Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Support Our Annual Fund Drive! CounterPunch is entirely supported by our readers. Your donations pay for our small staff, tiny office, writers, designers, techies, bandwidth and servers. We don’t owe anything to advertisers, foundations, one-percenters or political parties. You are our only safety net. Please make a tax-deductible donation today.
FacebookTwitterGoogle+RedditEmail

Why the Debt Crisis Hit Europe Harder Than the Emergent Countries of the South

by RAM ETWAREEA

Europe’s current indebtedness is deeper than that of South American countries. In most cases the ratio between external debt and GNP has reached 40% in 2010 in South American countries; in Greece, Spain, Portugal or Ireland, it is well beyond 100%. Though governments and the European Commission focus on public debt, private debt is far higher. In Spain, public debt accounts for some 17% of the total debt. The increase in the European public debt is the consequence of three elements: the tax counter-reform that started in the 1990s and reduces state revenues by offering tax breaks to the wealthy and to private corporations; the cost of governments bailing out private banks from 2007 onward, and the fall in tax revenues due to the economic recession in 2009. While social expenditures of European governments have in no way increased public debt, these will be slashed by austerity measures. Moreover the huge debt of some private companies might be turned into public debt if we do not watch out.

This is the way Eric Toussaint, an economist and historian who has studied public finances in countries of the South since the 1980s, analyzes the situation. According to this Belgian expert who works within the Committee for the Abolition of the Third World Debt, Greece ought to default, set up an audit of its debt to determine creditors’ responsibilities and renegociate repayment while enforcing a radical reduction of its debt. While in Geneva to present his latest book, La crise, quelles crises? (Editions Aden), he emphasized that this solution would save the country from the austerity measures currently imposed by the IMF and the EU, which affect the whole population. Some ten European countries are currently ‘helped’ by the IMF.

‘Many of the loans were granted to Greece to buy military material from France and Germany,’ Eric Toussaint explained. ‘After the crisis became manifest, the military-industrial lobby even succeeded in maintaining the defence budget while social expenditure was slashed by more than 20%.’ He recalled that in the very heart of the Greek crisis at the beginning of the year Recep Tayyip Erdogan, the Prime Minister of Turkey, i.e. a country with tense relationships with its Greek neighbour, went to Athens and proposed a 20% reduction of the military budget in both countries. The Greek government did not respond for it felt the pressure of the French and German authorities that wanted to support their arms sales. We should add the many loans granted by mainly German and French banks to private companies and Greek authorities in 2008-2009. These banks borrowed from the ECB at low interest rates and granted loans at higher rates, which made for juicy short term benefits. They did not stop to wonder whether the borrowers could repay the borrowed capital in the longer term. Private banks thus bear great responsibility for current over-indebtedness. Loans from EU member states and from the IMF are not granted with a view to serving the interests of the Greek population but to repaying German and French banks jeopardized by their own over-adventurous policies, Eric Toussaint claims.

When Eric Toussaint recommands defaulting, he knows what he is saying. He was a member of a committee for the auditing of the Ecuadorian debt set up in July 2007. ‘We noticed that several loans contravened basic rules. In November 2008 the new government relied on our report and stopped repaying bonds that come to maturity in 2012 and 2030. Eventually the government of this small South American country was victorious in a tug of war with North American bankers that held bonds on the Ecuadorian debt. It bought back securities for one billion dollars that were valued at 3.2 billion. Ecuador’s public treasury thus saved some 2.2 billion dollars on its debt stock to which we must add $300 million of yearly interest that has not been paid since 2008. This gave the government the financial resources needed to increase social expenditure in health care, education and help to the poorer layers of the population,’ he explained. He also mentioned the example of Argentina that refused to repay its debt from 2001 to 2005 and pointed to the creditors’ responsibility. ‘Thanks to its unilateral moratorium on debt securities for about $ 100 billion, the country could invest its resources and turn to economic growth again,’ he added. ‘Argentina still has a $6 billion slate with the Paris Club. Since December 2001 it has not paid anything to Paris Club members and feels all the better for it. The Paris Club stands for the interests of industrialized countries and does not wish to make a fuss about Argentina not paying for fear that other governments might follow suit.’ Greece too defaulted for over 60 years in the 19th century and in the first half of the 20th century.

The IMF has got it wrong

Eric Toussaint further claims that the IMF is deeply wrong when it insists on imposing austerity on indebted countries in Europe, as had been the case for developing countries. ‘Slashing budgets and freezing purchasing power in some ten countries means sabotaging recovery plans. This is insane since in Europe consumption amounts to 70% of the GNP.’

Our expert further points out that not all countries can respond like Germany. Thanks to its industrial apparatus and a policy of wage squeezing, Germany managed to boost its exports. Eric Toussaint explains that the IMF and the EU enforce the Washington consensus – deregulation – in Europe when it has already had disastrous consequences in developing countries. ‘I cannot see how measures that have failed elsewhere would yield different results in Greece, Spain or Portugal. Countries like India, China or Argentina have managed because of policies in which the state still plays an important part in economy. India, for instance, will not privatize its railways. Year after year the government spends huge amounts on them, but this also means saving a million jobs and good quality public services. The public railway company runs at a profit each year. Similarly, in spite of pressures, the Indian government has not deregulated the banking sector, which sheltered it from the 2007 financial crisis.’

Translated by Christine Pagnoulle in collaboration with Vicki Briault

RAM ETWAREEA writes for Le Temps in Genève, Switzerland.

 

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine

minimag-edit

September 29, 2016
Robert Fisk
The Butcher of Qana: Shimon Peres Was No Peacemaker
James Rose
Politics in the Echo Chamber: How Trump Becomes President
Russell Mokhiber
The Corporate Vice Grip on the Presidential Debates
Daniel Kato
Rethinking the Race over Race: What Clinton Should do Now About ‘Super-Predators’
Peter Certo
Clinton’s Awkward Stumbles on Trade
Fran Shor
Demonizing the Green Party Vote
Rev. William Alberts
Trump’s Road Rage to the White House
Luke O'Brien
Because We Couldn’t Have Sanders, You’ll Get Trump
Michael J. Sainato
How the Payday Loan Industry is Obstructing Reform
Robert Fantina
You Can’t Have War Without Racism
Gregory Barrett
Bad Theater at the United Nations (Starring Kerry, Power, and Obama
James A Haught
The Long, Long Journey to Female Equality
Thomas Knapp
US Military Aid: Thai-ed to Torture
Jack Smith
Must They be Enemies? Russia, Putin and the US
Gilbert Mercier
Clinton vs Trump: Lesser of Two Evils or the Devil You Know
Tom H. Hastings
Manifesting the Worst Old Norms
George Ella Lyon
This Just in From Rancho Politico
September 28, 2016
Eric Draitser
Stop Trump! Stop Clinton!! Stop the Madness (and Let Me Get Off)!
Ted Rall
The Thrilla at Hofstra: How Trump Won the Debate
Robert Fisk
Cliché and Banality at the Debates: Trump and Clinton on the Middle East
Patrick Cockburn
Cracks in the Kingdom: Saudi Arabia Rocked by Financial Strains
Lowell Flanders
Donald Trump, Islamophobia and Immigrants
Shane Burley
Defining the Alt Right and the New American Fascism
Jan Oberg
Ukraine as the Border of NATO Expansion
Ramzy Baroud
Ban Ki-Moon’s Legacy in Palestine: Failure in Words and Deeds
Gareth Porter
How We Could End the Permanent War State
Sam Husseini
Debate Night’s Biggest Lie Was Told by Lester Holt
Laura Carlsen
Ayotzinapa’s Message to the World: Organize!
Binoy Kampmark
The Triumph of Momentum: Re-Electing Jeremy Corbyn
David Macaray
When the Saints Go Marching In
Seth Oelbaum
All Black Lives Will Never Matter for Clinton and Trump
Adam Parsons
Standing in Solidarity for a Humanity Without Borders
Cesar Chelala
The Trump Bubble
September 27, 2016
Louisa Willcox
The Tribal Fight for Nature: From the Grizzly to the Black Snake of the Dakota Pipeline
Paul Street
The Roots are in the System: Charlotte and Beyond
Jeffrey St. Clair
Idiot Winds at Hofstra: Notes on the Not-So-Great Debate
Mark Harris
Clinton, Trump, and the Death of Idealism
Mike Whitney
Putin Ups the Ante: Ceasefire Sabotage Triggers Major Offensive in Aleppo
Anthony DiMaggio
The Debates as Democratic Façade: Voter “Rationality” in American Elections
Binoy Kampmark
Punishing the Punished: the Torments of Chelsea Manning
Paul Buhle
Why “Snowden” is Important (or How Kafka Foresaw the Juggernaut State)
Jack Rasmus
Hillary’s Ghosts
Brian Cloughley
Billions Down the Afghan Drain
Lawrence Davidson
True Believers and the U.S. Election
Matt Peppe
Taking a Knee: Resisting Enforced Patriotism
FacebookTwitterGoogle+RedditEmail
[i]
[i]
[i]
[i]