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Sticking the Public with the Bill for the Bankers' Crisis

Published in The Globe and Mail

My city feels like a crime scene and the criminals are all melting into the night, fleeing the scene. No, I’m not talking about the kids in black who smashed windows and burned cop cars on Saturday.

I’m talking about the heads of state who, on Sunday night, smashed social safety nets and burned good jobs in the middle of a recession. Faced with the effects of a crisis created by the world’s wealthiest and most privileged strata, they decided to stick the poorest and most vulnerable people in their countries with the bill.

How else can we interpret the G20’s final communiqué, which includes not even a measly tax on banks or financial transactions, yet instructs governments to slash their deficits in half by 2013. This is a huge and shocking cut, and we should be very clear who will pay the price: students who will see their public educations further deteriorate as their fees go up; pensioners who will lose hard-earned benefits; public-sector workers whose jobs will be eliminated. And the list goes on. These types of cuts have already begun in many G20 countries including Canada, and they are about to get a lot worse. For instance, reducing the projected 2010 deficit in the U.S. by half, in the absence of a sizeable tax increase, would mean a whopping $780-billion cut.

They are happening for a simple reason. When the G20 met in London in 2009, at the height of the financial crisis, the leaders failed to band together to regulate the financial sector so that this type of crisis would never happen again. All we got was empty rhetoric, and an agreement to put trillions of dollars in public monies on the table to shore up the banks around the world. Meanwhile the U.S. government did little to keep people in their homes and jobs, so in addition to hemorrhaging public money to save the banks, the tax base collapsed, creating an entirely predictable debt and deficit crisis.

At this weekend’s summit, Prime Minister Stephen Harper convinced his fellow leaders that it simply wouldn’t be fair to punish those banks that behaved well and did not create the crisis (despite the fact that Canada’s highly protected banks are consistently profitable and could easily absorb a tax). Yet somehow these leaders had no such concerns about fairness when they decided to punish blameless individuals for a crisis created by derivative traders and absentee regulators.

Last week, The Globe and Mail published a fascinating article about the origins of the G20. It turns out the entire concept was conceived in a meeting back in 1999 between then finance minister Paul Martin and his U.S. counterpart Lawrence Summers (itself interesting since Mr. Summers was at that time playing a central role in creating the conditions for this financial crisis – allowing a wave of bank consolidation and refusing to regulate derivatives).

The two men wanted to expand the G7, but only to countries they considered strategic and safe. They needed to make a list but apparently they didn’t have paper handy. So, according to reporters John Ibbitson and Tara Perkins, “the two men grabbed a brown manila envelope, put it on the table between them, and began sketching the framework of a new world order.” Thus was born the G20.

The story is a good reminder that history is shaped by human decisions, not natural laws. Mr. Summers and Mr. Martin changed the world with the decisions they scrawled on the back of that envelope. But there is nothing to say that citizens of G20 countries need to take orders from this hand-picked club.

Already, workers, pensioners and students have taken to the streets against austerity measures in Italy, Germany, France, Spain and Greece, often marching under the slogan: “We won’t pay for your crisis.” And they have plenty of suggestions for how to raise revenues to meet their respective budget shortfalls.

Many are calling for a financial transaction tax that would slow down hot money and raise new money for social programs and climate change. Others are calling for steep taxes on polluters that would underwrite the cost of dealing with the effects of climate change and moving away from fossil fuels. And ending losing wars is always a good cost-saver.

The G20 is an ad hoc institution with none of the legitimacy of the United Nations. Since it just tried to stick us with a huge bill for a crisis most of us had no hand in creating, I say we take a cue from Mr. Martin and Mr. Summers. Flip it over, and write on the back of the envelope: Return to sender.


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