Credit crunch relief

Dear Editor,

I’m no economist, but the way things look these days, neither is anyone else.

To me, it looks like this: Portugal hasn’t got any cash, the whole country has a cash drought. The cash has gone to northern Europe to pay for industrial goods made there and bought in Portugal.

The Germans, French and Dutch don’t want to send the money back, and why should they? They’ve earned it fair and square. It’s their money.

The Portuguese banks are short of cash and aren’t lending; business is grinding to a halt. Anyone who does have cash has probably taken it from their Portuguese bank and sent it to banks in northern Europe for safety. With no new investment, there are no fresh jobs.

So what can we do now? The Portuguese government is in a cash crunch and has no way of getting out of it. They keep raising taxes, but the population hasn’t got cash either. You can’t get blood from a stone.

The government can’t pay its debts; industries that do exist are going bankrupt because they aren’t paid. Public employees are facing reduced wages or the sack.

People are willing to work; they want to earn, spend, buy and sell. But there’s just no money around to do it with. I think the government should print promissory notes, government secured credits.

They would use these to pay outstanding government bills, starting at say 50% S-credits with Euros paying the other 50%. They could pay a portion of wages this way too, and new hires could be conditional on accepting 90% or even all of their wage in S-credits, until the government has managed to balance its books, and can pay in Euros again.

The important thing is that the S-credits would be accepted for paying all Portuguese government fees and taxes; so retailers could accept S-credits knowing they have a secure value. With IVA at 23%, every retailer could accept up to that amount of S-credits without having to worry about a thing. They would just use their acquired S-credits to pay their IVA.

IVA on S-credit purchases would still be collected of course, payable in more S-credits.

If a business found they had too many S-credits, more than they need to pay their IVA and taxes, they could trade them onwards.

Overtime, more retailers would accept the credits, since that would be the only way to maintain business competitiveness. Wholesalers might start accepting them if their employees were willing to accept them as wages, or part wages at least.

Of course, if the government issues too many S-credits, they’ll be getting too many of them back as tax, and therefore they’ll receive less Euros. If they’re too exuberant, they would finally get only S-credits back in tax receipts. So they’ll have to be conservative in the number of S-credits they issue.

Since retail fuel and energy cost is mostly tax, S-credits could be easily accepted there.

Finally, a market would emerge for S-credits, or Escredits. They would have a floating value against the Euro, depending on supply and demand. They would be loaned and perhaps even speculated on. They would have their own interest rate.

If it goes on for too long, it might even be necessary to issue a full range of Escredit notes and coins.

The country folk would just call them Escudos of course.

Mark Holden