Why I Won't Support More Bailouts

Insolvency must be purged from Europe's system and it must be done openly and honestly.

When I had the honor of leading the True Finn Party to electoral victory in April, we made a
solemn promise to oppose the so-called bailouts of euro-zone member states. These bailouts are
patently bad for Europe, bad for Finland and bad for the countries that have been forced to accept
them. Europe is suffering from the economic gangrene of insolvency—both public and private.
And unlessUnless we amputate that which cannot be saved, we risk poisoning the whole body.

The official wisdom is that Greece, Ireland and Portugal have been hit by a liquidity crisis, so
they needed a momentary infusion of capital, after which everything would return to normal. But
this official version is a lie, one that takes the ordinary people of Europe for idiots. They deserve
better from politics and their leaders.

To understand the real nature and purpose of the bailouts, we first have to understand who really
benefits from them. Let's follow the money.

At the risk of being accused of populism, we'll begin with the obvious: It is not the little guy
thatwho benefits. He is being milked and lied to in order to keep the insolvent system running.
He is paid less and taxed more to provide the money needed to keep this Ponzi scheme going.
Meanwhile, a kind of deadly symbiosis has developed between politicians and banks: Our political
leaders borrow ever more money to pay off the banks, which return the favor by lending ever-
more money back to our governments, keeping the scheme afloat..

In a true market economy, bad choices get penalized. Not here. When the inevitable failure of
overindebted euro-zone countries came to light, a secret pact was made.

Instead of accepting losses on unsound investments—which would have led to the probable
collapse and national bailout of some banks—it was decided to transfer the losses to taxpayers via
loans, guarantees and opaque constructs such as the European Financial Stability Fund, Ireland's
NAMA and a lineup of special-purpose vehicles that make Enron look simple. Some politicians
understood this; others just panicked and did as they were told.

The money did not go to help indebted economies. It flowed through the European Central Bank
and recipient states to the coffers of big banks and investment funds.

Further contrary to the official wisdom, the recipient states did not want such "help," not this
way. The natural option for them was to admit insolvency and let failed private lenders,
wherever they were based, eat their losses.

That was not to be. As former Finance Minister Brian Lenihan recently revealed, Ireland was forced to
take the money. The same happened to Portuguese Prime Minister José Sócrates, although he may be
less forthcoming than Mr. Lenihan about admitting itPortugal.
Why did the Brussels-Frankfurt extortion racket force these countries to accept the money along
with "recovery" plans that would inevitably fail? Because they needed to please the tax-guzzling
banks, which might otherwise refuse to turn up at the next Spanish, Belgian, Italian, or even
French bond- auction.

Unfortunately for this financial and political cartel, their plan isn't working. Already under this
scheme, Greece, Ireland and Portugal are ruined. They will never be able to save and grow fast
enough to pay back the debts with which Brussels has saddled them in the name of saving them.

And so, unpurged, the gangrene spreads. The Spanish property sector is much bigger and more
uncharted than that of Ireland. It is not just the cajas that are in trouble. There are major Spanish
banks where what lies beneath the surface of the balance sheet may be a zombie, just as
happened in Ireland for a while. The clock is ticking, and the problem is not going away.

Setting up the European Stability Mechanism is no solution. It would institutionalize the system
of wealth transfers from private citizens to compromised politicians and otherwise failed bankers,
creating a huge moral hazard and destroying what remains of Europe's competitive banking
landscape.

Some defend the ESM, saying its use would always require unanimity. But the current mess with
Portugal shows that the elite in Brussels will seek to enforce unanimity through pressure when it
cannot be obtained by persuasion. Abolishing unanimity is only a matter of time. After that we
have a full-fledged fiscal transfer union that is obviously in hock to Brussels' anti-growth
corporatism.

Fortunately, it is not too late to stop the rot. For the banks, we need honest, serious stress tests.
Stop the current politically inspired farce. Instead, have parallel assessments done by regulators
and independent groups including stakeholders and academics. Trust, but verify.

Insolvent banks and financial institutions must be shut down, purging insolvency from the
system. We must restore the market principle of freedom to fail.

If some banks are recapitalized with taxpayer money, taxpayers should get ownership stakes in
return, and the entire board should be kicked out. But before any such taxpayer participation can
be contemplated, it is essential to first apply big haircuts to bondholders.

For sovereign debt, the freedom to fail is again key. Significant restructuring is needed for
genuine recovery. Yes, markets will punish defaulting states, but they are also quick to forgive.
Current plans are destroying the real economies of Europe through elevated taxes and transfers
of wealth from ordinary families to the coffers of insolvent states and banks. A restructuring that
left a country's debt burden at a manageable level and encouraged a return to growth-oriented
policies could lead to a swift return to international debt markets.

This is not just about economics. People feel betrayed. In Ireland, the incoming parties to the
new government promised to hold senior bondholders responsible, but under pressure, they
succumbed, leaving their voters with a sense of democratic disenfranchisement. The elites in
Brussels have said that Finland must honor its commitments to its European partners, but
Brussels is silent on whether national politicians should honor their commitments to their own
voters. In a democracy, where we govern under the consent of the people, power is on loan. We do
what we promise, even if it costs a dinner in Brussels, a "negative" media profile, or a seat in the
cabinet.

When in Europe's long night of 1939-45, war came to Finland with the winter blizzards, my
mother was one of eight siblings being raised on a small farm in central Finland where my
grandparents eked out a frugal living. My two young uncles rushed to the front and were both
wounded in action during Finland's chapter of Europe's most terrible bloodshed. I was raised to
know that genocidal war must never again be visited on our continent and I came to understand
the values and principles that originally motivated the establishment of what became the
European Union.

This Europe, this vision, was one that offered the people of Finland and all of Europe the gift of
peace founded on democracy, freedom, and justice and subsidiarity.. This is a Europe worth
having, so it is with great distress that I see this project being put in jeopardy by a political elite
who would sacrifice the interests of Europe's ordinary people in order to protect certain corporate
interests.

Europe may still recover from this potentially terminal disease and decline. Insolvency must be purged
from the system and it must be done openly and honestly. That path is not easy, but it is always the
right path—for Finland, and for Europe.