THE NECESSITY OF A PUBLIC BANK

THE IMPORTANCE OF THE BANKING SYSTEM

In every economic systems, banks have a major role in the planning and implementation of the

financial policies. The difference lies with prioritizing goals and their way of achievement.

Based on the neo-liberal model, achieving greater profits by using all means is an end in itself,

while in the socialistic systems bank operations also aim at improving economy in general and

at satisfying social needs.

The financial crisis of 2008, and the way the governments chose to save the banks by laying the

burden on taxpayer shoulders while exercising austerity policies, triggered a cycle of discussion

over many crucial issues. One of the essential inquiries was bank possession, particularly since

banks were recapitalized utilizing state money. In the accompanying lines I will attempt to

demonstrate that there is in reality requirement for no less than one state bank, particularly in

the current requesting condition, and I will address the production of a legitimate institutional

structure to maintain a strategic distance from marvels like those of the recent past.

A Brief History The Contribution Of European Leaders

Therefore of the start of the crisis in 2008 due of the banks' introduction to especially unsafe

items that were effectively portrayed as "toxic", the administrations were confronted with an

exceptionally "unusual" circumstance. The fundamental characteristic for that circumstance

was that nobody could determine in all detail the amount of the cash that would be required to

return the economy in balance. The solution that was picked at the time was to bolster the
banks with a lot of capital, which would burden the yearly shortfalls of the financial plans and

at last the national debt and the tax payers. The private debt was exchanged to the state, and

turned into an open debt which brought about the unstable increment of the last mentioned, for

the most part in Europe.

With regards to the important unification of the managing a banking division in European level,

and keeping in mind that the execution of the separate financial unification is in advance, the

thought for a Banking Union is obstructed by the intense nations, for the most part Germany,

which demonstrates their expectations. In the meantime, positive thoughts, for example, the

container European guarantee plan of deposits, the expansion of ESM's part, the formation of

an European debt office or even the halfway debt pooling, if not by any stretch of the

imagination rejected, they have been put off uncertainly.

The European Central Banks Role

Toward the start of the crisis, the ECB's reaction must be portrayed as insufficient and Mr.

Trichet's administration, the ECB chosen in 2008 to expand euro's key loan costs to keep up the

stable value.

The onset of the crus constrained the ECB to change its position within a couple of months and

to lessen the loan costs, yet not as radically as the conditions called for. The adjustment in

ECB's initiative, with Mr. Draghi being the new president, is considered to have added to the

adjustment in ECB's position and to its better and swifter reaction to the issues of the European

economy. Draghi's administration primary choices were the OMT and the LTRO. So it is for

all intents and purposes demonstrated that by concurring with the political pioneers to keep up

the strategy of austerity as the sole answer for monetary consolidation for deflicts and debt
decrease and for the recuperation of the economy, the ECB accepted a political part. In the

meantime, the gigantic measures of liquidity that have been infused worldwide by the national

banks positively affected state security financing costs and brought about a critical increment of

stock valuations. Under the current circumstances the ECB continues to operate under the wait

and see rule despite the serious problems of credit crunch and high loan interest rates in the

regional countries and deflations appearance in the European economy (making some analysts

talk of japanization).

The case of Greek

As it is specified some time recently, as per the official explanations, the sole purpose behind

marking the Greek reminder was the nation's awful financial circumstance. Be that as it may, a

careful examination of the certainties and the historical backdrop of specific occasions uncover

an alternate reality.

In the first place, the primary choice to fortify the banks was made in 2008 when the then

Greek government was asserting that the crisis had not influenced Greece. The director of the

Bank of Greece announced his confidence in the nation's bank framework, portraying it as

especially solid, that it would address the future difficulties. The initial support package as a

money, the issuance of securities interchangeable to premium shares and warranties, was 28

billion euro. In current costs, Greece's GDP in 2008 was 233 billion euro. In this manner, in

GDP terms, the help they gave came to the 12% of GDP. From that point and up to the debt

rebuilding in March of 2012, the Greek state ensured the issuance of bonds from the banks for

an aggregate of 155 billion euro. With the debts haircut in 2012 came the new support of
48.2 billion euro, despite the fact that the banks losses from the Greek bond portfolio reached

25 billion euro.

If we sum all funds, the total bailout, with all the possible ways, to the Greek bank system

exceeded the 200 billion euro, or in GDP terms, was over 100% (53.5 billion euro in cash and

155 euro with guarantees through issuance of bonds). At that point the Bank of Greece and

Troika partitioned the banks in systemic and non systemic ones, of which three were absolutely

private (Alpha, Piraeus, Eurobank), and in one of them the Greek state kept a minority rate on

all shares (National Bank of Greece). In the mean time they chose to close two public banks

(The Hellenic Post Bank and the Agrotiki Bank) since they disallowed the Greek state to

recapitalize them by its own particular means. Subsequently the two state bank foundations

came to private hands.

At that point began the increments on the bank capital stocks, under the term that a future

privatization of the banks would be conceivable (inside 4.5 years), gave that the private

division would partake in the recapitalization procedure by no less than 10%. Keeping in mind

the end goal to pull in more members from the private segment they issued warrants, i.e.

repurchase rights, with the activity of which the banks will be step by step privatized; the

specific warrants were openly offered to the individuals who taken part in the Capital Increases.

The free offer of warrants is an overall oddity; it was comprehensively described as shocking.

And if you wonder what the reaction is, let me say that the reactions are limited to the

parliamentary control, to press releases and to the public statements issued by the opposition,

since no organized protest exists by the citizens against such a sell-out of the public property.

The entire Greek system) wish for the aforementioned development, their goal being to

perpetuate the existing situation, because, it quite simply benefits their interests.
At the same time, the suggestions to create a bad bank under state control to resolve the bad

loans, which in Greece almost amount to 80 billion (approximately 35% of the total loans) has

been rejected, because banks want to manage these loans themselves and sell them to funds

(distress, vulture and hedge funds), to ensure that there will be greater profits. But the social

problem is growing and will keep doing so as the forced sales of real estates are certain to

intensify from the following year. Any similarity with the promotion of respective actions and

decisions for the Slovenian banks should not be considered confidential.

INSTITUTIONAL INTERVENTIONS FOR THE BANKING SECTOR

Before addressing the matter of banks under state control, we must see some of the institutional

interventions that were made to ensure the bank sectors normal operation.

Ensuring the proper operation of banks must be a first priority for all governments. The

banks role is to raise and safely keep the deposits of the households, of the businesses

and institutional organizations, and to finance real economy.

The banking system must be governed by a clear and austere legal and regulatory

framework.

Investment banking should be explicitly distinguished from retail banking.

As to the investment banks, specific limits must be set in risk taking.

Investment activities must be forbidden in retail banking.

Moreover, special minimum limits of capital adequacy must be set for both types of

banks.
THE NECESSITY OF A PUBLIC BANK

There could only be one answer to the question of what should happen to the banks that have

been recapitalized with tax payers money: they should be placed under state control. Banks

were under state ownership and control in Sweden during the 1990's, while bank shares came

to the hands of the state also in the USA, England, Spain, France, Belgium, Germany, and other

countries.

A state must have a say on regardless of whether banks ought to be under its possession; it

ought not be constrained into offering its banks by outside elements. Government should base

their decisions on the interests of their economy and society, rather than obeying the neo-liberal

directions of the Commission officials or the leaders of the powerful countries. In todays

uncertain situation, banks choose to deleverage balance sheets and manage bad loans over

offering new loans, which results in less liquidity for the real economy, which, in its turn has

serious economic and social effects: businesses keep closing, private citizens fall bankrupt,

unemployment increases and social problems intensify. Instead of wishing for and prompting

the domestic banks or supra-national organizations such as the ECB and the European

Investment Bank etc. to offer more grants, the solution bears only one name: Public bank.

WHAT A PUBLIC BANK MUST BE

To begin with, public banks must not operate outside the total goals of a government's

development and economic policy.

The bank must have a leading role in the planned and applied economic policy, both in
 the total planning, as in the financing of the real economy. In other words, the bank is a

useful tool for exercising policy, not a means to replace it, as has been happening in the

last years in Europe.

The importance of a public bank increases in periods of recession and deflation, where

conditions are created to reduce liquidity.

Public banks should have the tools to limit the adverse effects of the above phenomena,

by providing low interest rate credits, in order to set economys mechanism back in

motion.

The banks goal is to present profits in order to increase its available funds and return

them to the government to reinforce the expenses of the social state. Profitability is the

means that amplifies the capacity of intervention, not the exclusive goal to satisfy its

shareholders.

REFUTING THE ARGUMENTS AGAINST THE CREATION OF A

PUBLIC BANK

Public banks are systemically riskier

The role of public banks must be explicit, already from their statute. Their restrictive point

must be to reserve domestic economy, in clearer and that's just the beginning "financial" terms

than those offered by private managing an account organizations. In the meantime, any

financing they offer must be a result of broad review, to abstain from making "bubble"

conditions, for example in the land advertise, and their interior systems ought to be clear and

strict, to keep their organizations from giving advances under political pressure. It is likewise
vital for them to have vote based and absolutely straightforward operation rules, for the citizens

to have the capacity to be always educated on their organizations exercises. That would

extraordinarily confine going for broke and settling on of shameful choices that could imperil

the operation of people in general banks.

Public banks cannot compete with the corresponding private ones.

As a matter of first importance, each one of the individuals who assert that public banks can't

rival the private ones, don't really need any opposition in any case. Greeces example is

characteristic; two public banks closed during the crisis: the Hellenic Post Bank and Agrotiki

Bank, whose financial figures were much higher than those of corresponding private banks that

acquired them. Public banks can operate in a complementary way with the private sector to

fund the projects that the private banks refuse to fund. A characteristic example is the

businesses that fall in the hands of the workers, the companies that have a cooperative form,

those that the private financial institutions consider risky borrowers.

We must not forget that refusing to fund the aforementioned types of companies also reveals in

part ideological differentiation and disagreement. In the meantime, public banks may finance

states at substantially less cost than today. Thusly, they may assume a main part in dealing with

the debt and breaking the endless loop of partner public debt and banks.

Public banks are used by political leaderships

Intervention from political leaders does occur. In many cases and in many countries politicians

pressed either for employing particular employees or for getting loans on friendly business

interests. However, to reduce the existing risk of political interventions, there must be an

institutional and legal establishment that will specify the transparent modus operandi and
method of decision making on the one hand and on the other hand that will allow for social

control.

CONCLUSIONS

Our suggestion to the governments, especially the progressive ones, would be to promote the

banking systems differentiated role in its entirety throughout Europe.

The first goal would be to change ECBs statute. ECBs goals should also comprise the

dimension of development and the unemployment rate. The second goal would be to make it

the last resort for all the member states of the eurozone without conditionality.

ECBs change of role and the wrapping up of the banking union may help overcome the

fragmentation in the European banking sector, converge interest rate differences and restore

liquidity. Other prerequisites for trust restitution are to create a deposit guarantee fund, to

abandon any plans for future bail-ins, to increase ESMs funds, to separate retail from

investment banking, and to specify each banks allowed size as to the GDP of the country it is

based and conducts business.

In a national level, governments ought to underwrite having no less than one public retail bank

(an public saving money pillar) to make sound rivalry, and an improvement bank that will be

exempted from the organized guidelines of capital ampleness, keeping in mind the end goal to

be utilized as the essential tool to reserve economy and to accomplish positive development.

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