exerts a relentless pressure for continued growth. When that can no longer be achieved by
gaining market share or cutting costs, the focus will shift to branching out into new markets, or
integrating upwards or downwards into distribution of products or supply of parts. Amazon
started selling books on the internet. It now prints and publishes them, sells hand-held reading
devices, and almost anything else, from shoes to the kitchen sink.
One can wonder how much freedom of choice people have when all the main clothing
stores on a street (Zara, Massimo Dutti, Pull&Bear, Bershka, Stradivarius, Oysho) all belong to
the same corporation (Inditex). Or of the seven brands of coffee on a supermarket shelf, six come
out of the same factory.
While making new or better products adds value, increasing market share where economies
of scale no longer matter, doesnt. Mergers and acquisitions, like speculation, do not generally
produce anything to generate wealth. Branching out or integrating production by eliminating or
absorbing competition are just ways to secure a larger share of an existing cake. It may benefit
shareholders and investors, but adds nothing to the economy as a whole. Rather, it reduces
diversity and eliminates the benefits of competition: the drive for innovation and progress. It is a
parasitic form of growth.
The larger companies grow, the greater the pressure for profit, the higher the stakes, and
the harder they will push to get their way. Unfortunately, the larger they become, the less control
customers, suppliers, shareholders and even governments have over what they do and how they
do it. It becomes increasingly difficult to hold them accountable for their actions, and they will
do whatever they can to ensure we buy what they want to sell and sell what they want to buy
according to their terms and conditions, that we behave according to their rules and interests.
Power and freedom are generally incompatible, for the exercise of one negates the
existence of the other. Big business corrupts a free market.
Large corporations have the resources to push their products through expensive marketing
campaigns, to press for favourable legislation by continued lobbying, to evade taxes by
transferring profits to subsidiaries in low-tax countries, to force lower prices from suppliers by
sheer size of their orders, to lower labour costs by outsourcing or intimidation, to eliminate
competition by selling below cost when needed, to sway public opinion by marketing and media
coverage, to employ the best legal support to prevail in court. The road to hell is paved with good
intentions, so whether they use that power for the right or the wrong reasons, it invariably
interferes with the principles of freedom and equal opportunity.
There are ways to deal with excessive corporate power. American anti-trust laws broke the
monopolies of Rockefellers Standard Oil in 1911 and telecommunications giant AT&T in 1983
by breaking them up into smaller companies. Several lawsuits in the 1990s have successfully
taken on the denial of the tobacco industry that smoking causes cancer. The EU repeatedly fined

Microsoft for anti-competitive business tactics for a total of more than 1.6 billion. But the
battle has barely begun. Litigations for damages on the oil spills of the Prestige off the coast of
Spain in 2002 and the Exxon Valdez off the coast of Alaska in 1983, or the fatal gas leak at the
Union Carbide pesticide plant in Bhopal India in 1984, are still going nowhere.
The proposed Transatlantic Trade and Investment Partnership (TTIP) between the EU and
and the USA, as well as the Trans Pacific Partnership (TPP) between the USA and Southeast
Asian nations, negotiated largely behind closed doors, include provisions for Investor State
Dispute Settlements (ISDS), which would enable corporations to directly challenge government
policies. This would allow foreign oil or logging companies for example to dispute local laws on
public health, environmental or social protection in international private tribunals. Corporate
interests versus national sovereignty: a disturbing scenario in a world with growing corporate
power. Public protest has forced the European Commission to reconsider their position, but the
proposal is by no means off the table.
Companies like Nestl and Coca Cola have already taken communities in the US and India
to court as part of dubious campaigns to privatise local aquifers, arguing that water is a
commodity, subject to the highest bidder, not a public right. We cannot allow this.
When corporations can control countries, who will control those corporations?
Concentrated power is not rendered harmless by the good intentions of those who create it.
- Milton Friedman

7 Transparency
7.1 Anonymous Inc.
I am not afraid of an army of lions led by a sheep; I am afraid of an army of sheep led by a
lion. - Alexander the Great
The biggest problem with power is the potential for abuse. Especially when it can hide in
the shadows.
Corporate anonymity limits the liability of shareholders from market turns and forces
beyond their control. It also enables those hiding behind it to get away with illegal or immoral
behaviour. Anonymous shell companies are used to launder money, sell blood diamonds, practice
illegal logging, arrange questionable arms deals, line corrupt pockets, collect bad debts; and have
been linked to Italian and Russian mafias, Columbian drugs cartels, African warlords and
dictatorial regimes.
The African Progress Panel estimated in its 2013 report that Africa loses twice as much
money from illicit financial outflows as it receives in aid. Global Financial Integrity concluded
that in 2011, nearly 50 billion ($ 69 billion) flowed illegally into or out of just six emerging EU
nations (Poland, Rumania, Lithuania, Bulgaria, Latvia, Croatia).
It takes just 10 minutes of online shopping to set up an anonymous company. All one needs
in London to form an LLC (limited liability company) is a contact person and a nominee to act as
owner, information which does not go on public record. In Delaware it takes less identification
than to obtain a library card. By adding layers of companies owning companies in different
countries, it isnt difficult to create an impenetrable web that makes it virtually impossible to
pinpoint individual responsibility. All perfectly legal. And an accepted business practice even in
reputable companies.
Corporations were created to enable people to innovate without risking everything they
had. They were never intended as a moral shield. One cannot expect full responsibility without
full accountability. Companies should not be used to act anonymously and with impunity against
the public good. In order to avoid that, we need public registries of owners and beneficiaries.
On march 2014, the European Parliament voted overwhelmingly in favour of such public
registry for companies doing business in the EU (643 votes to 30, with 12 abstentions) at the first
hearing of a draft resolution for anti money laundering (AMLD). A draft resolution on transfer of
funds to make banks more vigilant in financial transactions passed with a similar majority. While
it will be up to the next European Parliament to work out the details and make it binding, it is an
important first step in the right direction. It is a global battle Europe cannot win on its own
though.

7.2 A most taxing problem

We don't pay taxes. Only the little people pay taxes. - Leona Helmsley, whose fortune literally
went to the dogs.
Nobody likes to pay taxes. Those who can, whether citizens or companies, will try to
minimise them. There is a difference though between tax avoidance and tax evasion. Tax
avoidance uses legal means or loopholes to reduce taxes. Declaring a company car or home
office for example as a business expense where it is difficult to determine how much is used for
business or private ends. Tax evasion uses illegal means to declare less income. For example by
selling a house for an official price (A) plus an undeclared sum in cash (B), peddling smuggled
cigarettes or pirated DVDs. Unfortunately, it is not always easy to distinguish between avoidance
and evasion.
Large investors or multinationals make use of differences in national laws to escape taxes
in high tax countries by paying them in low tax countries. The use of transfer pricing is common
in technology and pharmaceutical companies based on intellectual property that is difficult to
value. A Senate subcommittee revealed in 2012 how Microsoft avoided US taxes by shifting
intellectual property rights for software developed in America to subsidiaries in Puerto Rico,
Ireland and Singapore. While the US corporate tax rate is 35%, these three units paid only 4%
tax on profits of $ 15.4 billion, or 55% of Microsofts world total in 2011. The 1,914 employees
working in those three countries generated almost $ 8,000,000 in profit each, 25 times as much
as the $ 312,000 generated by each of the 88,000 Microsoft employees in the rest of the world.
Double Irish or Dutch Sandwich arrangements are common tax avoidance strategies. In
2011, Google reported tax payments of 3.2% on overseas revenues, even though most of those
were earned in Europe. By shifting 80% of pre-tax profits, or $ 9.8 billion into a Bermuda shell
company, it avoided some $ 2 billion in taxes. Revenues from adds sold in countries like France
and the UK are collected through an Irish subsidiary, which in turn pays royalties to another Irish
subsidiary with legal residence in Bermuda, avoiding Irish withholding tax by channeling these
payments through yet another subsidiary in The Netherlands. This last part is especially
interesting, since The Netherlands is anything but a tax haven.
Ireland has a corporate tax rate of 12.5% on active business, less than half of the 25-35%
rates of most other EU nations, and it does not tax income from foreign subsidiaries of Irish
companies. The foreign investment this attracted explains much of the Irish Miracle of steady
economic growth before the crisis.
A 2012 study by Tax Research UK into the shadow economies of illegal and undeclared
transactions in the EU, estimated these vary between 10 to 35% of GDP, adding up to a total of
2.3 trillion in 2011. This equates to losses in tax revenue of 864 billion, more than the total
deficit in government spending ( 786 billion), or the amount spend on health care in the EU.

The study estimated the losses due to tax avoidance to be a further 150 billion, bringing the
combined value of lost revenue due to tax avoidance and evasion to 1 trillion. Four times more
than the entire economy of Greece (GDP: 230,000,000,000).

Tax evasion doesnt only lead to loss in government revenue. It is inherently unfair. While
a small saving on our tax return may seem insignificant in the bigger picture, a lot of small
numbers add up to a large figure. And once we realise that others, including us, basically have to
pay for those who dont, cheating on taxes looks more like a collective deception than a national
sport. To make matters worse, who could possibly compete with a company that pays only 3.2%
on corporate profits, when local businesses are taxed at 30%? That is unfair competition, and as
such, contrary to the principles of the European Open Market.
There will always be a certain shadow economy. If we could reduce it from the current 20
to 25% of GDP in the EU by half, it would already be quite an accomplishment.
Recent agreements between EU nations like France and Germany with tax havens like
Switzerland have brought to light large hidden bank accounts. An important step in the right
direction, but hidden money is only part of the problem and persecution is only part of the
solution. And without a coordinated European effort, we wont get very far.
Tax rates, progressions and deductions are a matter of politics and preference, but the tax
base, the criteria on where, how and what to tax should be the same within the EU to avoid trans-

border loopholes. Any harmonisation though should first and foremost aim at simplifying tax
codes, not adding provisions. Eliminating barriers and simplifying administrative procedures are,
after all, key official EU objectives.
A European strategy could include the following:
Joint EU agreements to exchange tax information within the EU and with other nations
Common criteria for calculation, simplification and reduction of taxes on earnings
Common criteria for gradual increases in taxes on consumption to reflect Real Costs
A common VAT on all goods and services to finance the EU budget
Coordinated investigation and prosecution of tax evasion by joint EU task-forces
Coordinated legal action against unfair competition through transfer costs
A policy of zero tolerance on tax evasion
Equal treatment of income, no matter where it comes from
Recent declarations by European leaders suggest a growing commitment to take on tax
evasion. Let us hope they are serious, that they really will go after the larger offenders, for as
long as they can get away with it, the rest is just window dressing.

7.3 Made in grease

He who allows oppression shares the crime. - Erasmus
A 2012 Eurobarometer Poll found that two thirds of Europeans consider corruption to be a
major problem in their country. The report on Corruption Risks in Europe by Transparency
International cites inadequate regulation of political party financing and codes of conduct,
opaque lobbying rules and disclosure of interests, restricted access to public information, high
corruption risks in public procurement, and lacking protection of whistleblowers to be the
principal problems.
Corruption is difficult to define. To put it simply, it is the abuse of public position or
influence for private gain. It can show its ugly head in many forms, ranging from graft, extortion
and bribery to favouritism, influence peddling and inadequate oversight. The practice of
benefitting the few at the cost of the many is largely responsible for the excesses that led to the
economic crisis, and especially felt in the unequal implementation of austerity measures that
followed. This has led to widespread public protests against corruption in southern Europe.
A public procurement contract in Greece can cost and additional 10% in bribes to public
officials and another 10% in sweeteners to constituencies. Several high-profile corruption
scandals are currently under investigation in Spain, implicating key members of national and
regional government, all major political parties, and even the Royal House. So far they have
produced few convictions. The investigations and prosecutions under the Mani Pulite (clean
hands) campaign in Italy in the 1990s fragmented the political landscape, but failed to break the
underlying culture. If anything, they privatised corruption.

Corruption is by no means a southern problem though. Most of Eastern Europe, especially

Romania and Bulgaria, is not much better off. And recent scandals on expense declarations of
Members of Parliament in the UK, pension fraud in Norway, and procurement bribes on foreign
contracts of prominent German companies, show that not all that looks clean, is clean.
Corruption is not a one-sided affair. Besides people willing to sell favours, it needs people
willing to buy them, which is just as reproachable. And it needs the silence or tacit acceptance of
those many more who know about it. Fortunately, this last part is changing, and people are
starting to realise corruption affects us all. Unfortunately, the vested interests and
interdependencies in corrupt governments, administrations or political systems, impede or fight
off any change from within. And abuse of power is the worst form of corruption.
The keys to fighting corruption are transparency and responsibility. Transparency in the
way government works, the procurement of public contracts, financing of political parties, the
revelation of vested interests, etc. Responsibility in the awareness that corruption cannot exist
without our involvement or silence, and that abuse should be reported. For that, people need
access to open information, somewhere they can go to with doubts or complaints, and protection
from possible reprisals when they do.

7.4 Clear as mud

Immorality: the morality of those who are having a better time. - H.L. Mencken
There are always ways to work around legal constraints, and not all forms of corruption are
necessarily illegal. What is right and what is possible does not always coincide. There is a fine
line between a favour and favouritism. The first simply benefits someone, the second does so at
the expense to others.
So too is there a fine line between lobbying and bribery. The tobacco industry and related
lobby groups officially spent 5.4 million on lobbying in the EU in 2011. No need to ask in
whose interest. The pharmaceutical industry alone spends some 40 million a year in lobbying
to influence EU decision making. It is also notorious for showering lavish christmas packages,
conferences and cocktails on doctors who use or prescribe their products.
General Electric, the 6th most profitable company in the world according to Fortune 500 ($
11.6 billion in profits in 2011), spent $ 84 million on lobbying the US Federal Government from
2008-2011 and obtained a net tax rebate of $ 4,700 million. A 5,595% return. Not a bad
investment.
We all wish we could do that. Or pay a paltry 3.2% in taxes. But we cant, for someone has
to keep the circus running. It is perfectly legitimate to look after ones interests. Shirking ones
responsibilities is not. It is a form of moral corruption.
Corruption is often difficult to quantify for it is not always about the exchange of money.
Passing a pubic contract on to a friend may not affect the ultimate price, just the beneficiary. The

social and economic costs though, in lost opportunities and efficiency are there. Just like tax
evasion, it is not just about lost revenues or extra costs. Corruption is another form of unfair
competition and distribution of wealth.
Tax evasion and corruption are similar in many ways, and often linked. Audits,
investigations and prosecutions should be coordinated through a single EU institution. Teams of
predominantly young people from different member states could be brought together on short to
medium term assignments, much like an advanced Erasmus interchange program. Using the
Smoking Gun Principle (where there is smoke, there is fire), they could investigate large
transfers or accumulations of money or property, and audit public procurement procedures and
transactions of multinational firms. This would not only establish an independent transnational
body of control, but a valuable source of work, experience and contacts for recent university
graduates. Mixing people from different cultures and backgrounds in changing teams will foster
understanding and responsibility, maximise the exchange of ideas and information, and minimise
any possibilities for bias or corruption.
The Independent Commission Against Corruption (ICAC) broke the hold of organised
crime and widespread corruption on Hong Kong in the 1970s with a policy of zero tolerance.
The city now has a reputation for integrity. If they could do it, so can we.

7.5 Open information

If you don't read the newspaper, you're uninformed. If you read the newspaper, you're misinformed. - Mark Twain
We live in an information age. The way we produce and sell products and services, the way
we make strategic or superfluous decisions, the way we learn and interact, all depend on
information. We are bombarded by information through the media and the internet, with news,
propaganda and entertainment, facts, lies and trivia, all vying for our attention.
While information is ever more open and available, its sheer volume doesnt necessarily
make it more accessible. And there will always be strong interests to sort or manipulate what we
see and what we dont, whether for commercial, ideological or personal reasons, neutral,
constructive or subversive purposes. The tendency of communications, software and media
corporations to consolidate or even monopolise their power runs counter to the interests of a
democratic society. Television and video channels like Sky or YouTube determine what we see;
Newsgroups like MediaCorp or CNN what we read or hear; search engines like Yahoo or Google
what we find on the web; social platforms like Facebook or Twitter how we interact. How open
and unbiased can information be when the major UK newspapers are in the hands of two or three
men, or 80% of Italian TV is controlled by just one?
Information is power. Whether it is true or false, right or wrong. Politicians will lie for a
vote, advertisers will cheat for a sale. They will repeat, twist and repackage their message, fiddle

facts and figures, swamp us with details, silence the competition, discredit their opponents, sow
discord to divide and rule, whatever it takes, for all is fair in love and war.
Father Christmas was marketed by Coca Cola to boost sales. We buy diamond engagement
rings because DeBeers promoted the idea. Women believe they are fat because they are not
fashionably anorexic. Even smoking is still widely considered cool. Marketing and propaganda
can be forms of abuse of power too, and not always harmless. Repeating something only makes
it familiar, not necessarily right or true, fair or harmless. Appearances are deceptive, and often
deliberately so. And the more information is out there, the more difficult it becomes to sort the
spam from the ham.
While we are able to perceive ever faster sequences of images and data, we can no longer
process them all. In todays Twitter culture, information is packaged in less than 140 characters
to generate a response that has no time to evolve beyond an emoticon. Truth and fact no longer
matter where inconvenient data simply adds to the distraction. Overloaded, people become
insecure, apathetic, docile and submissive under the impression that they suffer alone.
A free society depends on transparent, accessible and unbiased information. It is a key
ingredient to any functioning democracy or open market. We cannot prevent or combat
corruption or other forms of abuse of power without transparency or open information. We
cannot decide or compete properly or fairly without knowledge or facts. It is therefore the
responsibility of those who have it, to share it fairly and accurately. This doesnt mean it should
be imparted altruistically or indiscriminately, just accessibly. Attempts to hold it back will
eventually backfire anyway.
Self regulating forums, like the World Wide Web itself, or open platforms like Wikipedia or
WikiLeaks, unconstrained by commercial or political interests, play an important pioneering role
in this. The limits of privacy, secrecy or decency may not always be clear, but that should not
detract from the essence: its about freedom, and how to disperse power and control. Democracy
requires a certain hacker mentality. It is by testing the boundaries that we find what works and
what doesnt, what should and what shouldnt.
People like Julian Assange, Bradley Manning, Edward Snowden and Herve Falciani have
stepped forward to reveal uncomfortable or unacceptable corporate, military, security or financial
secrets, and faced questionable persecution as a result. Shooting the messenger may silence the
truth, but it wont change the facts. And without facts, we cannot find and fight abuse.
It is from the revelation of the truth that all else follows. Our civilization is only as strong as its
ideas are true. - Julian Assange

8 Development
8.1 Proper breeding
Sustainable growth is an oxymoron. - Albert Bartlett
Talk of overpopulation may not be politically correct, but we cant ignore the fact that there
are simply too many of us. Global population has doubled twice the last century from 1.5 billion
in 1900 to 3 billion in 1960, and 6 billion in 2000. And it is still growing, though apparently at a
slowing rate.
By some miracle, somewhere between all the wars and disasters of the Twentieth Century,
we have not only managed to feed this multiplying mass of humanity, but reduce the proportional
levels of hunger and poverty, disease and mortality. Average income per person in 2000 is
estimated to be about five times what it was in 1900. According to the World Bank, global
agricultural output produces 17% more calories per person today than 30 years ago, to the
equivalent of 2,720 kcal per person per day, in theory enough to provide every man, woman and
child with a proper diet. So we must have done some things right.
Even so, It is difficult to tell whether people on the whole are really better off. Angus
Maddison, University of Groningen, Netherlands, has elaborated detailed tables with estimates of
average purchasing power in the different nations or regions of the world over time, since 1 AD.
At that time, Romans were about twice as rich as the barbarians of Britain, Germany and the
Americas, while the Chinese, Persians and Egyptians were somewhere in between. In the pie
charts of GDP per capita below, we see that the difference in share of total income between the
average European or North American and the average African or Indian was still about 2 to 1
(17% vs 7-9%) around 1800. By 1950 though, that difference had increased tenfold, to 20 to 1
(40% for the average North American to 2% for the average Chinese). The gap seems to be
closing as we have returned more or less back to where we were 100 years ago. This is an
imperfect comparison at best however, and doesnt take local differences into account, which can
be substantial. And the capacity to generate wealth does not necessarily say much about where
that wealth ends up.
Global means and resources are unevenly distributed. According to the World Bank, 75%
of the worlds income goes to the richest 20%, while only 5% goes to the poorest 40% When we
try to extrapolate figures into the future, thats where the real problems arise.
Poor people use about 20 litres of water per person per day. In the United Kingdom, the
average is around 150 litres per person per day, in the United States about 600. Carbon Dioxide
emissions are on average about 5 tons per person per year, ranging from less than 2 in India to
more than 8 in Europe and 17 in the United States.

So what happens when we all start living the American Dream? A nightmare. There isnt
enough oil, grain, wood, fresh air or water for that kind of growth. Our natural resources are
already stretched as it is.
The only other organism that tends to multiply to utterly deplete and destroy its
environment is a virus. Even a plague of locusts leaves enough for the land to recover. Nature
has ways of dealing with overpopulation, none of them pleasant. Droughts, floods, war.
Epidemics like cholera, tuberculosis, bubonic plague, spanish flu. Or another virus...
As societies develop, the birth rate tends to go down. In Europe, families have one, two or
at most three children, which means the population eventually stabilises or decreases. This is an
expression of freedom of choice, something that sets us apart from other organisms. It shows we
can decide how to live and improve our lives. And it is one more reason why the development of
all should concern us all.

8.2 Alien invasions

Charity is no substitute for justice withheld. - St Augustin
Immigration is a good thing when it comes to bringing in new ideas, new potential. A
species that does not diversify its genes with new blood, eventually weakens and withers.
Inbreeding is the way to degeneration and extinction. But one can only absorb so much at a time,
and immigration is a matter of numbers. Even too much of a good thing is too much.
It is always interesting to hear economists talk about immigration. When there is a lack of
cheap local labour, they argue in favour of importing unskilled workers. As if immigrants and
their families will never learn anything, nor demand higher wages. When the average population
gets older, straining pension funds, they argue in favour of importing younger workers to pay for
our retirement. Who will pay for theirs? It is a bit like arguing for more farm hands when crops
dont yield enough to feed those who tend them, conveniently forgetting the extra mouths.
It is even more interesting to hear professional protesters talk about immigration, arguing
for legalisation and equal rights. By making all immigration legal, we would largely eliminate
the criminal networks and inhuman costs of human trafficking. But it would also encourage the
surge. And who will pay for the education, healthcare, welfare and pensions of all those people
who suddenly arrive to demand them?
Illegal immigration is a human tragedy. People dont brave the sands of the desert, cross
the sea in a rubber dinghy, or allow themselves to be crammed like sardines into sweltering
containers for days on end at the mercy of shady characters for adventure. They dont leave their
homes and loved ones because they want to, but because they see no other choice. They dont
want to live in Europe. They want a better life, a way to support themselves and their families.
We can spend all the money we like over here, trying to stop immigrants or trying to
integrate them, but it is not going to solve the problem, and it is not going to stop them from

coming. The only way to tackle illegal immigration is to eliminate the need for it. To ensure
people can solve their own problems, at home, where they feel they belong. That is the place to
invest.
The decision to emigrate to escape problems at home, shows initiative, precisely the
characteristic that is most needed to solve those problems. And this is where the opportunity lies,
for if we cannot employ that talent here, it can surely be put to good use where it came from.
These people know their local language, are not afraid to get their hands dirty, and would be a
tremendous asset to any development program abroad. Train them, help them set up a program,
and send them back. It is a win-win situation. Those who come win, those who stay behind win,
and those who help win. It is not aid, but investment. It is not assimilation, but integration in a
broader sense, a way to cultivate friendship and cooperation.

8.3 A small world

It is not our abilities that show what we truly are. It is our choices. - Albus Dumbledore,
Harry Potter and the Chamber of Secrets by J.K. Rowling.
Progress and freedom are contagious. People naturally want what others have, to
participate in a winning game. Modern transport enabled the exchange of goods and services
across ever longer distances. Modern technology enables ever cheaper and faster production and
distribution. And modern communication ensures an ever wider spread of ideas and information,
bringing people closer together, showing them what they have and what they could have. Ideas,
economies and communities are no longer defined or limited by geography.
Globalisation has made the world more interconnected. It has also made us more
interdependent. We dont only get to share the benefits, ever more, but also the costs, ever more.
A tsunami in Asia can rock the stock market in London, a default by a bank in New York can trip
the economy in Europe.
As problems are ever more global in nature, they become more difficult to deal with on a
local level. National governments are increasingly exposed to international situations or
developments on which they have little or no influence. This can lead to either cooperation or
conflict. Good or bad depends on how we deal with those situations or developments.
Globalisation is about more than the economy, for it is not only about what we buy and
sell, but how we act and interact, on which scale and scope. Whether we talk about marketing,
mining, farming, politics or war, our capacity to both create and destroy, share and take, have
increased exponentially in the last century.
While computer aided design and technology makes it possible for anyone to produce
almost anything competitively on a small scale, it also enables larger companies to become more
efficient and effective, more powerful and dominant. While in principle it allows people to

exchange ideas and information with each on a more equal basis, in also equips the biggest and
loudest voices to drown out everyone else.
In any sport, what matters most is fair play. It is no different for competition in any other
field. In a world with vanishing borders, governments lose national control, while large
corporations grow to build up international clout. And there is no real balance of power to keep
them in check.
We have the tools and the knowledge to enable a truly free and fair global market, where
we can all win. It is a question of embracing globalisation, setting common rules, and standing
up to the larger players who think they can impose their own. Globalisation is not about
competition, it is about cooperation. Competition keeps us in shape and on our toes, but only
takes us so far. Cooperation takes us further, and is the only way to ensure everyone wins.

8.4 A free lunch

Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a
lifetime.
There is no such thing as a free lunch. Without coercion, society works on the basis of
mutual exchange. Whether its a business deal, a marriage proposal, or a simple conversation, it
takes two to tango. One-way relationships dont tend to last. So if we want something, sooner or
later were going to have to offer something in return, or pay for the consequences.
If we divided all the wealth of the world, we would eliminate both inequality and poverty
by making everyone equally poor. Development is is not about dividing wealth. Its about
spreading it by allowing others to create and manage it for themselves. Charity doesnt work. It
only creates dependence.
Decades of aid and donations to Africa have accomplished virtually nothing to help the
poor. It lined the pockets of the corrupt, only increasing their power to pillage and oppress. It
destroyed local markets by flooding them with free or subsidised goods from abroad. Dumping
the excess food we produce to feed the hungry may ease our conscience and temporarily fill a
need, but it interferes with the viability and incentive of local farms and industries.
It doesnt take much to help people take care of themselves. All we have to do is invest in
their education and potential, by sharing ideas and lending the tools they need to succeed, and
allowing them to participate in a free and fair market, to buy what they need and sell what they
offer at a viable price.
Like charity, subsidies distort the market. Subsidies on milk, rice or olive oil, dont only
lead to a dependence of farmers on government aid, they are an incentive to produce irrespective
of demand, leading to waste, inefficiency and stagnation. Subsidies tend to entrench themselves
to become entitlements. They may have their uses to rectify temporary imbalances in price or
supply levels, but once established, are very hard to get rid of.

The same goes for welfare. It may be important to guarantee a minimum income to people
who are temporarily between jobs. But when unemployment drags on, it becomes a downward
spiral, devolving into a fact of life, and welfare becomes a basic necessity, that neither motivates
the search for work nor invokes a sense of worth or purpose. It is a collective burden and an
individual trap. People want to belong, need to belong. To feel useful. Dependency is degrading,
for it denies our independence, our basic freedom.
The role of government is not to insure a minimum income, but fair compensation, equal
opportunities, and a chance to work where and when needed. It is a change in focus from
dependence to belonging, from minimal subsistence to human dignity.

8.5 Fair Trade

Money won't create success, the freedom to make it will. - Nelson Mandela
Fair Trade is about equitable and sustainable use of human, natural and technological
resources. Like democracy, it is about equal opportunities. If everyone plays by the same rules,
has the same problems and possibilities to buy and sell products or services, only quality
matters. Improved information, communication and production technologies basically allow the
smaller players to compete with the larger ones in ever more accessible markets, enjoy fair
protection and obtain fair compensation.
Unfortunately, most government policies do not favour these premises, and large
corporations aggressively pursue greater market domination to the detriment of competition and
innovation. And equal opportunities alone do not guarantee fair exchange or compensation.
Supply and demand of goods, services or labour are not always balanced. An overabundance of
labour for instance can lead to exploitation. It doesnt justify it though. The question is not
whether we can compete with people working 24-hour shifts in sweat shops on a dollar a day, but
whether we should. Whether they should even exist.
In 1911, 146 women died in a fire in the Triangle Shirtwaist Factory in New York. One of
the escape doors was blocked by smoke and fire, the other was locked to prevent the women
from stealing or sneaking out. Many jumped out of the 10 story windows to their death to escape
the inferno. Mass protests led to better and safer working conditions, and within 25 years fair
labour standards, minimum wage laws and workers rights to organise had wiped out sweatshops
in the US.
Almost exactly 100 years later, a fire in the Ha-Meem factory in Bangladesh killed 29
textile workers and injured 100 more. One fire exit was blocked by fire, and the other was
locked. Many jumped out of the 10 story windows. History repeats itself. Except when those
same workers in Bangladesh asked for a raise from $ 0.28/hour to the legal minimum of $ 0.35/
hour, their protests were violently quashed by the police. The cost of labour for a typical shirt or

shoe made in a sweatshop today is often less than 1% of the final price. Surely it could be a little
more.

Any game needs rules. That goes for anything that involves human interaction, from
football to open markets. Rules are there to protect the innocent from the not so innocent, the
small from the mighty, the few from the many and vice versa.
Regulation of Fair Trade will not be easy. Trade barriers and subsidies distort market
conditions and may create undesired dependencies or inefficiencies, so should be applied with
care. One can imagine tariffs on products that do not play by the rules, or subsidies to maintain
unique societies or ecosystems, but little else.
Most importantly, as consumers, we should demand Fair Trade and shun products and
services that do not meet the proper guarantees and standards of human well-being and dignity.
The wealth of some no longer depends on the misery of others.
There are several Fair Trade labels or certifiers, including Fairtrade International (FLO),
Institute for Marketology (IMO) and Eco-Social that promote trading partnership based on
dialogue, transparency, and respect, and seek greater equity in international trade.
Internally, Fair Trade should benefit small and medium scale enterprises, for they provide
the real wealth, innovation and jobs. Externally, Fair Trade should benefit developing countries,
for there is no more lasting and satisfying way to aid people than by enabling them to help
themselves. As nations develop, they become more stable, cooperation and competition become
less one-sided, growing affluence enlarges the market, and new ideas and possibilities come
forward. Wherever Fair Trade flourishes, development and democracy will follow.
You cannot feed the hungry on statistics. - Heinrich Heine

9 Real Costs
9.1 Warming up to global warming
Where there is smoke, there is a fire.
The effects of global warming are difficult to predict because there are so many factors and
unknowns to take into account. We can barely predict the weather for next week, let alone next
year, but extreme weather conditions like heat waves, snow storms, floods, or tornadoes do seem
to occur with more violence and frequency. We know large amounts of gasses and particles in the
air, whether ash from volcanic eruptions, carbon dioxide from burning of fossil fuels, or methane
from concentrations of livestock, affect the weather for longer or shorter periods of time. And
very small changes in climate can have devastating effects. For in nature, balance is fragile.
We have seen the destruction of whole forests due to acid rain from burning coal, and the
depletion of the ozone layer that protects the earths atmosphere due to the use of CFCs in spray
cans. Carbon dioxide can be partially absorbed by vegetation, but 65 to 80% of what is released
into the air takes 20 to 200 years to be dissolved into the ocean. Most life on earth needs clean air
and water. There are limits to how much poison an organism or an environment can take.

The Sustainability Institute has tried to quantify the effects of CO2 emissions on the rise in
global temperatures and sea levels for different scenarios. Without taking any measures,
continuing with business as usual, the atmospheric concentration of CO2 would go up from the
current 400 ppm (parts per million) to 1,400 ppm this century, resulting in 4C rise in average
temperature and a 1m rise in sea level. In a low emissions scenario, atmospheric concentration of
CO2 would stabilise, temperature would still go up 1, and sea levels would rise about 60 cm.
This scenario though is based on halving global CO2 emissions by 2050. For everyone to do
their equal share, that would mean emitting no more than one seventh of what is currently
produced per person in North America, or a quarter of what is currently produced per person in
Europe. Not an easy task if we want to hang on to what we have and others want to have the

same thing. Current plans and proposals for emissions reductions dont even take us half way
there yet.

9.2 A bad case of gas

You cannot escape the responsibility of tomorrow by evading it today. - Abraham Lincoln
Modern society is largely dependent on the use of fossil fuels to provide heat and energy.
Besides releasing noxious gasses when burnt, winning and transporting these fuels involve
additional threats to our health and environment. Mining and drilling is a dangerous business,
and more so as we have to drill and mine ever deeper and further, for oil and coal are limited
resources with dwindling supplies. To extract embedded oil for example, the process of fracking
injects water at high pressure into deep layers of rock, breaking it up, at the risk of contaminating
groundwater and causing earth movements and tremors.
There are several ways to reduce and eventually eliminate our reliance on fossil fuels. The
first is of course efficiency: reduce waste and get more out of what you burn. A graph showing
where Greenhouse Gasses (GHG) come from helps to clarify our priorities. Energy and heat is
responsible for 25% of GHG, road transportation for 11%. Small steps like insulating our houses,
dimming the lights or the air-conditioner, car-pooling or taking the bus, can go a long way, but
eventually we will need to convert to renewable sources of energy, like solar, wind or wave
power.

Unfortunately, much of what is sold as green technology today is little more than hype. A
marketing trick to ease the guilt of doing something we shouldnt. A hybrid or electrical car may
appear cleaner than one on gasoline, but as long as the electricity is produced by burning oil, coal
or gas, the overall effect is just cosmetic. Biofuel may appear renewable because you can distil it

from organic material grown in crops or plantations, but they often cost more energy to produce
than they actually provide, and require a lot of land and water that could be better employed
otherwise. It is in fact burning food. Problems arent solved by hiding or shifting symptoms.

Carbon Dioxide (CO2), mostly from burning fossil fuels, accounts for 77% of all GHG.
Methane, mostly produced by livestock, accounts for another 14%, so the consumption of meat,
even without cooking, is another important contributor to global warming. If we further take into
account that the production of one calorie of meat requires more then ten times the amount of
calories in grain and more than a hundred times the amount of water, a diet largely based on meat
is clearly unsustainable. Food production uses about 50% of total land area, 80% of the fresh
water and 17% of the fossil energy available in the US according to the American Journal of
Clinical Nutrition. This is a matter of choice.

9.3 Paying the piper

He who pays the piper calls the tune.
On an international level, the debate on global warming is not so much concerned with the
effects, but with who is responsible, who should pay and how. While the West has the resources
and a head start in cleaning up at least part of their act at home, the rest of the world has enough
difficulties trying to catch up in development and prosperity. The greatest ecological damage
now takes place in the third world, which has the most polluted cities, the dirtiest industries and
the most threatened environments. The miracle of Chinese economic growth comes at huge longterm costs that will have to be paid sooner or later.
Most of the primal forests in Europe have been destroyed in the name of prosperity. Can
we condemn others for following the same path? If rain forests are important to the earths
climate and bio-diversity, shouldnt everyone play their part in keeping them? We cant expect
others to bear the costs we so callously passed on ourselves. There are historic responsibilities to
consider.

Calculating a carbon footprint is difficult enough without having to deal with unrecorded
historical conditions. If we compare an estimate of cumulative CO2 emissions by the World
Resources Institute from 1850 to 2007 with the Gross Domestic Product (GDP) of each nation in
2007, we see a close correlation. We owe our wealth in large part to what we have spoilt or used
up, so it should be quite clear who should pay. If it costs X% of total world income, each nation
should aport X% of its own. How they pass the bill on to their citizens is their problem. Clear
and simple.

Carbon Credits, tradable certificates or permits for the right to emit one ton of CO2, are an
interesting concept. In theory, they allow underdeveloped nations and cleaner businesses to sell
excess credits to developed nations and polluting businesses, rewarding energy or emission
efficiency and taxing inefficiency. In practice it is difficult to allocate and police such credits. It
would be much easier to simply tax carbon emissions and let the market decide on how to
allocate them. This places the consequences on those who ultimately decide what they are worth:
consumers.
DARA/Climate Vulnerable Forum estimate the costs of global warming in damages to
agricultural production and due to extreme weather to have been around 1.6% of GDP in 2012,
and expect them to rise to 3.2% of GDP by 2030. It may not sound like much, but if we take into
account that 1% of GDP can be the difference between growth and recession, or translate it into
dollars, the figures are astronomical. What it would cost to stop Global Warming is anyones
guess, but is certainly far less. Investments in energy efficiency and renewable sources are
usually recovered by cost saving within a few years, and many of the things needed to eliminate
waste dont really cost anything apart from a change in attitude.

9.4 Walking the walk

Too many people spend money they haven't earned to buy things they don't want to impress
people they don't like. - Will Smith

If we take into account traffic and parking, walking or cycling doesnt take much more
time than taking the car on short distances, and it is undoubtably healthier. There are simple ways
to reduce the amounts of water, heat or electricity we use at home. We can actually live better
with less, as long we realise its about quality, not quantity. If you dont need something, you
may even be better off without it. It is a matter priorities. A choice.
We have come a long way already. Since the 1960s, people have become more aware of
our effect on the environment. Treatment of wastewater has helped clean up streams and rivers.
Disposable packaging is increasingly bio-degradable. We recycle glass, paper, organic waste and
other materials. Not all by a long shot, but its a start. The Montreal Protocol of 1989 led to the
disappearance of spray cans with CFCs that affected the ozone layer. Many small steps are taken
in the right direction every day, and many small steps make a huge difference.
Our economy however is still fuelled by consumption, even though it no longer requires
economies of scale. Our society is materialistic, even when most of our material needs are taken
care of. On the one hand, commercial interests use whatever means at their disposal to entice or
oblige us to purchase their products. On the other, we tend to opt for convenience, or simply
have our priorities mixed up. We are easily swayed by what is immediate, cheap, easy or
practical. We follow fads and fashions because it makes it easier to fit in. It takes effort to do the
right thing. It takes courage to be different, to say no, to go against the grain.
We spend a lot of time and money on things we dont really need, things that clutter rather
than improve our lives. Obsessed with appearances, living a lie. Stressed and unsatisfied, we
demand instant gratification. Drink sugary soft-drinks that make us more thirsty. Eat snacks that
stimulate our hunger. As a result, we are unhappy and unhealthy, basically because we try to fill
immaterial needs by material means.
Living a healthier lifestyle will avoid a lot of collateral damage to ourselves and our
environment. And we can save a lot of costs, both to ourselves and society, by reducing, reusing
or recycling what we use. Individual responsibility will only take us so far however, for the costs
and consequences of our actions are not always clear.

9.5 Real Costs

Our scientific power has outrun our spiritual power. We have guided missiles and misguided
men. - Martin Luther King Jr.
Sustainable Development is nothing more than proper resource management, which is
simply long-term common sense, even in purely economic terms. Any rational society or
industry will strive for improvement and continuity, optimising human, economic and financial
assets, reducing losses and liabilities. Where we fail is in the way we calculate the costs and
consequences.

Many of our most basic natural resources such as water, air and land are finite, and
seriously undervalued or abused, but the same applies to our basic human and cultural resources,
such as health and knowledge. Since we dont pay the full price, this leads to unnecessary waste.
With growing pressure from our increasing population, economic rapacity and thoughtless
neglect, optimising available tools and resources is a matter of survival.
The key to proper resource management is the use of Real Costs, for they reflect the true
consequences of using any resource, product or service. The Real Costs of a car, for example,
take into account not only what it costs to design, develop, produce and sell, but also what it will
cost to fully recycle or dispose of, the costs of road surface and parking space, the possible
effects and risks in traffic, and the overall damage to health and environment it causes. The Real
Costs of a cigarette include its relevant portion of smoking-related healthcare costs, both direct
and indirect, and lost time and productivity at work. The basic rules of Real Costs are simple:
whoever uses a resource replaces it, whoever causes damage pays for it. That way there is no
such thing as a free ride or cheap junk. Real Costs help us sort out our priorities for they put a
price tag on whim and waste.
If the price of coal included the risks of mining, transport and stoking in terms of
environmental damage, health and safety, would it still be competitive, let alone economically
viable, in the production of electricity? If the price of gasoline included the risks of extraction,
distribution and combustion, would we take the car so thoughtlessly? If the price of sugary
drinks or snacks reflected the corresponding health risks and social costs of obesity and diabetes,
would we still consume them so readily? Probably not.

A study by the International Energy Agency on pollution externalities found that if the
costs of CO2 emissions were added to the market costs of generating electricity, alternative
sources of energy are actually much more competitive than those based on fossil fuels. Yes, it
would raise the price of electricity, but only by what we already pay for indirectly.
Real Costs level the playing field by making us face the consequences of our actions. They
ensure that responsible producers compete on more equal terms, and informed consumers can

chose more prudently. Tomatoes grown halfway across the globe would no longer be cheaper
than those grown next door.
The application of Real Costs is the only way to obtain truly fair prices. Fair prices form
the basis of Fair Trade, the main requirement of any truly free and fair market. The use of Real
Costs would gradually change our society from one focused on instant gratification to one
oriented towards durable quality. Where we use no more than we really need.
Everybody, sooner or later, sits down to a banquet of consequences. Robert Louis Stevenson

10 Sustainability
10.1 No carbon footprint
A hero is someone who understands the responsibility that comes with his freedom. - Bob
Dylan
Whoever holds the key to Sustainable Development, holds the future. The EU has already
implemented a number of objectives and programs to reuse, recycle and reduce, to improve
energy efficiency and environmental protection, but we need to take it one step further, to change
the way we live.
Individual Responsibility, Real Costs and Fair Trade could form the guiding principles of a
sustainable economy. In a free society, we are accountable for our actions and omissions. The
decisions we make affect our environment, directly or indirectly. Real Costs take into account all
the risks and effects of using a particular resource, product or service. They put a price on the
consequences of our decisions. Fair Trade fosters open information, equal opportunities, just
compensation and environmental protection. It ensures we all play by the same rules.
Individual Responsibility requires awareness, a matter of information and education. The
easier it is to make the right choice though, the more likely it will be taken. Real Costs are a
matter of pricing, and should be implemented gradually, to begin with by phasing out subsidies
and other market distortions. Fair Trade is a matter of open access to information and proper
legislation, the simpler, the better, for it is about eliminating barriers, not creating them.
New technologies and innovation develop almost faster than we can assimilate them.
Information technology, genetics, bioengineering, nanotechnology and other fields offer new and
exciting possibilities, but also raise new questions, pushing the limits of security, privacy,
dignity, humanity and life itself. Closer forms of cooperation between government, universities
and businesses in research and development, accessible information and open debate will be
needed to make the most out of this potential without compromising our fundamental values.
In order to reduce our carbon footprint, the first step is undoubtably to eliminate our
dependence on fossil fuels. The application of Real Costs will make clean sources of energy
more competitive, but we have to make sure we dont commit the same mistakes with those.
Natural processes are cyclical. The waste or remains of each step, form the nourishment or
foundation of the next. A sustainable society should follow the same pattern. We must return
from the industrial linear economy of exploitation and consumption, to the traditional cyclical
economy of sowing and reaping. And this implies a shift in scale, a change in focus from
corporate growth to personal fulfilment, from quantity to quality, from material to immaterial.
What we eat doesnt only affect our health, but how we use our land and water. How we
plan our cities determines how we move and interact, how well we live and work. Everything is

interconnected and related. A sustainable society requires an integral approach that takes it all
into account.
As largest and richest market in the world, the European Union is in a unique position to
take the lead in Sustainable Development. We have the means and the potential. Respect for
others and the environment is now valued throughout our diverse cultural heritage. Additionally,
Europe has an important historical and economical responsibility to correct past wrongs and lead
by example. And it is an opportunity to convert our economy and fuel it during the transition, for
in evolution, the first to adapt, wins. We have a lot to lose if we dont act, and much to gain if we
do.

10.2 Science fiction

Science never solves a problem without creating ten more. - George Bernard Shaw
Advances in science and technology can be so rapid or unexpected, they increasingly test
our ability to assimilate them. By the time we learn to work with a new application or gadget it is
often already outdated. In an effort to keep up, we readily apply new technologies without being
fully aware of the consequences. As with everything, it is not the tool that matters, but what you
do with it.
Breakthroughs in genetics help us understand the causes of hereditary or degenerative
diseases and point us to possible cures or treatments. They also raise at least as many questions
as they answer. If we can modify human genes to avoid certain afflictions or disabilities, we
could modify them to improve abilities or enhance desired traits. One thing is to reduce or
eradicate the possibility of developing cancer or Alzheimers. Quite another is to engineer a baby
la carte. The first is about eliminating differences to improve life in general, the second is about
enhancing them to obtain individual advantage. Where the boundaries lie for what is human or
natural is not just a scientific matter but a moral one. One we will not only need to address, but
refine as our knowledge grows.
Computers have made a lot of things easier, and enable us to do things we couldnt even do
before. These new possibilities however have created their own necessities, for as we can do
more, we demand more, and eventually find ourselves swamped with little tasks no one
considered important before, but now supposedly take so little effort they may as well be done.
We have become more efficient, but not necessarily more effective.
Developments in renewable energies, recyclable materials, synergies in production
processes and revolutionary systems of transportation and communication, not only enable us to
protect and enhance our environment, but present great economic and social opportunities. They
also bring potential threats, for every gain has its price. Unless we set our priorities right, the
benefits wont necessarily outweigh the costs. Photovoltaic solar panels can produce virtually
free electricity once installed, but cost a lot of energy to fabricate, often conveniently overlooked.

Recycling glass costs a lot of energy, and reusing bottles requires a lot of water for cleaning. As
far as effectiveness goes, nothing beats not using something you dont need. As long as we
realise technology is there to make our life better, not worse; simpler, not more complex; it can
go a long way in doing so.
Technology alone will not solve our problems, but can provide us with many useful tools if
used wisely. Alleviating symptoms or evading problems, like taking pills to stay fit or thin, or
hopping on a rocket to plunder another planet, are simply other ways to give in or give up.

10.3 Integrated circuits

Everything is connected to everything else. - First Law of Ecology, Barry Commoner
If a solution to one problem creates another problem, its probably not the best solution. It
is human nature to classify things, divide them into separate parts and consequently treat them as
if they were independent. By focusing on the trees though, we risk losing sight of the woods.
Life in general is a complicated web of interconnections or relations. For general problems
or processes we therefore need a holistic approach that takes into account the whole system of
which they a part. By placing things in their context, we are forced to tackle what is truly
important.
People work, play, relax, socialise and even work out in front of a computer screen,
plugged in to sound and sight, sanitised and prepackaged. We dont only lead an increasingly
sedentary lifestyle, but an increasingly isolated, virtual and standardised one. No wonder people
are stressed, overweight or lonely, and lose all sense of proportion. The unnatural has become
natural. The answer wont lie with more megabytes to process or download, more convenience
for comfort, or more realism to the unreal. We still have to live with our human quirks and
limitations. We cannot escape the need for rest or movement, a healthy diet and human
interaction, no matter how deep we bury ourselves in cyberspace. When we walk or cycle instead
of taking the car, we dont only allow our mids to rest, we get fresh air and exercise, slow down
and see things and meet people we otherwise wouldnt. And it doesnt really cost more time, for
well need to wind down and exercise one way or another.
A lot of money and research is put into fertilisers and pesticides to improve agricultural
output. Modern production is largely based on monoculture: large plantations of single crops.
Fields of wheat, maize or oil palms for miles on end, which are highly vulnerable to plagues,
pests or climate variations. A more holistic approach, combining different forms of animal
husbandry with crop rotation may be more labour intensive, but is more varied and constant.
Fallow lands provide food for grazers while their manure fertilises the soil. Well planted trees
and orchards provide shade and keep out the wind, and offer timber and fruit. Changing crops
create a more varied, vibrant and natural environment, less vulnerable and more sustainable.
More species of plants and animals will complement each other, keep each other in check.

Everything forms a part of something, is a consequence of another. Poverty, hunger,

education, immigration, terrorism, are all linked together. Urban sprawl, traffic, pollution, stress,
alienation, lack of exercise, are all related. Forests, erosion, rainfall, climate, greenhouse gasses,
are all part of a system. Finding the relations and connecting the dots, at least the basic outlines is
just a matter of common sense.

10.4 Urban explosions

Buy land, they're not making it anymore. - Mark Twain
Land is a finite resource, and like air and water often taken for granted. Most of the earth is
covered by water or ice, and much of the remaining surface is barren or depleted due to either
climatological conditions or human intervention.
No matter how large a wardrobe, it will eventually be filled, but this does not mean the
space is actually needed. Our use of urban land has grown way out of proportion to the growth of
our population, mostly due to ineffective use. The use of cars and trucks for the movement of
people and goods has in a way made distances longer by making them shorter. The possibility of
driving several kilometres to work or shop has become a necessity. The more cars and trucks
there are, the more roads, parking and loading spaces are needed, and the greater the distances
become. It is a vicious cycle.
The dependency on individual motorised transport is greater in North America than in
Europe, which has higher population densities, and towns and cities largely built before the
industrial age. Even so, our cities are increasingly surrounded by sprawling suburbs, business
and shopping centres with wide roads, parking areas and undefined residual empty spaces.
With modern information technology, we no longer need large collective offices. Many
people can connect and work wherever they have a computer. Modern production and
distribution has made large factories, warehouses and superstores largely superfluous. Industries
are less dirty. Society is changing.
The built environment is more than bricks and mortar. Our cities determine how we live.
Efficient cities have efficient citizens. Healthy cities have healthy citizens. The environmental
impact of a city affects and reflects the environmental impact of its citizens
In the last decades, projects in several European cities have shown that widening roads
only attracts more cars, while restricting traffic effectively reduces congestion. By banning cars,
they revitalised decaying city centres, attracting people and businesses. By increasing density
and shortening functional distances, they improved social cohesion and interaction.
Roofs can be used to collect solar power, or converted to green areas with fields, gardens
or sport facilities. Waste and energy generated in production processes can be used to heat or
power surrounding houses. Businesses can share common spaces or facilities. Better integration
of housing, working, commercial and social facilities, intelligent use of space, and prioritisation

of pedestrian traffic and public transport, adds life to our cities and reduces their environmental
impact.
Urban renewal has huge untapped potential with endless possibilities. And well done, is a
great investment. We have a head start in Europe. It is a strategic advantage.

10.5 A green thumb

What we are doing to the forests of the world is but a mirror reflection of what we are doing to
ourselves and to one another. - Mahatma Gandhi
Deforestation accounts for 11% of the worlds greenhouse gas emissions. According to
World Wildlife Fund, 29 to 37 million hectares of forest are lost each year, equivalent to 36
football fields every minute. The loss of tropical rain-forests has especially devastating effects on
fragile local ecosystems and climate conditions. These forests are mostly located in some of the
poorest regions of the world, so if we want to do something about it, well have to put our money
where our mouth is.
Vegetation forms the earths protective skin. It filters the water and purifies the air, protects
against the sun, wind and rain, and moderates temperature and humidity, effectively controlling
the climate. It is vital for the survival of the biodiversity on our planet and the maintenance and
production of important natural resources.
Roman writers claimed that a squirrel could cross the Iberian peninsula from tree to tree
without touching the ground. Little is left of the original woods that covered the length and
breadth of Spain. The central plateaus appear dry and denuded in summer, and desertification
threatens large parts of the country. The climate is harsh, with hot days and cold nights, and long
periods of draught between unpredictable rains and flash-floods. The same can be said of much
of Europe along the Mediterranean.
Once the forests disappear, so do the rains. The Biotic Pump Theory proposed in 2007 by
Russian physicists Victor Gorshkov and Anastassia Makarieva maintains that condensation from
forests, rather than differences in air temperature drives clouds that bring precipitation over land.
Whatever the case, it is certainly true that forests maintain humidity in both air and ground,
avoiding the runoff of water and erosion of soil.
Climate modellers at NASA proposed planting the deserts of the Sahara and Australian
outback with fast growing trees like eucalyptus, initially irrigated by water from coastal
desalination plants, as a solution to global warming. The forest cover would generate its own
climate and rainfall while soaking up carbon dioxide from the worlds atmosphere. The plan may
be somewhat ambitious, but a massive reforestation program is already on the way along the
southern Sahara borders to stop the encroaching desert. The Great Green Wall is projected to
stretch from Senegal to Djibouti, a 15 km wide, 7,000 km long forest spanning 11 nations.

Little of the total wooded surface of Europe is still primal forest. We have experience
planting trees. Instead of wasting our efforts on unviable forms of agriculture and the creation of
inhospitable urban sprawl, we should spend them on restoring the ecological balance. We can
change the climate in Southern Europe and alleviate the effects of desertification and global
warming. More benign temperatures and steady rainfall would alleviate many problems, improve
living conditions and economic potential. A massive reforestation program also brings work.
Timber is a natural, re-growable resource. It is the most versatile building material, with
good load-bearing and insulating properties. It is strong and flexible, easy to handle and
transport, and it has natural warmth. If we consider Real Costs, timber and timber-based
products, from cork and paper to chipboard and laminated elements, are ideal materials for
sustainable building.
These are just some examples of directions to look into. The opportunities in sustainable
development are limitless.
We know what we are, but not what we may be. - William Shakespeare

11 Equal Opportunity
11.1 Not fair
All animals are equal, but some animals are more equal than others. - George Orwell, Animal
Farm
While on average countries seem to be catching up to each other, income inequalities
within most nations are growing. A recent study by Oxfam International revealed that 70% of the
world population lives in countries where inequality has risen in the past 30 years.
The Occupy Wall Street Movement introduced the idea that we are the 99%. The top 1%
of the population is good for $ 110 trillion ($ 110,000,000,000,000), or 65 times the combined
wealth of the bottom half. The 85 richest individuals have as much wealth as the bottom half (3.5
billion people).
The financial crisis has only exacerbated this problem. While the wealthiest 1% in the US
captured 95% of the economic growth since 2009, the bottom 90% became poorer. This is not a
new phenomenon, as the relative wealth of the rich has grown steadily in the US since the early
70s, and while labour productivity grew, wages stagnated.
The GINI coefficient, used to measure relative inequality, rose from 0.35 in 1960 to 0.45
today in the US, higher than in China (0.415) or Russia (0.422). The GINI coefficients of most
European nations are between 0.25 to 0.35, some of the lowest in the world (0.0 would indicate
perfect income equality), though the economic recession and consequent austerity measures have
increased levels of inequality here as well.
Inequality changes over time, and will always be there to some degree or another. We dont
all share the same circumstances or capabilities, needs or desires, and the world would be a
boring place indeed if we did. Inequality in itself is an incentive to improve ones position, to
excel. It drives progress and innovation. But there are limits to how much inequality a society
can accept, and those limits come closer as it develops, as progress and education spread.
According to psychologist Paul Piff at Berkeley, the wealthier one gets the more entitled
one feels, so inequality tends to reinforce itself, leading to decreasing social mobility, economic
growth, community life, social trust, life expectancy, educational performance and physical
health, and increasing rates of drug abuse, violence, imprisonment and teenage births. Like
growing populations, growing consumption or growing pollution, growing inequality is
unsustainable.
The combination of overpopulation, increasing pressure on natural resources and
disproportional inequalities invariably lead to the collapse of the natural, social and economic
order, sometimes forever. It took 500 years to regain the levels of culture, prosperity and

knowledge lost in Europe after the fall of the Roman Empire. Nature recovered after the collapse
of the Mayan civilisation, but society never did.
The American way of unsustainable growth and increasing inequality is no model for the
rest of the world to follow. Yet that is precisely what we are doing.

As fortunes grow faster than the economy, and these are passed on to the next generations,
they create a new form of privileged aristocracy, and one can wonder whether or how much
wealth one should be allowed to inherit without having done anything to deserve it.

Inequality is not so much about economy as about power, for poverty creates dependency.
Human evolution is a continuous struggle of civilisation against barbarism, empathy against
egoism, win-win against win-lose.

11.2 Private vs Public

Education is the best economic policy there is. - Tony Blair
Advocates of a free market debate about how much a government can and should do about
inequality. Big government is a scary spectre if it is controlled by opaque interests and shady
lobbies, wealthy dynasties, strong unions or powerful minorities. But some form of democratic
government is necessary to guarantee a truly free and fair market and society. The problem is not
so much how big a government is, but who is behind it.
While the need for profit and competition favours efficiency in terms of lowering costs and
increasing revenues, it does not guarantee effectiveness in means and ends. Not all goals and
interests in society are about gain in the short or medium turn.
In order to alleviate government debt, a number of public companies have been auctioned
off in several European nations. Such privatisation however has led to mixed results in the past.
The parceling out of state companies to political cronies in the former Soviet Union created a
slew of wealthy oligarchs in the early 90s with little or no positive benefits to the Russian
economy or society. Privatisation of the Dutch railways in 1995 only led to reduction in the
extent and quality of service, and increases in delays and the overall cost of transport.
Health care in the US, mostly private, is by far the most expensive in the world, and
certainly not the best. Unless one has a lot of money.
Private prisons in the US are highly lucrative. Government contracts even guarantee
minimum occupancies. The US has the highest imprisoned population in the world, both in terms
of numbers (2.24 million people), and as a percentage of the population (716 per 100,00
inhabitants), way ahead of China (1.64 million prisoners, or 121 per 100,000) and Russia (681
thousand, or 475 per 100,000). Little wonder, when the incentive is to convict more people rather
than to reduce the crime rate. Prison corporations CCA and GEO were good for $ 2.9 billion in
revenues in 2010, and CCA alone contributed more than $ 17 million on federal lobbying. In
comparison, incarceration rates in the EU vary between 50 to 150 per 100,000 inhabitants.
The war in Iraq was, and still is, worth billions for private defence, security and
construction contractors. The next conflict is their next opportunity. There are some things that
simply should not be sold for profit alone.
Education is a social investment, the key to the future. The more people in a society can
reach their potential, the closer society will come to reaching its own. We do not know what
skills will be needed tomorrow, who will have them or how they will be acquired. Education is
about learning to ask questions, not following economic or ideological goals. And people do not

chose their parents. High tuition costs can exclude potential talent, be a substantial burden to
parents or lead to high levels of individual debt before one has even started work, and reinforce
the position of ruling elites. Education should be about abilities and choices, not means and
methods.
People cant chose their genetic inheritance, and accidents will happen. A minimum level
of health standards and insurance will at least need to be guaranteed, if not directly provided
collectively. This does not replace individual responsibility, or mean anything goes. The human
body has a limited life span, once it starts failing there comes a time to let go, when the costs
outweigh the benefits of holding on, when life loses its dignity and quality. One cannot expect
society to pay for the medical consequences of drug abuse, heavy smoking, excessive drinking,
overeating, lack of exercise or care. Nor the luxury of fuller lips or a smaller nose.
As the economy and society depend less and less on labour, we necessarily have to answer
the question as to how people are going to be able to earn their keep, make themselves useful,
play their part. Flexible contracts and working hours, shared and part time jobs can help to
spread the economical fruits and benefits of labour to some extent, but not if they lead to poverty,
precariousness and exploitation. Minimum or even maximum prices and wages may be required,
for market forces alone will not guarantee them.
Until we find a new balance, the public sector will need to provide or stimulate work that is
not directly profitable, such as cleaning up and renewing our cities and infrastructures, our rivers,
forests and seas, or taking care of the elderly and disadvantaged, spreading information, culture
and knowledge.

11.3 Legal vs illegal

Good people do not need laws to tell them to act responsibly, while bad people will find a way
around the laws. - Plato
The welfare state is both one of the greatest successes and greatest failures of post-war
Western Europe. While it greatly reduced social exclusions and inequalities, it also spawned a
web of ineffective and wasteful systems of redistribution and control. Since most social welfare
programs were designed for an economy based on perpetual growth, they became unsustainable
as soon as growth stalled. As less people enter the workforce, for lack of people, lack of jobs or
both, there is less and less money for pension plans and unemployment benefits. As the general
population grows older and lives longer, health care and retirement costs go up.
One cannot criticise the welfare benefits for the poor while ignoring the entitlements of the
rich though. Child support, student grants, tax deductions on mortgage interests or other
expenses, are social transfers too, that do not always end up where they are most needed. In an
ever more complex world, ever more complex laws and policies often fall short of what they
were intended for, or even make matters worse.

The largest beneficiary of social security in the USA is Walmart, the second largest
company in the world and third largest employer, after the US department of Defence and the
Chinese Armed forces. Without welfare, food stamps and medicaid, a large portion of its
American workforce could not survive on the low wages they are paid. This while the six heirs
of founder Sam Walton, who still own 50% of Walmart, are the richest family in the world, with
a combined wealth of $ 140 billion, about as much as the poorest 40% of the entire US
population put together. A fortune they simply inherited.
Billionaires like the Waltons channel their money through charitable foundations to avoid
taxes. One can wonder whether the concept of philanthropist really applies to those who give
away money which technically already belongs to society. Especially where those foundations
add to their benefits, it is clearly more about greed than generosity.
The War on Drugs in the US has filled its prisons. Up to 50% of incarcerations are drugsrelated, largely for simple possession of illegal substances for private use. Just like the
Prohibition banning alcohol in the 1930s though, it has done little to reduce the problems of
abuse, and, if anything, increased the levels of neglect, crime and violence that surround it.
Things like prostitution or abortion are going to take place, whether they are legal or not.
But there is less control on whatever happens underground, making it more difficult to avoid
violence, human trafficking and slavery, social exclusion, vulnerability and inadequate health
and medical care.
Individual responsibility is the driving force of freedom and democracy. The more we can
decide for ourselves, the more free and equal we are. We dont need more laws, regulations or
loopholes, we need less.

11.4 Fiscally Fit

The most perfect political community is one in which the middle class is in control, and
outnumbers both of the other classes. - Aristotle
While differences in tax rates and criteria between countries may enable and encourage tax
avoidance and evasion, especially in an open market like the EU, there are more arguments in
favour of tax reform. There is a curious paradox in fiscal policy: the more the system tries to
reduce inequality, the more potential for inequality it creates.
There are basically two types of taxes: those on what we earn and those on what we
consume. And both can affect the way people behave.
Progressive tax rates on personal income are applied in theory to reduce inequalities in
income by taxing the wealthy at higher rates than the poor. In practice, the really rich can either
set up complicated business structures, or simply move their earnings abroad. The problem is not
so much about paying more or less, as about getting everyone to pay their part. The poor dont
earn much, and the rich can hide, so those caught in the middle invariably end up with the bill.

Deductions to accommodate special needs or interests are applied in theory to reduce

inequalities in costs by enabling those with higher costs to deduct more. In practice, they
complicate things by creating further loopholes.
Differences in tax rates between personal, corporate or financial income are applied to
promote business and savings. In reality the distinction doesnt make much sense, for a Euro
earned is a Euro earned, whether it comes from labour, intellectual property, financial gain,
inheritance or a winning lottery ticket. The lines between business owner, freelance professional,
contracted specialist or investor are increasingly blurred in the modern economy.
The more complicated the tax system on earnings becomes, the more it will benefit those
with the most resources, and the more difficult and costly it will become to correctly interpret
and effectively control. Anything that can be abused, will be abused. The easiest way to avoid
that is to keep things simple. And the easiest way to make everyone pay is to keep taxes
reasonable. Lowering taxes and eliminating distinctions and deductions reduces avoidance and
evasion, simplifies control and increases revenues.
Apart from what they earn, people should also be taxed on what they consume. People
dont use more roads when they earn more, but when they drive more. If the costs of building
and maintaining roads, of traffic control and accidents, air and noise pollution were covered by
taxes at the pump, people would be faced with the consequences of their actions. Such taxes may
be unpopular, but they do clarify Real Costs.
The need for common criteria in fiscal policy is also an opportunity to rethink how we
should finance public spending and redistribution, how we should be rewarded for what we do,
and charged for what we use.

11.5 Farewell welfare

If a free society cannot help the many who are poor, it cannot save the few who are rich. John F. Kennedy
Cutbacks in benefits or privatisation of social security may cut down costs and reduce
abuses, but like throwing the baby out with the bathwater, wont solve the problem without
bringing back higher levels of social exclusion and inequality. There are more effective and
efficient ways to deal with social security without sacrificing it to administrative gridlock or
private interests.
Milton Friedman, the patron saint of unfettered capitalism, proposed a simple alternative in
1962 in the form of the Negative Income Tax. Instead of a maze of independent social programs
and incentives with separate benefits and deductions, people would receive a proportional
supplement to their income if it falls below a certain level. For a cutoff level of 10,000, and a
tax rate of 25% for example, an income of 14,000 would pay 1,000 in taxes (25% of 14,000 -

10,000), an income of 10,000 would pay none, and an income of 6,000 would receive an
additional 1,000 (25% of 6,000 - 10,000).
In a similar way, the proposal of a Universal Basic Income for every man, woman and
child, would greatly simplify things by eliminating the need for separate pension, unemployment
and child support benefits and/or tax deductions. It would be much easier to implement and
control, would reach more people who need it, and benefit fewer who dont. Such system
however poses two important questions: who will pay for it, and what would happen to the
incentive to work. The mere idea of money for nothing seems counter-intuitive, but it is basically
a matter of numbers.
Switzerland is planning to hold a referendum on the proposal to grant each adult citizen a
Basic Income of 2,500 SFR ( 2,000) per month. The total costs of this would be 210 billion
SFR (2,500 x 12 months x 7 million people), to be paid for as follows:
90 billion from transfers of existing welfare programs
60 billion from taxes on wages above median income, with no loss or benefit
30 billion from taxes on wages below median income, with proportional benefits
10 billion from savings in administrative costs
10 billion from increased revenues in consumption taxes due to the wealth effect
10 billion from additional taxes on families with children above median income
So 90% of the costs would be covered without any additional tax burden. While the figures
may seem somewhat optimistic, they are certainly food for thought.
Standards of living and provisions for social security vary greatly within the European
Union, but a simple calculation shows some surprising, if hypothetical, results.

EU nations spend on average 26% of their GDP on Social Protection. Excluding pensions
and health care, this equates to some 1,062 billion in welfare programs to reduce inequality.
Enough to guarantee an equivalent of 500 to every adult (over 15) and 200 to every child,
which would effectively eliminate poverty for the average household of 2.4 people. And this
without even taking into account the 37 billion in direct farm income subsidies from the EU, or
other economic transfer programs and tax benefits budgeted elsewhere.
These are of course just statistics. The poverty threshold varies from 12,000 in France
and Germany to 5,000 - 7,000 in Portugal, Greece and Spain, and even lower in parts of

Eastern Europe. 500 would make one very rich in Latvia, but very poor in Luxembourg, so it is
more a matter of re-distribution within countries or regions, rather than between them.

A Basic Income would substitute many grants and loans for higher education, subsidies for
cultural events or aids for the care of children, the elderly or disadvantaged. It would eliminate
the costly administrative procedures and controls of the current tax deductions, welfare and
transfer programs it replaces. It would give people more freedom to dedicate themselves to
necessary or desirable educational and cultural activities. It would possibly eliminate the need for
minimum wages, for any additional income becomes a material supplement rather than a basic
requirement. It would reduce economic barriers for young professionals or small startups to enter
the market. It would recognise and reward the time spent on voluntary and social activities. It
would reduce age, role or relationship inequalities between individuals.
A Universal Basic Income is a radical idea that transcends ideological boundaries. On the
one hand it allows more individual freedom of choice, makes the labour market more flexible,
requires less government control, and reduces costs. On the other, it guarantees equal
opportunities for all, a more equitable distribution of income, and more possibilities to
participate in cultural, social and other not necessarily economical activities.
Experiments with a guaranteed basic income conducted in the USA and Canada in the
1970s showed that rather than work less, people simply switched priorities. People generally
desire to make themselves useful in one way or another. Unemployment benefits effectively pay
someone to do nothing, for they are lost when one resumes work. A Basic Income to take care of
fundamental needs does not eliminate the incentive to do or improve anything, it simply makes it
easier. It is a foundation on which to build further. An interesting idea that deserves further study.
While the economy moves away from mass production and consumption will need to find
other ways of quantification and compensation.
Money is a new form of slavery, and distinguishable from the old simply by the fact that it is
impersonal - that there is no human relation between master and slave.
- Leo Tolstoy

12 Participation
12.1 Human wrongs
Those who deny freedom to others deserve it not for themselves. - Abraham Lincoln
Expressed one way or the other, Liberty, Equality and Justice are the core values of any
free and fair society. Broadly speaking, they stand for freedom of individual movement and
expression; equality in treatment and opportunities; open, transparent and impartial justice for
all. Though often associated with the French Revolution (1789-1799), these concepts have been
debated as far back as the earliest known codifications of law in Babylon and Israel more than
3,000 years ago, and championed by men like Aristotle (384-322 BC), Cicero (106-43 BC),
Petrarch (1304-1374) and Erasmus (1466-1536).
These values are interdependent, for there can be no such thing as true liberty without
equality and justice, true equality without liberty and justice, nor true justice without liberty and
equality. One makes no sense without the others.
These values are also universal, for they are not bound by culture or creed, but by human
nature. They dont belong to any particular school or tradition. All men and women want to be
free, to belong, to be treated fairly. Those who believe otherwise are either unable to think for
themselves or about anything but themselves. One cannot excuse in the name of politics, culture
or religion that which cannot be excused any other way. A lot of unspeakable things have been
done in the name of ideology, custom or faith.
That said, the exact definitions of liberty, equality and justice evolve across space and time,
just as we do ourselves. Slavery existed till well after the French Revolution. Women only gained
the right to vote in the Twentieth Century - in most western nations just after the first or second
World War - and they are still generally paid less for the same work as men. It is an ongoing
process of struggle, gain and redefinition. Like everything else, the more we practice liberty,
equality and justice, the better we get at it. And practice takes effort.
Values are not only about rights for there are no rights without responsibilities. If we
demand the right to freedom of speech, we also have the obligation to accept that right for others,
independent of whether we agree with them or not, and the responsibility to defend that right.
Rights must be embraced, in all their consequences, they need to be won and guarded, since they
dont just drop out of the sky to stay.
It is an aspect we tend to conveniently forget, for rights and privileges are all very nice but
exercise and responsibilities require commitment. If we dont stand up to uphold and insure our
rights though, who will? And if we demand responsibilities from others, shouldnt we first fulfil
our own? Individual rights stand or fall on individual responsibility.

To maximise liberty, equality and justice, the Harm Principle holds that ones actions
should only be limited to prevent harm to others. Thus, ones rights end where they infringe upon
those of others.

12.2 No ones interest is everyones interest

"Democracy must be something more than two wolves and a sheep voting on what to have for
dinner. - James Bovard
In theory the ultimate free society is one where no one rules. Anarchy only works where
everyone is strictly equal however, and were not, for we all have different abilities and
priorities, even if we had the same means. In the absence of rules, the strongest, most aggressive
or most persuasive will tend to assert themselves to get what they want, with little regard to the
rest, and freedom degenerates into oppression, the law of the jungle where only the strongest
survive, the wild west where the cowboy with the fastest gun rules.
It is human nature to use what we have to get what we want, to coerce in the name of
freedom, to discriminate in the name of equality, to condemn in the name of justice. True
freedom, equality and justice are rare, and the balance between them is fragile, which is precisely
why they are so precious.
There is no real way to insure a perfectly free and fair society without some sort of divine
intervention. Democracy is the next best thing. That anyone can stand for office doesnt mean
anyone should. And that we can all chose our leaders doesnt insure we chose the right ones. In
fact it probably guarantees we dont, for those who want to lead or persuade others seldom do so
for altruistic motives. It just insures we can get rid of the wrong ones by voting them out of
office.
Democracy comes from the Greek words dmos (people) and kratos (power). It is
commonly explained as majority rule, but that would assume the existence of a homogenous
majority that not only knows what it wants, but actually agrees upon it. Opinions vary over time
with chance, character and circumstances, so at best a majority reflects a momentary coalition of
interests.
The real test of a democracy lies not in its ability to reach agreement, but its capacity to
handle disagreement. It is not about promoting the interests of the majority, but protecting those
of the minorities. The more diverse and complex our society becomes, the more fragmented the
interests of its people. In the end we are all part of a minority sometime, somewhere.
Democracy is meaningless without participation. The right to express an opinion is mute if
you dont have one. The right to vote is pointless if you dont exercise it. It is the moral
responsibility of every free citizen to speak up and act in accordance to his or her conscience. I
was only following orders, is never a valid excuse, for it negates both freedom and

responsibility. Neither is: there is nothing I can do, for we all depend on others. Without our
support or silence, our leaders are nothing.
In a democracy, the people are sovereign. They choose their representatives, and are
ultimately responsible and accountable, for they pay the price when it goes wrong. Democratic
governments are ineffective, inept or corrupt only when the people allow it, either because they
are part of the problem, or refuse to be part of the solution. It is up to us.

12.3 Defragmentation
Democracy is a device that ensures we shall be governed no better than we deserve.
- George Bernard Shaw
The more direct a democracy is, the closer it will be to the will of the people, but also the
more fragmented the interests may become. This may make it difficult to reach decisions, but
that is not necessarily a bad thing. If we apply the same criteria to government that apply to
leadership, the best government is that which makes itself redundant.
If we look at Belgium, whose parliament is divided by three official languages and 12
different parties of which the largest three barely add up to 50% of the vote, unable to form a
government for 18 months following the last elections, we still see a country with some of the
highest levels of freedom, progress and prosperity in the world - higher than those in France or
the United Kingdom, whose parliaments are dominated by two large parties that form relatively
strong and stable governments. Belgium is often dismissed as a failed state, but it works, and
surprisingly well, because it has a reasonably clean and transparent administration, and a well
educated, responsible and participative population.
The Swiss parliament is divided by three official languages into 13 different political
parties, of which at least three larger ones are needed to form a majority. Switzerland is a
federation of cantons with a history of independence and democracy going back to the Middle
Ages. Highly decentralised administrations with frequent public consultations, popular referenda
and citizens initiatives, place Switzerland way ahead on the path to direct democracy. It also has
some of the highest levels of education, development, and wealth in the world. And it is as stable
and dependable as the banks and watches for which it is famous.
A democracy does not need a strong or decisive central government, but a participative
population. In this age of instant communication and information, direct democracy is a real
possibility. Public debates, polls and petitions on the internet are already showing remarkable
results. This does not mean we should all concern ourselves with every detail, just the essence.
To make sure we all uphold our shared values and aim for our shared goals.
The Partido X is a growing web-based citizens movement in Spain based on a single nonpartisan idea: Democracia y punto (Democracy, full stop). It proposes democratic reform based
on four pillars:

1. Transparency in public administration

2. Government through citizen control (wiki-government)
3. The right to real and permanent vote
4. Obligatory and binding referendum
Transparency allows citizens to properly evaluate and monitor government activity and
performance. Wiki-government would enable a say in legislative proposals that is selfmonitoring. A permanent right to vote would allow participation in decisions at any time, with
each citizen maintaining his or her proportional voice. If say one senator represents 500,000
people, 500,000 people voting at the same time on any particular bill would have the same
weight in a senate vote. The right to propose and enforce a referendum would give citizens the
possibility to propose and ratify legislation.
Popular movements like these bring about democratic change. Within the EU, any citizens
initiative (ECI) that gathers 1 million signatures already obliges the European Commission to
take it into consideration. It is only a small, but important step further, to demand a popular vote
as well.
We have the tools, the information, the education and, more importantly, the right to stand
up for what we believe in. And that right implies the responsibility to do so.

12.4 Divided we rule

"Politics hates a vacuum. If it isn't filled with hope, someone will fill it with fear." - Naomi Klein
When it comes to politics, we tend to define ourselves and others as either right or left, and
despise or distrust anything that comes from the other side. It is probably the most divisive
subject there is, which is silly really, for the political spectrum spans all the colours of the
rainbow, and most of us are somewhere in the middle. Extreme views are mostly the realm of
small if often loud fanatics.
It is amusing to observe how easily people disagree when using leftist or rightest
jargon to say exactly the same thing. If we look beyond the colours, we all share the same
common values of liberty, equality and justice, though we may give them different emphasis.
The right will favour liberty, while the left will favour equality, but the whole idea of class
struggle loses its relevance in a society that is increasingly open, mobile and middle class.
Socialism was largely buried under the rubble of the Berlin Wall. The classless society
failed to bring prosperity, generate progress or even abolish class.
Capitalism clearly showed its bankruptcy in the last financial crisis. Freedom may have
won the Cold War, but the freedom of who or what?
The left-right political divide that characterised the Twentieth Century basically failed to
find a balance between freedom and equality by ignoring the third value: justice. Since a bipolar

system is based on rivalry, it favours dominance rather than balance. A third party adds the need
for cooperation and compromise. Like a system of checks and balances in government, or the
very core values of democracy itself, a table needs at least three legs for stability.
The RGB colour system of a television
screen or projector uses different combinations
of red, blue and green to produce any colour in
the spectrum. It takes all three in equal measure
to make white, bright light, and the absence of
all three to leave black, total darkness. The
Twenty-First Century could use a stronger
Green movement, concerned with fairness and
sustainability, to balance the individual freedom
and economic concerns of the Blues and the
collective equality and social concerns of the
Reds. For green is neither red nor blue, but a
complement to both.
Such a representation of politics and
values is of course just as arbitrary as any other.
The point is that these three colours have a
symbiotic relationship: together, they are more than the sum of their parts. Truth needs no
colours, but light requires them all. Once we see political divisions for what they truly are: a way
to catalog and file differences, a measures on which to discriminate, a tool to divide and conquer;
we can move on and concentrate on our similarities.

12.5 Less is More

I disapprove of what you say, but I will defend to the death your right to say it.
- S.G. Tallentyre
Less is more, the celebrated minimalist motto of architect Ludwig Mies van der Rohe is
more than just a funny phrase. It holds that simplicity and restraint bring out that which is
important. Even too much of a good thing is still too much. Too many choices make it more
difficult to choose. Too many details detract from the essence.
Evolution tends towards complexity. This holds for societies as well as species, biology as
well as law or technology. As they develop, new characteristics lead to new possibilities, which
lead to new characteristics and so forth. But adding functions tends to reduce functionality. The
more things we can do with a computer, the more things we will ask of it. It is a cycle that
reinforces itself.

Whether we need to solve a complex problem, find the right balance or proportion, or
agree on common goals, we wont get very far unless we can determine the essence or the
priorities. In a democracy, we, the people, decide, so this is something we must each do for
ourselves. For if we cannot think for ourselves, we do not deserve our freedom to do so.
Common sense is famously not so common. Neither is it necessarily sensible. A lot of what
is held to be true is just a matter of custom or convention. What others think though is their
problem. If you can run a household, you understand the principles of government. If you can
manage your wallet, you understand the basics of finance. The devil is in the details, so we can
leave him to the experts. That is the first secret of leadership: delegation. It isnt about solving
problems, but inspiring others to do so. Get the priorities right, and the details will solve
themselves.
The second secret of leadership is that the solution doesnt matter either. This may sound
counterintuitive, but effective leadership only needs to ask the right questions. Once you ask the
right questions, the right priorities will become evident, and the right course and action will tend
to surface. Its about effectiveness, doing the right thing; not efficiency, doing things right. There
are many roads to Rome, if the objective is getting there, how is of secondary importance.
The third secret of leadership is to lead by example. If you want to be heard, you should
first show you can listen. Do the right thing, and others will follow.
Together, we can bring about real democratic change. We need to bring it about. We should
be out on the streets and on the web, informing ourselves, clarifying our priorities, working our
networks, joining hands, making ourselves heard; showing it is we, the people, who hold the
only real and valid form of power.
Taking the concepts of freedom, equality
and justice to their logical conclusions, it
shouldnt be difficult to find common priorities
on which to base the next phase of human
evolution. What we stand FOR rather than
AGAINT. To find forms of interaction,
cooperation and development that are
economically, environmentally and socially
sustainable, and in which we can all participate.
Again, it takes all colours to find the light.
The first duty of a man is to think for himself
- Jos Mart

13 Integration

13.1 Unity in diversity

In essentials, unity; in differences, liberty; in all things, charity. - Philipp Melanchthon
The motto: unity in diversity, explains the logic of the EU almost as well as its anthem,
Beethovens Ode to Joy, expresses the ideal. European unity has been a dream since time
immemorial. Though our differences have often been divisive, they are our defining strength,
rather than an inherent weakness.
Europe is more than the sum of its nations. Imagine a car built with French ingenuity,
Italian design, German engineering, Swiss precision, Swedish safety and Spanish temperament.
Our differences complement each other. They inspire us to explore, compete and innovate, yet
compel us to share and cooperate so that we all win. And in learning from each other, we become
better and stronger, as individuals, as an economy, as a society.
Historical differences are literally history. If we look at their origins, they are often the
result of misconceptions or arbitrary ambitions. All nations have their dark episodes in the past.
They have little relevance to the world today, except as valuable lessons. We are responsible for
what we do now and what we leave behind, not what we found before us.
Differences in language are a challenge, rather than a barrier. Every language is based on
its own unique logic, its own way of thinking. When we learn another language, we learn a new
way to interpret things, we expand our capacity to reason and our abilities to express ourselves. It
improves communication and understanding.
It is often argued that Europes diversity makes the EU inoperative. That too many
opinions make agreement impossible. But that misses the most important point: how much
agreement do we actually need? Very little really. To get the most out of the democratic values of
liberty, equality and justice, the less rules and constraints there are, the better. And as far as
effective government goes, if you get the priorities right, the details dont matter, for they will
solve themselves. The advantage of differences is that they force us to stick to the bare essentials.
In order to take differences fairly into account, decisions should be taken at the lowest
possible level. This will both encourage participation and avoid excessive action or legislation.
Different interpretations of common values will help us correct and improve them. Diversity
both requires and provides a system of checks and balances.
Our common interests as Europeans do not always coincide with our interests as Scots,
Poles or Greeks, just as those dont always coincide with our interests as citizens of Glasgow,
Gdansk or Thessaloniki, or even neighbours on a same street. When its about freedom, peace or
global warming, local rivalries are irrelevant, and people are more than smart enough to make

that distinction. We all root for the national football team, even if all the players come from rival
local clubs.
Working together always implies a certain loss of individual freedom. The question of
national sovereignty quickly becomes irrelevant however in an increasingly interconnected
world, where threats and opportunities transcend national borders. Our environment, our
economy, our very freedom are subject to forces outside of our individual, regional or national
control.
The ongoing integration of European nations is a unique process. It is a next step in
political evolution, a union formed by nation states much as the nation states themselves were
forged from unions of feudal lordships. We dont know where this journey will take us, what
form Europe will take, what it will become. If the guiding principles are sound though, and the
process is democratic, that wont matter. It will go where it has to go.

13.2 Europe or myope?

It is not enough to conquer; one must learn to seduce. - Voltaire
The European Union is mostly associated with stifling bureaucratic procedures and a
glaring lack of political will, with little or no common leadership or democratic base. Some may
describe it as a virtual state designed by a committee. Yet for all its faults, it is probably one of
the greatest miracles of the twentieth century. For despite the lack of public interest, the
consistent failure to agree on almost anything, and the apparent absence of direction, it works.
From the ashes of the Second World War, Europe has evolved from a vague ideal into a
community of 500 million people, 28 nations and many more regional languages and cultures, a
single open market, common agricultural and environmental policies, among others, and a shared
commitment to work together towards a better future. It is a common project for peace and
prosperity, based on shared values of freedom, justice and equality that has not only promoted
more positive relationships between states, but also guaranteed more stable and democratic
forms of government within them. Only a few decades ago, the majority of the current Union
members had totalitarian regimes, including Greece, Portugal and Spain.
Eurosceptics oppose integration because they believe it will weaken their abilities to make
their own decisions. The centralisation of power for its own sake never bodes well, but
integration is about giving people more say in matters that transcend national borders, not less.
In a democracy, sovereignty belongs to the people, whether that is on local, regional,
national or supranational level. What is necessary or desirable to decide at each level depends on
the problem at hand, which may change over time.
If the EU is undemocratic, we must demand and seize our right to decide. If the EU is
bureaucratic, we must reform it to make it more efficient and effective. One does not solve
problems by ignoring or avoiding them. Whether the good outweighs the bad in the EU as it is

may be debatable, but the potential is certainly there. We can try to start anew, or run away, but
the opportunity is there, now.
Just as it took Nixon to go to China, Europe needs the eurosceptics to reform the EU.
Critical change and control do not come from those who cheer and wave flags. It comes from
those who look for and see what is wrong. Only when we have convinced the eurosceptics to
work towards a more democratic Union, to insure the principles of subsidiarity and
proportionality, will we know we are truly on the right track. For only with them on board will
we insure the most open, transparent and democratic form of decision-making, the most effective
and efficient institutions as close as possible to the people, and the least amount of legislation
required to insure the greatest possible freedom in the fairest way. They will make us focus on
the essentials.
Undoubtably some European Directives are excessive or even superfluous. And adapting
them into local laws and practices can cause problems of adjustment or conflict. But it is too easy
to simply blame Europe.
We can hardly complain about a democratic deficit if we show no interest in how decisions
are made, or in participating where and when we can. Elections for the European Parliament are
poorly attended, and seen as little more than barometers for national political parties. Candidates
are often politicians promoted out of national office, with little European interest or appeal.
National governments can hardly hide behind European Directives they themselves have
accepted or ratified, or blame them for the way these are translated into local law, for that is their
own doing. One cannot escape that by pointing the finger somewhere else.
Integration is a matter of synergy. Together we can achieve much more than our individual
nations ever could. That is why cooperation is not only desirable, but often necessary, and
integration, once the process has started, is virtually unstoppable. It tends to move forward by
inertia, with or without guidance, with or without participation.
Democracy isnt quite there yet in the EU because it hasnt been fully embraced by the
people at that level. It is evolving, slowly, with the potential to lead us into a new phase of
human development: a world without the abuse of power.

13.3 Tricky and Treaty

The single biggest problem with communication is the illusion that it has taken place. George Bernard Shaw
The European Steel and Coal Community was established in 1950 to ease distrust and
tensions in the aftermath of World War II. It was based on a simple idea: interdependence on coal
and steel would ensure no country could mobilise without the others knowing. The six founding
member states signed the Treaty of Rome seven years later to found the European Economic
Community (EEC), with the intention of working towards a single common open market with

free movement of people, goods, services and capital. The Single European Act (1984), set the
deadline of 1992 for the full completion of the single market.
The Maastricht Treaty (1992) laid the foundations for economic and monetary union, and
formally created the European Union (EU). This paved the way for the introduction of the single
currency, the Euro in 2002, and the failed attempt to establish a European Constitution in 2005.
Since 1992 the Union has grown from 12 member states to 28. As it evolved and expanded,
several treaties were signed and amended with more or less success to streamline the process of
decision making, the efficiency and transparency of EU institutions and introduce new areas of
cooperation. Since such treaties require unanimity, the result is often a rather bland compromise
hidden under official rhetoric, which explains why they dont always fire the imagination.
National interests and historical distrust have been constant hurdles on the way and democratic
consultations have had mixed results at best, so things have not always been done as they should.
The basic incompatibility between ends and means, ideals and possibilities in the EU is
clear in the contrasting words of Robert Schuman and Jean Monet, the founding fathers of
European integration, which speak for themselves:
The European spirit signifies being conscious of belonging to a cultural family and to have a
willingness to serve that community in the spirit of total mutuality, without any hidden motives of
hegemony or the selfish exploitation of others. - Robert Schuman (1886-1963)
Europes nations should be guided towards the superstate without their people understanding
what is happening. This can be accomplished by successive steps, each disguised as having an
economic purpose, but which will eventually and irreversibly lead to federation. - Jean Monet
(1888-1979)
To bring about change, one can either force, deceive or convince others. The first belongs
in history books and the second behind bars. What is right and what is wrong is not always clear,
and people naturally disagree, so it can be difficult to find common ground. But that is precisely
what democracy requires. It doesnt work without open information and active debate. It is time
to entrust Europe to its people.

13.4 Gobbledygook and Eurospeak

The text has disappeared under the interpretation. - Friedrich Nietzche
The official terminology used within the European Union often transcends the vocabulary
of mere mortals, and the meaning or intent of the most fundamental concepts is often lost in the
definition. Some of the most important terms are:
Subsidiarity implies that decisions must be taken as low down the line as can be handled
efficiently, and only as high up as effectively necessary. Simply put, it means
decentralisation of power: European decisions should be taken on a European level,
national decisions on a national level, regional ones on a regional level, etc, as close as
possible to those involved.
Proportionality implies that the impact of any action or decision on any level of an
organisation must not exceed what is strictly necessary to achieve the intended result. It is
a necessary ingredient of subsidiarity.
Transparency refers to openness in the way institutions work, by improving public access
to information and working towards clearer legislation and more readable documents.
Cohesion means sticking together, looking out for each other, reducing inequalities. If
everyone is to have a proper place in society this implies tackling things like poverty,
unemployment, and discrimination.
Harmonisation is the process of establishing common regulations and standards, to insure
we all play by the same rules, and avoid unnecessary barriers across borders.
a Competence is a legal authority or responsibility to act or decide.
a Conferral is a grant. Competences of European Institutions are conferred to them by the
Member States, just as as citizens confer legislative and executive power to their elected
representatives in a democracy.
a Directive is a legislative act, binding only as to the result to be achieved. Directives are
European guidelines on which to base or modify national laws. What matters is their
intent.
Legal translations of documents negotiated by diplomats and written by a committee of
technocrats dont tend to make for light or particularly entertaining reading. Complexity after all
is a bureaucrats reason for being. Fortunately, most European treaties and directives start with a
short summary or declaration of intent. If only they would stop at that, for that is all we need to
know: the essence. And we should make sure all levels stick to that, for it is in the interpretation

of fine print that a lot of European Directives are changed into unwieldy, excessive or even
erroneous local legislation.

13.5 Brussels sprouts

Bureaucracy, the rule of no one, has become the modern form of despotism. - Mary McCarthy
The European Union is often seen as a faceless machine. There is some truth to that. The
Union may have legislative initiative, but lacks both executive authority and democratic
legitimacy. The absence of direct public accountability, and the inability to lay down common
policies, both inherent in a system where decisions are continuously negotiated on opaque
national interests, effectively create a power vacuum. As a consequence, unable to do what they
should, the Institutions of the Union do what they can get away with.
According to Parkinsons laws, bureaucracies expand by creating work for themselves,
becoming ever more complex and inefficient. Ironically, the Eurocracy in Brussels has turned
itself into the driving force of ideals that basically contradict the very way it works.
The main objective of European Integration is to empower the people to have more say in
what goes on around them in a globalised environment, not less. The principles of subsidiarity,
proportionality and transparency form a sound base. They imply that all decisions must be taken
effectively as close as possible to the people, and shall not exceed the bounds of what is strictly
necessary. In the absence of democratic forces to demand and control the enforcement of these
principles, however, they are just hollow slogans.
The fundamental values of human dignity, freedom, democracy, equality, the rule of law
and respect for human rights, as stated in the Treaty of Lisbon and the Charter of Fundamental
Rights (2007) form a solid foundation for the EU. The Treaty of Lisbon itself though is back
door compromise following the rejection of the European Constitution by public referenda in
France and the Netherlands in 2005.
As long as the decision-making process within the Union remains subject to obscure backroom trading, and European elections are misused as barometers for national or regional political
parties, people will correctly feel they have little influence on a European level, and show either
little interest or outright hostility. Low participation and confusion of issues can completely
distort the correct representation of legitimate interests, a dangerous situation in any democracy.
The EU doesnt quite function according to its own fundamental values. Democracy is far
from there yet. But the basic values, principles and objectives are there, in black and white,
signed and ratified. All we need to do is make sure they are actually and correctly put into
practice. And take Europe into our own hands.
Delay is the deadliest form of denial. - C. Northcote Parkinson

14 And beyond...
14.1 Reaching for the stars
The Holy Roman Empire is neither Holy, nor Roman, nor an Empire. - Voltaire
To paraphrase Voltaire, one could say the European Union is neither European nor a Union.
It is part of a complex web of treaties and exceptions between different groups of nations that
largely agree to disagree.
The Council of Europe, not to be confused with the European Council, has 47 member
states, including Russia and Turkey, and confusingly shares the same flag and anthem as the EU.
The European Economic Area consists of EU members and those of the European Free Trade
Association (EFTA) except Switzerland. The EU Customs Union consists of EU member states,
Andorra, Monaco, San Marino and Turkey. The Schengen Area without internal passport and
immigration controls consists of EFTA and EU members except the United Kingdom (UK),
Ireland, Cyprus Romania and Bulgaria, plus Monaco. And the Euro-zone is limited to 18 of the
28 members of the EU, but includes minting agreements with Monaco, San Marino and the
Vatican. Additionally, Poland and the UK have opted out of signing the Charter of Fundamental
Rights of the EU, and Denmark, Ireland and the UK do not fully take part in the EU common
Area of Freedom, Security and Justice (ASFJ), which complicates matters even more.

This makes it all the more necessary to ensure a simple, solid foundation, a set of guiding
principles that hold it all together, and that everyone understands. The EU is a work in progress,
and just as it is not clear where it will lead, it is not certain who will take part or how. Neither the
road, nor the destination, nor the company really matter on this trip, only what we want to gain
from it: a better world.
Geographically, Europe is not really a continent, just a peninsula of peninsulas of Eurasia.
It is clearly bordered by the Atlantic Ocean, the Mediterranean and the Black Sea, but for the rest
where Europe ends and Asia begins is a matter of convention. Whether Russia or Turkey could
be considered European is debatable, and one could say the same of Cyprus, Iceland or
Greenland; Georgia, Armenia or Azerbaijan. European is more a matter of cultural ties and
affinities than actual geography. One could imagine a future EU including all the states of the
former Soviet Union, or the whole Mediterranean, something in between or further out. Even the
sky may not be much of a limit, but that doesnt really concern us now. The stars on the
European flag have been limited to 12, but that doesnt mean we cant reach out to more.
Further expansion is not something to be done either lightly or quickly however. The
precipitated reunification of Germany and the accession of 10 Eastern European nations in the
last decade, was a necessary step for regional development and political stability after the sudden
fall of the Iron Curtain, but greatly increased the size and complexity of the Union. Croatia
joined the Union in July 2013, and Albania and the other remaining nations of former Yugoslavia
have already applied for membership and should follow in the next decade.
Turkey has been a candidate for membership for years, but has to implement various
democratic reforms first, and the division of Cyprus is still an ongoing conflict. The EU has
many unresolved internal issues to address, and the financial crisis has clearly revealed a number
of economic and political problems. For the moment it is not ready for another large player that
brings in more than 70 million people with a different cultural background.
Iceland, Switzerland and Norway are already part of the Schengen agreement. Attracting
them to the Union is the real test, and should be our first priority for further expansion. These
nations have strong traditions in direct democracy and dont really need the Union for economic
reasons. They will join when their people see themselves as European Citizens. When that
happens, we will all know we are on the right track.

14.2 Bipolar
America is a large, friendly dog in a very small room. Every time it wags its tail, it knocks over
a chair. - Arnold J. Toynbee
Unlike any union before, the EU is not about concentrating power, but dispersing it. It was
founded after the Second World War to break the shifting rivalries and alliances, stop the cycles

of conquest and domination, and neutralise the relative strength and influence of major European
nations by making them interdependent. It is an anti-empire, which is precisely the appeal and
strength of the Union.
In any society, the absence of dominant players is the only guarantee for true liberty,
equality and justice for all. This may seem like a contradiction on the world stage, where the EU
represents 7% of global population, 25% of global income and 30% of global wealth. But our
violent common history has left us with a certain aversion to either apply or suffer any form of
domination. And our internal diversity should insure we have no purely self-centred common
interests.
This opens up interesting possibilities. The best way to lead is by example, and that is
where the EU could make a real difference. The inability to exert a given power renders it
symbolic, and symbolic power inspires a more loyal following than potential threat or use of
force. The reluctance to wield power lends moral authority, for it is not what one can do, but
what one does that matters. Our weakness is in fact our strength.
Whatever its faults, the Soviet Union provided a certain counterbalance to American
domination during the Cold War. With the collapse of communism and the rise of the US as sole
superpower, the world hasnt really become a safer or better place. The American way of life has
shown itself to be clearly unsustainable, and the self-imposed role of global policeman has made
the US as many enemies as friends.
The idea that the world needs some form of balance of power is not anti-American, simply
anti-domination. Even the best intentions do not justify domination.
Whether China could form any useful sort of complement or counterbalance as or if it
grows into another superpower any time soon is highly doubtful. It has embraced the worst
excesses of robber-baron capitalism, and the growing environmental degradation, social
inequalities, political intransigence and overheated economy dont bode well for future stability.
It is a giant with clay feet.
India is even further from superpower status, even though it has huge untapped potential.
Other nations as Russia, Japan, Brazil or Indonesia have less than half the population of the US
and enough internal problems to worry much about external influence for now. A multi-polar
world with several strongly developed players in the future wouldnt guarantee stability anyway.
In fact it would look much like Europe 100, 200, 300, 400 or 500 years ago. A powder keg.
We would be better off without superpowers. The EU as super anti-power could play an
important role in this, provide a basis for expanding forms of cooperation and an example for the
integration of other regions like Africa, the Middle East, Latin America or Southeast Asia.
A reliance on soft power however does not excuse one from taking the right precautions
or fulfilling the underlying obligations. Europe needs the ability to defend what it stands for, and
should not be afraid to do so when necessary, with or without the aid of others. Only a European
defence force can guarantee European peace, but that may require something that looks more
like a fire brigade than a regular army.

As Western democracies, the US and the EU share common values. They are natural allies.
This doesnt mean they should always agree. Had the EU spoken with a truly European voice,
the war in Iraq would probably have been averted. Few people will regret the departure of
Saddam Hussein, but the war admittedly brought more problems than it solved. Force is a short
term solution and a long term problem. It can never be more than a last resort.
When we get down to the essentials, America and Europe complement each other. It is in
finding the win-win relationships that we will insure everyone wins.

14.3 Quality control

We have the best government that money can buy. - Mark Twain
Any organisation has some form of government, be it a company, a county or the United
Nations. Wherever the process of integration will take us, it will need a democratic form of
decision-making.
Since democracy is primarily about protecting the weak against the strong, the first thing a
democratic government should protect society from is government itself. Division of
administrative powers to avoid abuse was already pioneered in different forms in ancient Greece
and Rome. During the age of enlightenment, Charles de Montesquieu proposed the separation of
legislative, executive and judicial power common to most modern democracies.

Simply put, the legislative branch of government writes the laws, the executive executes
them, and the judicial makes sure they are upheld. As independent branches, they contain and
control each other in a system of checks and balances. Since this implies a continuous process of
review and improvement, it is in fact a system of quality control, and should, at least in theory,
lead to ever more effective laws and efficient administration.
As a work in progress, the EU still has a rather complicated entanglement of powers and
paper tigers, roughly as follows:
European Council - executive
Council of the EU (Council of Ministers) - legislative and executive
European Commission - executive, legislative and quasi-judicial
European Parliament - legislative
European Court of Justice - judicial
European Court of Auditors - audit
The European Council consists of heads of state or government of the Member States who
are responsible for national agendas, which leads to conflicts of interest. It cannot form an
operative European executive. The European Commission is appointed rather than elected, and
both its functions and powers are not always clear or appropriate. The European Parliament and
European Court of Justice have as yet to show their teeth and come into their own.
One can envision the European Council taking on a control function similar to that of the
British Monarch or the German Bundespresident, though an effective European presidency
should be independent of national interests. The European Commission could become a properly
elected executive body. The Council of Ministers could evolve into some secondary form of
legislative entity like the UK House of Lords or the US Senate. And the Court of Justice and
Court of Auditors could merge into a more complete judicial body.
However it turns out though, we must all insure our government responds to the people,
not the largest player or the highest bidder.

14.4 A European Constitution

A child of five could understand this. Send someone to fetch a child of five. - Groucho Marx
Former Constitutional Commission President Valery Giscard DEstaing, famously stated it
was better to have no Constitution than a bad one. On that at least most everyone else agreed,
and the Draft European Constitution was rejected, for good reason. The text was long, often
repetitive, and rather unbalanced; unjustifiably specific on details, but disappointingly vague on
major issues. More importantly, the proposed institutional changes did not alleviate the

democratic deficit or lack of transparency in the European decision making process, and left little
room for further development.
A proper European Constitution should be no more than a comprehensive foundation for
the process of ever deeper commitment and cooperation towards European Integration. It should
lay down our basic values, rights and objectives to ensure a consistent interpretation in a
continually changing world, and define the necessary institutions and instruments to safeguard,
develop and implement these in a way that ensures democracy and expediency, and allows
flexibility to changing needs
The European Union is a unique experiment, an evolutionary step beyond the nation state,
that could provide a model for a completely new world order. But it is a work in progress. We
dont know where the process of integration will take us, all we have to do is guide it in the right
direction. Surely it is possible to create a concise and comprehensive document that inspires the
popular support this deserves, across borders and ideologies. A genuine Constitution of the
people, by the people, for the people.
Such a document should necessarily be clear and simple. Details can be worked out in
subsequent legislation, and may change over time. No law can ever be fully watertight, certainly
not in the long run. What is important for legal purposes is not the wording, but the intent.
Interpretations also change over time. What we understand under concepts such as liberty,
equality and justice has evolved. The more we apply them, the better we get at defining,
expanding and implementing them.
The European Union is not a finished product, her constitution should form a flexible
foundation for a controlled and participative process of further integration. Conferral of
competences and establishment of auxiliary institutions should be the object of subsequent
legislation.
The existing fundamental principles and legal structures of the European Union form a
sound basis for reform into a more democratic and effective system of government. Its
Constitution must be subject to debate and approval by the European people. Above all, it is their
document. They will need to propose and write it, fully understand, embrace and protect it. Let
us reopen the discussion.

14.5 A Citizens Constitution

In a democracy, the most important office is the office of citizen. - Louis Brandeis
What follows is a deliberately short and provocative draft proposal, mostly based on what
we already have. The question is not whether it is explicit enough to allow us function, but
whether it is suggestive enough to inspire us to grow...
Have no fear of perfection - you'll never reach it. - Salvador Dal

A Citizens Constitution for the European Union

Objectives

We, the people, establish this Constitution for a European Union, in order to:
1.1
Establish transparent and participative forms of interaction and governance, to provide a single voice to
defend our common interests, and maintain peace and stability in our region.
1.2
Create a common area of liberty, equality and justice for all, to enhance and enrich our diverse cultural,
spiritual and historical heritage, and protect and nurture the wealth and vitality of our natural environment.
1.3
Offer a single, free and fair open market for ideas, information, goods and services; ensure a sustainable
level of development and prosperity; promote and spread scientific, technological and human advancement.
1.4

Uphold and reflect our values in all Union relations, to improve economic, social and territorial cooperation
and cohesion, and contribute to a more equitable, inclusive and balanced world order.

Definitions

The European Union is a legal entity, acting on behalf of the people, on competences conferred to it by the Member
States.
2.1
Membership is open to all European States who share the Unions values and objectives, with conditions for
participation, accession or withdrawal negotiated to mutual accord.
2.2

2.4

Union law, in its intent, shall have primacy over the law of Member States, within the limits of their respective
constitutional, political and regional structures.
All Member State nationals are citizens of the Union, and are free to move, live and work within the Union,
under the same rights and obligations as local nationals.
Any official Member State language is an official Union Language.

Principles

2.3

European Integration is an ongoing process of ever deepening understanding and cooperation between people,
nations and regions.
3.1
Under the principle of Democracy, the Union will be governed by the people, for the people, on the basis of
absolute transparency, active participation and individual responsibility.
3.2
Under the principle of Subsidiarity, all Union decisions must be taken and enforced on a level as effectively
close and open as possible to the people.
3.3
3.4

Under the principle of Proportionality, the content and form of all Union action may not exceed what is
minimally necessary to achieve its objectives.
Under the principle of Solidarity, the Union shall mobilise all instruments at its disposal upon request by any
Member State subjected to unprovoked disaster, crisis or attack.

Values

Our fundamental human values of liberty, equality and justice are universal and interdependent.
4.1

4.4

All people are born free, and have the right to express themselves and follow their conscience. Their minds
and bodies, ideas and efforts, lives and privacy, actions and associations, are theirs and theirs alone.
All people are considered equal, and entitled to equal opportunities, treatment and consideration. Any
discrimination on the grounds of gender, origin, background, faith, age or appearance is prohibited.
All people are entitled to fair compensation and evaluation, open and impartial judgement with proper
council and protection. Any reward and punishment shall be in proportion to actions and consequences.
All rights imply responsibilities, and end where they infringe upon those of others.

Institutions

4.2
4.3

The European Union shall be governed by a single framework of mutually controlling institutions.
5.1
The European Parliament establishes the law and consists of representatives elected by direct universal
suffrage. Decisions are taken by majority vote.
5.2
The European Commission executes the law, is appointed by the European Parliament and ratified by the
Member States. All commissioners shall be from different Member States and can serve only two terms.
5.3
The European Court of Justice ensures a consistent interpretation and application of the law, and consists of
judges of unquestionable independence and impartiality, appointed on consensus by Member States.
5.4
The European Council confers competences upon the Union. It consists of representatives of Member State
governments, and decisions are taken on the basis of consensus.

Adopted by public debate and referendum, and signed by all Member States,

15 Europe of the People

15.1 Wars and Pieces
We are asking the nations of Europe between whom rivers of blood have flowed to forget the
feuds of a thousand years. - Winston Churchill
That the EU won the Nobel Prize for Peace in 2012, at a time of widespread social unrest,
may seem somewhat ironic. But then again so does a prize for peace established by the inventor
of dynamite.
As far back as history can tell, Europe has been a theatre of violence and conflict. We
would be hard pressed to find any generation on record that has not suffered either oppression,
revolution or war. Those of us born within the EU are a rare exception.
Violence begets violence, and one conflict usually led to another. The first recorded
European text, Homers Iliad is about the Trojan War (12th century BC). The list of raids,
crusades, campaigns, battles, incursions, invasions, struggles, uprisings, wars and revolutions
between factions, peoples, regions, classes and beliefs in Europe is staggering.
The Italian Wars (1516-1547), the 30 Years War (1618-1648), the Wars of Succession
(1711-1748), the Napoleonic Wars (1803-1815) and subsequent revolutions (1848), and the First
and Second World Wars (1914-1918 and 1939-1945), were all major European conflicts
involving several nations in varying degrees and combinations. They almost suggest a recurring
pattern of popular uprisings round the turn of a century, followed by thirty odd years of general
warfare.
The EU has provided 50 years of peace so far, but whether it has broken that cycle is far
from certain under the current conditions.
The last seven years have not only sent us back to square one on an economic level, but on
all levels of development. Divisive policies have torn European trust and commitment to
integration apart. Financial and economic worries have relegated important environmental and
humanitarian concerns to the back of the line. Regional differences and general inequalities have
increased. Exclusion and intolerance are on the rise. And the recent Russian interventions in the
Ukraine have brought the spectre of armed conflict to our doorstep.
The assassination of Archduke Franz Ferdinand of Austria in Sarajevo on June 28, 1914,
exactly 100 years ago triggered the First World War. At the time, the economic interests of
European nations had already become so entwined, nobody saw it coming.

15.2 Lean and mean

And, behold, there came up out of the river seven well favoured kine and fatfleshed; and they
fed in a meadow. And, behold, seven other kine came up after them out of the river, ill favoured
and leanfleshed; and stood by the other kine upon the brink of the river. And the ill favoured and
leanfleshed kine did eat up the seven well favoured and fat kine. - Genesis 41:2
The Euro has given us seven fat years and seven lean ones. The Bible doesnt say anything
about fat cats then eating the lean cows though, and the current crisis is far from over.
With European measures that are counterproductive or half-hearted at best, it is no wonder
people have lost faith in the European Union. The Eurobarometer polls show a dramatic fall in
trust in European Institutions and policies since the start of the crisis.

Only 31% of Europeans trust the EU (down from 57% in 2007), and only 23% believe it is
going in the right direction. And if anything it looks like those figures are set to drop further.
That is a real problem, for the more divided and wary we are, the less we will be able to
accomplish.

While the prospect of a breakup of the European Union or even the Euro may seem rather
remote, escalation of conflict is only predictable with perfect hindsight. Desperate times lead to
desperate measures.
In Spain, the recent Law for Public Safety or Gag Law (Seguridad Ciudadana / Ley
Mordaza) with fines of up to 600.000 for illegal manifestations, or the proposed restrictions
to the Abortion Law, are just two examples of deliberate steps to limit the guarantees of liberty,
equality and justice. And one can find similar examples in other nations, not just in Europe.
Amnesty International has already warned of excessive use of force by Spanish, Greek and
Italian Police against legitimate peaceful protests. Whether these are the death throws of ailing
systems, isolated excesses or the seeds of new repressive regimes, depends on us.
Turning back is no way to go forward. And continuity is no virtue when you are going the
wrong way. No only the EU is heading in the wrong direction, the whole world is. It is time for
change.

15.3 Eurosceptic elections

The most important thing in communication is hearing what isnt said. - Peter Drucker
Since the first elections for a European Parliament (EP), voter turnout has consistently
fallen overall from 61.99% in 1979 to 42.54% in May 2014. In France, Spain and the UK for
example, voter turnout is typically around 60% to 80% in national elections, but little more than
half of that for European ones. That is a failure in itself, especially in times like these, for it
shows people feel they either have no voice or no choice to make a difference.
Even so, the elections produced some interesting results. The strong showing of
eurosceptic parties, especially UKIP in the UK (1st with 27% of the vote). The rise of new
populist anti-austerity movements like SYRIZA in Greece (1st with 27%), M5S in Italy (2nd
with 21%), or Podemos in Spain (4th with 8%). Or anti-Euro movements like Alternative for
Germany (5th at 7%). And more worryingly, the surge of ultra-nationalist, xenophobic parties
like Front National in France (1st with 25%), the Peoples Party in Denmark (1st with 27%), the
Freedom Party in Austria (4th at 20%), Jobbik in Hungary (3rd with 15%) or Golden Dawn in
Greece (3rd with 9%) among others. A clearly frustrated, desperate vote against business as usual
in the EU.
A very fragmented protest as well, spread over many parties and movements that didnt all
get very far. And those that did soon dispersed into the different existing European parliamentary
groups. UKIP and M5S into the eurosceptic EFD, SYRIZA and Podemos into the radical left
GUE/NGL, Danish Peoples Party and Alternative for Germany into the conservative ECR. The
ultra-nationalists were, as yet, unable to form their own group and remain unattached.

The end result is a parliament that outwardly differs little form its predecessor, and a
christian democratic EPP of business as usual was able to claim victory, even though they lost
20% of their popular support. While not what most of us may have hoped for, it could have been
much worse, which shows that politics on a European level are much less volatile and extreme
than at a national level.

We should heed the message, not the messenger. Protest votes are not necessarily a show of
support. They are against, rather than for anything in particular. So send in the clowns - they will
only add life to the party. A good joke will not only make one laugh, but reflect on oneself.
In many member states, we can expect more changes in the following local elections. The
main parties in Greece, Spain, Italy and France will have to either shape up or ship out. And
splintered citizens movements are already banding together, bridging divisions and barriers, to
redefine, strengthen and spread their message. The remaining support for many of the traditional
parties across Europe who have basically sold out their people to misguided bailouts and
austerity measures can only be explained by the desperation of a few to hold on to what they
have, the fear of many for change, and the silence of most. That wont last. We will be heard.

15.4 Conclusion
Progress lies not in enhancing what is, but in advancing toward what will be.
- Gibran Khalil Gibran
The world is changing, and the old rules no longer apply. Life is change, progress is
change. To make the best of life, adapt to change, we need to embrace it, stand up for what we
believe in, dare to be different. Fear is the enemy of freedom, silence the enemy of truth, and
conformity the enemy of progress.
Many small steps make a giant leap. We are already changing the world with humble,
silent steps. We can do a lot more by reducing, reusing and recycling what we discard, modifying
our habits to a healthier lifestyle, with a more balanced diet, walking or cycling to move about.
But if we really want to make a difference we will need to do a little more. Demand transparency

and open information from governments and institutions, hold people and corporations
accountable for their actions. Vote against those who show no responsibility. Avoid products that
cause environmental damage or human misery. There are many things we can do, and many
more we can influence.
Sustainability is about Real Costs and Fair Trade, and ultimately about liberty, equality and
justice. The world is a living organism. We can feed on it like a virus in a win-lose relationship
till it is sucked dry and we have nothing left, or we can flourish with it, in a symbiotic win-win
relationship to the benefit of all, including those who come after us.
We will have to rethink the way we measure development and progress. The way we
compensate our ideas and efforts, finance our needs and ambitions. Explore the limits of what is
right and wrong, natural or unnatural, and redefine our fundamental values.
Dont fall for appearances. An appealing lie is still a lie. Oppression under the name of
freedom is still oppression. Listen to others, but follow your conscience. Ask the right questions
and the right answers will follow.
We, the people, can shape a new Europe, a new world. Together, we are more than the sum
of our parts. Together we can lay the foundations of a new phase of human evolution that needs
no chains and leaves no carbon footprint. Where it will take us doesnt matter, as long as we get
our priorities right. We have the means, we have the potential, all we need is the will.

Disobedience is the true foundation of liberty. - Henry David Thoreau

15.5 Authors Note

Here's to the crazy ones, the misfits, the rebels, the troublemakers... because the ones who are
crazy enough to think that they can change the world, are the ones who do. - Steve Jobs
Europe of the People is a virtual organisation that exists in the hearts and minds of each
and everyone of us, only in as far as we are willing to do something with it.
One cannot encompass everything. This document is necessarily imbalanced and
incomplete, for one can only describe part of an ongoing journey and guess at its destination. It
will need to be written and rewritten by others along the way. The intention is simply to inspire
thought and provoke a response.
As part of a generation that dreamed of changing the world, I confess myself appalled at
the way we have. This work was not written as an expert on anything in particular, but as a
fellow European and citizen. It is the result of a personal search to find the right questions to ask.
Any mistakes contained herein are wholly mine. Any ideas worth spreading and not explicitly
credited, are all yours. Feel free to debate them, spread them, improve upon them. May you do a
better job than I did.
Marco Alexander Peel
February 2015

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