By Frank-Jürgen Richter
This sounds grandiose and a little outrageous — but so was the thought of buying an island which now is not so unusual for the rich. If however one buys a country there must be the small print rulings like you may install your own finance minister, you must not asset strip, and you must endeavour to bring back full employment for your people.
When nations suffer from a “boom and bust” cycle with easy credit offered on poor quality assessment in times of growth it results in non-performing loans (NPLs) in the hard times. These weigh heavily on the performance of the lending banks and on the relevant national regulators as the recovery of collateral takes too long. To complicate matters further there are often beneficial tax adjustments and write-offs made available to the NPLs and even to state-owned banks. Over time the management of sovereign debt through the “London Approach and INSOL Principles” has led to new procedures in handling private debt so that debtors are not wiped out. In these there is a statement to the effect that if there is agreement among creditors that a troubled company is viable in the long term, creditors should be ready to provide longer-term financial support to it by means of restructuring tools — maybe involving management changes, sales of assets or divisions, or even a takeover of the company by a third party. The eurozone seems to be tipping into that position, of needing external support.
The debt of nations is characterised by its national (or public sector) debt, which is the amount the government owes its citizens; while its external debt is the private and public sector money owed to foreigners. Some low-to middle income nations show aggregate external debts, but if their foreign reserves and unrecorded offshore assets are counted their overall position may change to a net creditor. I will argue that the havened money ought to be better used.
Often national debt is compared to the nation’s GDP, thus the US has $11 trillion of national debt or 70% of its GDP, in contrast, the US gross external debt is about $15 trillion. The Economist summarised some of the eurozone issues as a spoof memorandum sent to the German Chancellor Angela Merkel. The memo outlines the real concerns facing the euro-nations’ support of the debts of its member states, in particular the southern states of Greece as well as Portugal, Ireland, Cyprus and Spain (the PICS) with their relative net-indebtedness of 100-70% of their GDPs. Italy and France exhibit smaller debts of about 20%, with the northern nations being in credit. The memo concludes that the Greek exit makes more sense if this action also includes the PICS. Ultimately the gross effect on Germany might be a charge of 500 billion euro in the short term, with no guarantee of future European stability in the long term. Exacerbating the interminable and fruitless European “rescue” discussions is the fact that relatively poor member states are expected to fund a central bank to create the funds for member bailouts. What is needed is external aid.
I have opined elsewhere that the cash held in tax havens ought to be enticed out to work beneficially for all. One part of a nation’s debt is caused by assets being sent overseas so those individuals can’t be taxed on their wealth because, clearly, they are not wealthy. Yet those assets abroad are not taxed back home as they are hidden in opaque tax havens. I suggest the $21-$32 trillion havened by wealthy individuals is used to purchase the distressed nations of the globe. The Tax Justice Network published details of havened cash in “The Price of Offshore Revisited” in July 2012. They note the three banks handling most offshore assets are UBS, Credit Swiss and Goldman Sachs. It would seem reasonable to reassign these trillions to alleviate the eurozone problems. And to ensure future “best management” of these economies members of the Banks ought also to be assigned as Finance Ministers as clearly they do excellent work for their rich clients. One might envisage a new group of high-level fund managers for this task.
Of course “buying a nation” would not occur. The market is not large nor yet developed; and maybe will never be so. Yet havened assets could be put to use, and the wizard bankers also be put to work advising the relevant governments. After all, the bankers presently manage the cash for their clients; and to safeguard the new asset placement it would be prudent to usurp national Finance Ministers since they have been imprudent in the past.
Frank-Jürgen Richter is the founder and chairman of Horasis, a Swiss-based global visions community.