Building for a better future

I use Grammarly’s plagiarism checker because I always need another pair of eyes!

Speaking to the Conservative Party faithful in Manchester last week, George Osborne declared: “We are the party of home ownership and we’re going to let the country know it.” The conference may have been festooned with messages about “hard-working people” – and dire warnings for the feckless millions unable to find work in a recession – but at the heart of the Chancellor’s speech he was appealing to a British obsession: houses.

The Conservatives, said Mr Osborne, were a “party of aspiration and home ownership”, ready, willing and able to come to the aid of those “still being denied their dream of owning their own home”.george_osborne_aga_1014479c

That the “dream” of homeownership has turned into a nightmare for so many after the sub-prime mortgage crash just six years ago doesn’t seem to concern the Chancellor unduly. Indeed, in his March Budget, Osborne unveiled a scheme that has seen the government actively involved in inflating house prices.

Under Help to Buy, prospective buyers south of the Border can avail themselves of interest-free loans worth up to 20 per cent of the purchase price. The second stage of the scheme – which began yesterday, ahead of the original schedule – will provide mortgage guarantees for buyers of properties valued at £600,000 or less with just a 5 per cent deposit. In all, the government is expected to be guarantor on around £130 billion worth of mortgages. The Scottish Government runs its own Help to Buy scheme, with a limit of £400,000 purchase price. Both schemes apply only to new-build homes.

Leaving aside for a moment the political contortions involved in a party committed to privatising everything from the NHS to the postal service putting the state on the hook in the property market, there are very real fears that Help to Buy will only serve to further inflate the UK housing market.

Business Secretary Vince Cable has warned: “We don’t want a new bubble.” But it may already be too late for that. In London, house prices are up 10 per cent year-on-year. It’s not just the south-east that is starting to look frothy: prices are up 10 per cent in Manchester, and 8 per cent in Newcastle-upon-Tyne. The Bank of England announced a five-year high for mortgage approvals for August of 62,226.

What we need is more houses, not higher prices – but it has taken a man of God to say publicly what many politicians will only admit privately. “Help to Buy is like tackling a food shortage by issuing food vouchers rather than getting more crops planted,” said David Walker, Bishop-designate of Manchester, recently.

Osborne himself tacitly admitted that Help to Buy is a flawed policy when he announced recently that he has asked the central bank’s Financial Policy Committee to review the programme every year – initially this was to be every three years. But the first review is not due until next September, and by then the housing market is likely to be a whole lot boomier.

Howard Archer, UK and European economist at HIS Global Insight, has warned of a “mounting danger that house prices could really take off over the coming months, especially as a shortage of new properties for sale could be a significant factor in some areas, notably London and the south-east.” Archer cited Help to Buy as a significant factor in the escalating house prices expected over the next 12 months.

Help-to-Buy – and the wider government rhetoric on home ownership – betrays a simple, but increasingly politically uncomfortable, fact: our houses are already overpriced. And not just in the south of England.

British house prices are 31 per cent too high compared with rents and 21 per cent over-valued against incomes, according to a study by the OECD. In the decade from 1997 to 2007, UK house prices trebled. At the same time, the length of mortgages increased dramatically: between 1993 and 2000, less than 2 per cent of mortgages were for more than 25 years. Now a fifth are for 30 years or more.

As home ownership becomes the preserve of those willing to take out mortgages far in excess of income or those fortunate enough to be born to home-owning parents, maintaining rising house prices becomes a political imperative. If UK house prices were to fall (as they should, according to OECD statistics) millions would lose out in the “investment” they call home. The political imperative for policies that appeal directly to those either on the housing ladder, or those scrambling for a toehold, is clear.

Adam Posen, a former member of the Bank of England Monetary Policy Committee, has written of the economic folly of giving an incentive to “middle-class households to leverage the bulk of their savings into a highly volatile, difficult to price asset, which is subject to disaster risk both idiosyncratic (fire, tree falling on the roof) and general (flood, local industry closure), and which – based on the economic fundamentals – should return at best the average rate of local wage and population growth”.

Houses are not productive assets. In encouraging yet more investment in the property market, Osborne et al are diverting away capital that could be used to create jobs and growth in the real economy.

At the root of this lies a facile assumption that renting is “throwing money away” and a person’s house is their “castle”. This belief in the economic and existential value of home ownership is not a singularly British phenomenon, but among developed nations it is more pronounced in the Anglo-Saxon world. Home ownership in the UK and US stands at around 65 to 70 per cent, against around 50 per cent in France, Germany and Japan.

The OECD’s Better Life Index shows that no relationship exists between home-ownership levels and average housing satisfaction and quality. Germany and the Scandinavian states, in particular, enjoy a more diverse housing market, with the state playing an important role in the rental sector, and a concomitant fear of the rising house prices so lauded by British politicians and, too often, the press.

There are more creative ways, too, for government to increase revenue from property beyond the stamp duty that accrues from a booming housing market. There is much to commend a Land Value Tax (LVT) levied not on the value of a property but on the value of the land on which it sits. After all, it is not houses that are expensive but the land on which they are built: house prices reflect more the value of social goods (transport links, schools, infrastructure, location) than they do the cost of bricks and mortar. A house is scarcely more costly to build in London than Linlithgow.

The Scottish Government is working on a land and buildings transaction tax that could see aspects of an LVT subsumed within it. The idea of an LVT is not new – indeed, it found favour with one of George Osborne’s predecessors: Winston Churchill. He once said that rising land values “are derived from processes which are not merely not beneficial, but positively detrimental to the general public”.

Creative solutions to the problems in Britain’s housing market are possible. But to work they need a government willing to move away from a regressive vision of home ownership based on rising house prices. As this past week demonstrated, that is one essential building block not yet in place.

Why We Need More Banking, Not Less

IN THE wake of the 2008 crash, thousands of people are moving their accounts from the Big Five banks every month.

Crisis? What crisis? The immortal phrase – created by a Sun journalist, but erroneously attributed to then prime minister Jim Callaghan – helped bring down a Labour government in 1979, but could as easily have been coined to describe the shoddy state of high street banking in Britain today.

In June, a massive IT systems failure left customers of RBS, Nat West and Ulster Bank unable to access their money. Then Barclays was fined a record £290 million for its role in rigging the London interbank offered rate, Libor, the interest rate used, among other things, to determine the cost of borrowing for millions of households and businesses.

Just two days later, the Financial Services Authority found Barclays, HSBC, Lloyds and RBS guilty of mis-selling specialist interest to thousands of small businesses. The products, many of which came with huge monthly payments, had a “severe impact on a large number of these businesses”, according to the authority.

Such malfeasance is not restricted to the UK’s so-called Big Five – earlier this month, Standard Chartered agreed to pay £217m to settle allegations from a US regulator that it laundered £160 billion for Iranian clients, contravening international sanctions – but the concentration of Britain’s banking sector greatly increases the risk of corrupt practice.

Currently, HSBC, Barclays, RBS, Santander and Lloyds hold about 85 per cent of all current accounts. However, there are signs that this is starting to change. Each month about 80,000 customers are leaving the big high street banks for alternatives, say campaign group Move Your Money. Among the beneficiaries have been Triodos, an “ethical bank” which recently opened a branch in Hanover Street in Edinburgh, and Handelsbanken, a Swedish bank that doesn’t pay staff bonuses and has more than 100 branches in the UK.

Earlier this summer, the Co-operative Group bought 632 former Lloyds branches, in a move that should more than double its share of the banking sector to more than 6 per cent.

“The big question really is why more people aren’t leaving [the Big Five banks],” says Tony Greenham, head of finance and business at the New Economics Foundation. While many customers are dissatisfied with their bank’s behaviour, from deteriorating in-branch service to the plethora of hidden charges, fear and lethargy are powerful disincentives to change.

“Most people can find anything else they would rather do than switch their current account,” says Greenham, who proposes allowing current account numbers to be transferred across institutions, in the same way as mobile phone numbers, as one way to encourage switching.

An advertising budget running into the hundreds of millions is one reason unhappy customers are staying with the Big Five. Another is that most know little or nothing of banking life beyond the high street. This, however, was not always the case.

Housed in the impressive former head office of the Bank of Scotland, the Museum on the Mound in Edinburgh is designed as a glowing tribute to one of Scotland’s financial sector. But it also, rather unwittingly, tells another story, that of the massive consolidation of British banks that began towards the end of the 19th century, and lasts to this day.

The turn of the century was a period of bank mergers on a heretofore unseen scale, as Andrew Simms and David Boyle detail in Eminent Corporations: The Rise and Fall of the Great British Brands. In 1918, Westminster expressed concern about this “merger mania”, but eventually dropped the idea of anti-trust legislation. By 1920, there were just five big banks left standing.

Arguably, the model of a small number of megabanks served Britain reasonably well for 60 years – or at least was not completely deleterious – but all this changed in the 1980s, as the banking sector’s focus shifted from serving existing customers to increasing shareholder value. The 1986 deregulation of financial markets in the City of London, the Big Bang, cemented this cultural shift, with disastrous consequences.

“Banks have been driven by a different ethos, where it is all about flogging stuff to people and hitting sales targets,” says Greenham.

In the wake of the 2008 crash, which it is now apparent was as much the fault of banking cultures as it was of a dodgy subprime mortgages in the United States, banks have moved from risky investments to tapping their own customers to shore up their distressed balance sheets. While base rates have remained at historic low levels, interest on personal loans has not been reduced, greatly increasing bank profits on private debt.

Unlike the global economy, bankers’ bonuses show no signs of slowing down: last year, pay for chief executives at 15 leading US and European banks rose by 12 per cent. This followed a 36 per cent increase in 2010.

The banking sector needs increased competition, and that means more, smaller banks. But starting a new bank is not easy. When Metro, a small bank operating mainly in South-east England, opened its doors in 2010, it became the first new bank in a century to be granted a licence in the UK.

As Channel Four’s revealing fly-on-the-wall documentary Bank of Dave showed, start-up banks such as David “Dave” Fishwick’s Burnley Savings & Loan face numerous barriers to entry: from daunting legislative and administrative rules to an inability to compete with the putatively “free” current accounts offered by the big banks.

The situation in other countries is very different. In Germany, a third of the banking sector is comprised of co-operatives (or mutuals). Another third are Sparkassen, local savings banks that are intimately tied to the local economy and are very stable. These small banks operate on what is called the “church steeple” principle: loans are only made to businesses in the local area, that you can see from the church steeple in the middle of the town.

Credit unions are almost unheard of the UK (at least outside Glasgow, which has the highest concentration of credit unions in the country), but in Canada 30 per cent of the population holds a credit union savings book. This allows them to both save and take loans, generally up to three to five times the value of their savings balance.

During the UK’s “merger mania” every local bank in the country disappeared, except one, the Airdrie Savings Bank. Established in 1835, it is the only independent savings bank left in Britain. Business is booming. Last year, deposits at the bank rose by over 5 per cent; lending to local businesses increased by a vertiginous 35 per cent, far ahead of equivalent figures for any of the Big Five.

Britain needs more banks like Airdrie Savings, banks that are adapted to the economic and social needs of their area. Greenham has a radical idea to make this happen – re-localise the majority state-owned Royal Bank of Scotland.

“The prospect of selling [RBS] back to the stock market at a profit is non-existent,” Greenham, a former investment banker, says. RBS should be split up into a large number of small branches, with lending decisions made locally, rather than from a centralised head office.

“We need to make a virtue out of a necessity,” says Greenham. “The Big Five still act like monopolists. They don’t have to try too hard to keep our business. That has to change.”

This piece originally appeared in the Scotsman,  August 24. 

Book Review — How Much is Enough?

In 1928, the scion of 20th century British economics John Maynard Keynes addressed a room full of Cambridge undergraduates on the subject of ‘economic possibilities for our grandchildren’. Keynes – a far more radical thinker than contemporary caricatures of him as the stolid grandfather of ‘tax and spend’ economics suggest – told his audience that, thanks to economic growth, the West was on the verge of having sufficient resources to satisfy all human wants.

By the time Keynes redrafted the Cambridge lecture for publication, the Wall Street had hit – but the catastrophe did little, if anything, to dampen the great economist’s expectations. In ‘Economic Possibilities’, published in 1930, Keynes predicted that, in a hundred years time, standards of living in the West would increase four to eight times in a hundred years time, based on estimates of capital equipment growth by 2 per cent per annum and an annual increase in ‘technical efficiency’ of 1 per cent.

Keynes’ growth predictions have proved remarkably accurate (albeit not always for the reasons he cited): today GDP per capita is, on average, around four times higher than it was in 1930. But the increased wealth has not been a harbinger of Keynes’ state of ‘Bliss’: instead of the vaunted three-hour working day and the advent of the leisure society, working hours have fallen only a fifth in the last 80 years, and among the wealthy have risen sharply.

‘Considered in relation to our vital needs, our state is not one of scarcity but rather of extreme abundance.’ So why do many of us work long hours in the desperate pursuit of a life packed with consumer goods but with precious time for physical and spiritual enrichment? If ‘the good life’ is materially possible, why are we so far from achieving it? These questions are at the core of Robert and Edward Skidelsky’s thought-provoking attempt to divine just how much is enough for a satisfying, fruitful life.

Pater familias Robert is an economist and author a three-volume biography of Keynes. His son, Edward, is an academic philosopher. How Much is Enough?, bears the hallmarks of both disciplines: among the reams of economic data and discussions of Smith, Marx and Friedman are chapters devoted to that most Socratic of questions, what is the good life and how can it be realised.

The authors’ primary target is the cult of growth for growth’s sake (‘a kind of Prozac’). The festishisation of GDP statistics – notoriously poor indicators of citizens’ wealth within a given country – are one symptom of a malaise. Another is the rise of ‘happiness’ as a nostrum for the 21st century.

Politicians across the Western world, most notably David Cameron in Britain, have embraced the new ‘happiness economics’, pioneered by Richard Layard. Happiness, in this calibration, can be measured on easy to administer 11-point life satisfaction surveys, often producing the most anodyne of results. (a recent government-funded study in the UK found that people were least happy in the deindustrialised, unemployment black spot of South Wales.)

The Skidelskys have no time for the ‘false idol’ of happiness metrics, turning instead to Aristotle and the ancient Greek notion of eudiamon (oft translated as ‘happy’, but in reality a more complex concept involving harmony between action, character, deliberation and circumstance). Crucially Aristotle’s conception of the good life included a sizeable chunk of schole, or leisure, a facet conspicuous by its absence from so many modern working, and indeed non-working, lives.

So why do we work so much? The answer, the Skidelskys argue, is a dyad of inequality and the drive to consume more. Since the 1980s inequality of wealth and income has grown hugely in the US and the Britain (and in Ireland). Rising inequality has a knock-on effect on hours worked as we strive to compete with one another: Britons work, on average, 1,650 hours a year, in the US the figure is 1,800. In Holland, it’s 1,400.

As well as setting out their seven elements of the good life (health, security, respect, personality, harmony with nature, friendship and leisure), the authors propose a series of policy reforms to hasten an exit ‘from the rat race’. These include an unconditional basic or citizen’s income (a fund along these lines in Alaska has made it the most equal of all US states); a version of traditional sumptuary laws to reduce Veblenian conspicuous consumption; and a significant reduction in advertising.

It’s an avowedly paternalist formula, and, at times, one that privileges a particularly middle class sensibility (not least in a tautologous argument over why wine contributes to the good life while crack cocaine does not). But the greatest criticism of the book is the Skidelsky’s lack of a concomitant political vision for how their many credible propositions might actually be enacted.

How Much is Enough? makes a cogent philosophical and economic argument for the good life – but almost a hundred years on from Keynes’ Cambridge lecture making ‘Bliss’ a reality remains as elusive as ever.

This review appeared in the Sunday Business Post in August 2012. 

LRB Blog: A Moment of Clarity

On Wednesday afternoon, excerpts from a speech by the Irish finance minister Michael Noonan to the Bloomberg Ireland Economic Summit in Dublin, purportedly copied from the Irish Times website, appeared on PoliticalWorld.org. The contributor, PaddyJoe, accused the newspaper of removing a paragraph from an earlier version of the story, in which Noonan, speaking about the Irish government’s ability to secure a ‘Yes’ vote in the upcoming referendum on the European fiscal compact, was apparently quoted as saying:

In all other countries people are concerned about growing inequality. In Ireland we need to keep focus on more important issues of corporate profitability and tax protection we offer international organisations. This is not the time for drastic moves to the left simply to suit populist demands for simplistic idealism of ‘social justice’.

The story quickly spread on social media. Most people, including me, interpreted Noonan’s surprisingly frank comments as yet another example of the Irish political phenomenon that Conor Cruise O’Brien, paraphrasing Charles Haughey, called GUBU: grotesque, unbelievable, bizarre and unprecedented. And, by extension, almost certainly true.

Noonan, a pugnacious Fine Gael member of the Dáil since 1981, was already on record as having told the same Bloomberg event that there was no threat of contagion from the crisis in Greece spreading to Ireland: ‘If you go into the shops here, apart from feta cheese, how many Greek items do you put in your basket?’

By yesterday evening, it was clear that Noonan’s unbelievable quotes about his government’s commitment to corporations over citizens couldn’t be believed. An Irish hacker and anarchist claims to have inserted the paragraph into the original news report of the Bloomberg speech. He says that he removed the interjection, but not before it had been copied from the Irish Times website. The Irish Times denies that the initial report was hacked or that its website ever carried the quotes attributed to it on PoliticalWorld.org. The most likely source of the paragraph was a mash-up of the original news report of the Bloomberg speech. [Text amended on 28 May.]

‘The quotes were so surreal but utterly plausible,’ says Gavan Titley, a lecturer in media studies at the National University of Ireland, Maynooth. On Thursday, the Fine Gael minister for enterprise, Richard Bruton, during a debate on the treaty on Today FM, said that the referendum would be rerun in the event of a ‘No’ vote. He quickly retracted his ‘mistake’. Bruton’s comments ‘are regarded as a gaffe’, Titley says, ‘but actually are just an exceptional moment of clarity.’

One thing Noonan definitely did tell the Bloomberg summit is that ‘the Irish economy is in a much better position that it was this time last year.’ His optimism isn’t borne out by official statistics: In April 2011, the Irish government predicted an annual GNP growth rate to 2015 of 2.4 per cent. This year, that figure has been reduced to 1.4 per cent. In April 2011, it was estimated that 101,000 jobs would be created by 2015. The projection has now been reduced to 61,000. In 2011, public debt, supposedly the core focus of austerity policies, was expected to fall to 111 per cent of GDP by 2015. The figure has now been revised upwards to 117.4 per cent.

As recently as last month, Michael Noonan was saying that Ireland would not need a second EU/IMF bailout. The taoiseach, Enda Kenny, is now warning that only a ‘Yes’ vote in the referendum on 31 May will guarantee Irish access to European bailout funds.

This post originally appeared on the London Review of Books blog.

Local Currencies: The Road to Financial Safety

As small businesses struggle to find support from the banks, Peter Geoghegan suggests now is the time to look at an alternative way to finance retail firms

It’s official: the UK is back in recession. On the day Rupert Murdoch was appearing in sack-cloth and ashes before the Leveson inquiry in London, the Office for National Statistics (ONS) announced that Gross Domestic Product (GDP) in the UK had shrunk by 0.2 per cent in the first three months of 2012. Following a similar contraction in the final quarter of last year, we have returned to recession, at least technically.

In stark contrast to the juicy revelations from Leveson, the news that the UK is in recession caused barely a ripple in the media pond. Some commentators argued that the ONS figures were misleading, adducing an increase in manufacturing activity in recent weeks. Others asserted, with some justification, that GDP is a remarkably unsophisticated measure of economic vitality, best taken with a generous pinch of salt.

Health warnings aside, the fact remains that the UK economy is in pretty poor shape. Overall employment across Britain stands at 8.3 per cent. A recent labour market report from the Scottish Trades Union Congress (STUC) shows joblessness among people aged 18 to 24 at a five-year peak. But you don’t need to be a policy wonk, or wade through reams of statistics, to realise that the economy is flatlining: just saunter around almost any Scottish city or town. On once-thriving shopping streets, retail units lie either empty or under-used. The “for sale” signs, so ubiquitous during the credit bubble, have been replaced by offers to rent property, often at bargain basement prices. According to the business consultancy the Local Data Company, shop vacancy rates in Glasgow are currently running at 21.2 per cent, a rate surpassed in some West of Scotland towns.

The empty high street store – most likely erstwhile home to a branch of a major retail chain that has either gone under or downsized dramatically – provides the starkly eloquent image of this spectre of uselessness today.

The retreat of retail can be attributed to a plethora factors – the rise of online shopping, an overall reduction in disposable income in straitened times – but among the chief culprits is the difficulties faced by those key drivers of the economy, small and medium-sized enterprises (SMEs).

Last week, the Bank of England released a three-year assessment of “trends in lending” by banks to businesses and individuals. The findings were stark: lending to SMEs has decreased markedly since mid-2008. Lending to all small and medium sized enterprises has been negative since 2009. All five major high street banks in Britain have failed to achieve their government-agreed targets for lending to small firms.

To be fair, it’s a problem that the Scottish Government has acknowledged. During a Holyrood debate back in February, finance minister John Swinney excoriated the failings of Project Merlin, the Westminster-backed scheme which has led to just 4.8 per cent of gross lending going to Scottish SMEs, despite small businesses in Scotland accounting for 6.4 per cent of the UK total. “It is clear that Project Merlin has failed to address poor lending conditions for Scottish companies and this needs to be addressed by the UK Government,” said Swinney.

As Britain sinks into the dreaded double-dip recession, it’s obvious – or at least it should be – that creative solutions are required to reinvigorate small businesses (and the economy more generally). Banking reform, and the redirection of capital away from speculation and into productive activity, is an imperative. But beyond waiting for root and branch reform that might never happen, how can we stimulate Scotland’s local economies quickly?

Issuing local currencies is one innovative option. The theory behind local currencies is straightforward: national notes are exchanged (usually on a one-to-one basis) for a specially created local denomination that can be used to buy designated goods and services in a geographically defined area. Local currencies are perfectly legal and can be very efficient ways of increasing economic activity, especially in times of economic or political crisis. Since they don’t accrue any interest, local currencies generally circulate at a much faster rate than national currencies. They also retain money in the local economy and encourage consumers to buy local produce.

When they work, the effects of local currencies can be impressive. In Switzerland, the WIR Bank has existed as an independent complementary currency system for small and medium sized businesses and retailers since 1934. Having begun with just 16 members, WIR has grown to 62,000 users with assets of around 3bn Swiss francs (£2bn).

Germany currently has about 30 local currencies. Damanhur, an eco-community of about 900 people in northern Italy, has been using its own currency for decades, tied first to the Italian Lira and, more recently, the euro.

Damanhur runs on a similar model to Scotland’s oldest and most successful local currency, the eko, which circulates among shops and businesses in the Findhorn eco-community in Moray. Established in 2002, the eko has proved remarkably resilient: about £20,000 worth of currency is currently in circulation. The notes have a set life-span, usually between three and five years, at the end of which they can be redeemed for new issue ekos or, in rare cases, sterling. Capital raised by each eko issue is used to fund low or no interest loans to community projects such as wind farms and affordable housing.

In the wake of the financial crisis, local currencies have gained traction elsewhere in the UK. In 2009, the first urban local currency was launched in Brixton, London. The Brixton pound has been one of the success stories of the area’s regeneration: more than 70 local businesses accept the stylishly designed notes, which have become a symbol of the area’s burgeoning cultural confidence. The Bristol pound is due to launch soon.

Local currencies, popular in the US during the Depression, have also been making a comeback across the pond. The most successful, BerkShares, circulate in Berkshire County, Massachusetts, with the participation of five local banks. BerkShares retail at 95 cents for a $1 share, an attractive saving that increases the currency’s appeal to customers.

Edinburgh, with its proud history of independent retailers and niche shops, seems like an excellent testing ground for a local currency. The notion of a special currency for the capital is not exactly new. Last year, Transition Edinburgh drew up plans for an Edinburgh pound, which the council broadly supported.

Unfortunately, enthusiasm for a local currency in Edinburgh was muted, not least due to a lack of confidence amongst business people and shopkeepers. A Portobello pound, due to launch this year, is currently on hold. A similar local currency scheme in Hawick in 2010 had limited success.

Arguably the main reason why local currencies have struggled to get off the ground here is a paucity of information on how they work and why.

The Greens remain the only political party actively campaigning for their establishment inScotland.

Local currencies are not a panacea for all our economic woes but they could help lift some of the fug that surrounds our high streets. As the double dip hits, the time to think creatively about our economy – and local currencies – has arrived.

This article originally appeared in the Scotsman, May 9, 2012.

Local Currencies

My latest blog on the London Review of Books site, on local currencies, runny Spanish omelettes and ‘the Miracle of Worgl’:

Death to the Euro.’ The handmade sign was pinned to the wall of a community centre in San Luis, a gentrified neighbourhood just inside the boundaries of Seville’s old city. It was a balmy Friday evening, but inside a crowd of around a hundred people were listening to a 45-minute PowerPoint presentation on puma, a new local currency for San Luis launched last month. Puma is the third local currency to be introduced in the Andalusian capital this year. Pepa and jara already circulate in Macarena, a working-class district on the other side of Seville’s city walls.

After explaining how the new currency would work – euros can be exchanged one-for-one for puma notes, which are valid in designated San Luis shops – the speaker took questions from the floor: an elderly man with a straw hat wanted to know if his local café would acceptpuma; a young mother asked how she could sign up for the scheme on-line.

Repeated doses of EU-enforced austerity have hit Spain hard. Last week, the country officially slipped back into recession. The Spanish economy, the fifth largest in Europe, is expected to contract by 1.7 per cent in 2012.

In the slipstream of the Eurozone crisis, local currencies – perfectly legal, so long as income tax is paid – have proliferated across Spain. Thezoquito has circulated in parts of Galicia since 2007. Local currencies are proving popular in the UK, too: the Totnes pound has been around since 2007; the Brixton pound, with a natty picture of Ziggy Stardust on the tenner, emerged in 2009; the Bristol pound is about to launch.

Local currencies tend to circulate more rapidly than national (or transnational) currencies, as well as keeping money in the area, with the result that local economic activity increases. In 1932, the mayor of Wörgl in Austria replaced the faltering national currency with specially printed ‘Certified Compensation Bills’. Inspired by Silvio Gesell’s theory of ‘free-flowing money’, the Wörgl bills were designed to depreciate by 1 per cent of their value each month in order to promote rapid circulation and dissuade hoarding. Within weeks Wörgl had almost full employment. A new ski jump was built. Roads were repaired. Six neighbouring villages soon copied the ‘miracle of Wörgl’. In 1933, the Austrian Supreme Court upheld the Central Bank’s monopoly over the issuing of currency. Thirteen months after it began, Worgl’s experiment was over; within weeks joblessness in the town returned to around 30 per cent.

At the end of the evening in Seville, plates of runny omelette were passed around the room. An activist in his late twenties – a member of Spain’s M15, or indignados, movement – said the presentation was ‘fantastic’: ‘He wasn’t just talking about money, he was talking about trying to create a new society. We need another system. The currency is just a tool.’