Austrian Opposition to ESM Cites Glass-Steagall as Model
July 5, 2012 • 8:16AM

In a statement issued on the eve of the Austrian parliament debate on the ESM (held today), Ewald Podgorschek, financial policy spokesman for the Freedom Party of Austria (FPOE), denounced the bailout policy as ruinous for the Austrian economy and state, adding that the main problem, namely the banks' casino-like conduct, is not solved at all.

"A complete restructuring of the banking sector is necessary," Podgorschek said. "We are calling for a strict separation of commercial and investment banks. Had such a regulation been in effect already, we would have been spared of a lot of things," he continued. "The Glass-Steagall Act, which was introduced in the U.S.A. in response to the banking crisis in 1933 and was in effect until 1999, contributed to the stability of the U.S. financial system for decades. The separation into commercial and investment banks would protect savings deposits and secure the refinancing for the real economy, and furthermore, the state, as guarantor of the savings, would no longer have to step in to compensate for losses caused by high-risk investment deals.

"In all bank bailouts so far, the systemic relevance of big banks was cited as the most important argument for their rescue. What's really relevant for the economy, however, is the classic banking based on savings and loans. This sector should not be jeopardized by risky, casino-like investment deals," Podgorschek declared.