EU may have seen last days of carefree wealth

That so many American voters should be adamantly opposed to rescuing Wall Street is in itself an interesting social phenomenon. One can understand their wish not to reward corporate greed - to put through the mill the sharp-suited bankers in search of a fast buck. But that is a stereotype and a distorted one at that.

Whatever else they may do, banks are the source of the money their customers need to finance their properties and businesses. Without that finance being freely available, the world's leading innovative economy will grind to a halt with consequences far worse than a few Congressmen losing their jobs or a handful of fat cats jammily avoiding a deserved come-uppance.

All of which makes it tempting to ask whether the European Parliament would have been more public-spirited and European voters more balanced in their judgement had they been in a similar position.

Admittedly the evidence we have to go on is thin. Apart from shenanigans over budgets, so far as my memory serves the Parliament has only once been called upon to vote for a measure that would have had a major effect on international finance.

This was in January 2000. The proposal before them required the European Commission within six months to produce a report advising how a Tobin Tax might be introduced in Europe.

Tobin Tax

For those that don't know, the Tobin Tax - named after the US Nobel Laureate economist James Tobin - is a tax on international currency transactions, the overwhelming volume of which are made by banks for speculative purposes, betting your money and mine on whether a currency will move upwards or downwards (it never seems to matter which).

With the phenomenal sums at the banks' disposal, the bets can become self-fulfilling. All of which makes vast profit for the banks and riches beyond the dreams of avarice for the bankers.

Tobin noted that this sort of thing really doesn't do much good. We are not seeing here the creation of new wealth as is the case when, for instance, a restaurateur cooks a meal and I pay to eat it. Nothing is actually created or serviced by these speculative trades.

All that happens when someone bets the dollar against the euro is that a fraction of wealth is creamed off the collective value of the assets of millions of people and concentrated in the pockets of a very few.

Wealth is not created, merely redistributed - but the process leaves turmoil and disruption in its wake: exchange rates are destabilised, trade distorted, inflation triggered and so on.

All these effects, argued James Tobin, could be mitigated by the institution of a minor levy on such transactions, the proceeds of which (for this would be an international tax) would go to the world's poor, hungry, diseased and illiterate peoples. Such was his original philanthropic intention.

European Parliament had its chance

As I say, the European Parliament had its chance in January 2000 to lead the world in a move towards a more stable global financial order.

Fired with millennial enthusiasm a great coalition of parties assembled, from the left and from the centre, to support the proposal.

Against them were the more traditional forces of the centre right, joined by some unlikely allies.

When it came the motion was lost by four votes out of 400. The four votes belonged, I have always understood, to communist deputies who faced with the horrible decision of deciding which they hated most - currency speculation or world poverty - decided against world poverty.

If they voted in favour of the Tobin Tax, they argued, they might be seen as supporting capitalism. So in the end philosophic purity vanquished pragmatic philanthropy and led to the motion's downfall. The wilder free-market republicans in the US Congress clearly faced a similar dilemma.

Unlike the US Congress, the European Parliament was not given the chance to re-think. And now that the present global crisis is upon us the truth is that for all its puff about being one of the most powerful legislatures in the world the European Parliament is supremely irrelevant. Action is being taken locally.

European states act individually

European states have acted, mostly quickly, mostly decisively, mostly individually, to address the various problems presented by lack of confidence in failing bank after failing bank, doing whatever was required with little regard to the wider rules of competition or state subsidy. Act first and pick up the pieces later seems to have been the motto.

In the UK, Northern Rock, Bradford and Bingley, HBOS; Hypo Real Estate in Germany; Dexia in Belgium; Fortis (bailed out by the Benelux collective); Irish (owned) Banking bailed out by the Irish Government; and in Iceland Glitnir. More may follow.

What talk there has been of a central 300 billion euro rescue package to aid banks in small states has been dismissed.

Whether all this will be enough to stem the tide of lost confidence, which even before the present crisis was tipping us towards a European wide recession, we shall have to see.

This weekend the French President, Nicolas Sarkozy, will lead a summit to address these issues. No doubt there will be proposals for tighter regulation and calls for the European Central Bank to loosen its tight grip on interest rates. But whatever is done experts predict it will be some years before normal service is resumed. If indeed it ever is.

The US is heading towards a long recession said another US Nobel Prize economist, Joseph Stiglitz, the other day. By then of course consumers may have been credit-crunched into a green agenda while the economy struggles as the Commission's climate change targets begin to bite.

2008 may have marked the high tide of carefree plenty for both Europe and America.

The author is an independent commentator on European affairs