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.

 

Weekend Edition
May 06, 2016
Friday - Sunday
Dave Wagner
When Liberals Run Out of Patience: the Impolite Exile of Seymour Hersh
John Stauber
Strange Bedfellows: the Bizarre Coalition of Kochs, Neocons and Democrats Allied Against Trump and His #FUvoters
Rob Urie
Hillary Clinton and the End of the Democratic Party
Joshua Frank
Afghanistan: Bombing the Land of the Snow Leopard
Bill Martin
Fear of Trump: Annals of Parliamentary Cretinism
Doug Johnson Hatlem
NYC Board of Elections Suspends 2nd Official, Delays Hillary Clinton v. Bernie Sanders Results Certification
Carol Miller
Pretending the Democratic Party Platform Matters
Paul Street
Hey, Bernie, Leave Them Kids Alone
Tamara Pearson
Mexico Already Has a Giant Wall, and a Mining Company Helped to Build It
Paul Craig Roberts
Somnolent Europe, Russia, and China
Dave Lindorff
Bringing the Sanders ‘Revolution’ to Philly’s Streets
Margaret Kimberley
Obama’s Last Gasp Imperialism
Carmelo Ruiz
The New Wave of Repression in Puerto Rico
Jack Denton
Prison Labor Strike in Alabama: “We Will No Longer Contribute to Our Own Oppression”
Jeffrey St. Clair
David Bowie’s 100 Favorite Books, the CounterPunch Connection
David Rosen
Poverty in America: the Deepening Crisis
Pepe Escobar
NATO on Trade, in Europe and Asia, is Doomed
Pete Dolack
Another Goodbye to Democracy if Transatlantic Partnership is Passed
Carla Blank
Prince: Pain and Dance
Gabriel Rockhill
Media Blackout on Nuit Debout
Barry Lando
Welcome to the Machine World: the Perfect Technological Storm
Hilary Goodfriend
The Wall Street Journal is Playing Dirty in El Salvador, Again
Frank Stricker
Ready for the Coming Assault on Social Security? Five Things Paul Ryan and Friends Don’t Want You to Think About
Robert Gordon
Beyond the Wall: an In-Depth Look at U.S. Immigration Policy
Roger Annis
City at the Heart of the Alberta Tar Sands Burning to the Ground
Simon Jones
RISE: New Politics for a Tired Scotland
Rob Hager
After Indiana: Sanders Wins another Purple State, But Remains Lost in a Haze of Bad Strategy and Rigged Delegate Math
Howard Lisnoff
Father Daniel Berrigan, Anti-war Hero With a Huge Blindspot
Adam Bartley
Australia-China Relations and the Politics of Canberra’s Submarine Deal
Nyla Ali Khan
The Complexity of the Kashmir Issue: “Conflict Can and Should be Handled Constructively
Josh Hoxie
American Tax Havens: Elites Don’t Have to go to Panama to Hide Their Money–They’ve Got Delaware
Ramzy Baroud
The Spirit of Nelson Mandela in Palestine: Is His Real Legacy Being Upheld?
Alli McCracken - Raed Jarrar
#IsraelSaudi: A Match Made in Hell
George Wuerthner
Working Wilderness and Other Code Words
Robert Koehler
Cowardice and Exoneration in Kunduz
Ron Jacobs
Psychedelic Rangers Extraordinaire
Missy Comley Beattie
It’s a Shit Show!
David Macaray
Our Best Weapon Is Being Systematically Eliminated
Colin Todhunter
Future Options: From Militarism and Monsanto to Gandhi and Bhaskar Save
Binoy Kampmark
The Trump Train Chugs Along
Cesar Chelala
A Lesson of Auschwitz
John Laforge
Dan Berrigan, 1921 – 2016: “We Haven’t Lost, Because We Haven’t Given Up.”
Norman Trabulsy Jr
John Denver and My 40th High School Reunion
Charles R. Larson
Being Gay in China, Circa 1987
David Yearsley
Skepticism, Irony, and Doubt: Williams on Bach
FacebookTwitterGoogle+RedditEmail