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:
Weekend Edition
July 22, 2016
Friday - Sunday
Jeffrey St. Clair
Good as Goldman: Hillary and Wall Street
Joseph E. Lowndes
From Silent Majority to White-Hot Rage: Observations from Cleveland
Paul Street
Political Correctness: Handle with Care
Richard Moser
Actions Express Priorities: 40 Years of Failed Lesser Evil Voting
Eric Draitser
Hillary and Tim Kaine: a Match Made on Wall Street
Conn Hallinan
The Big Boom: Nukes And NATO
Ron Jacobs
Exacerbate the Split in the Ruling Class
Jill Stein
After US Airstrikes Kill 73 in Syria, It’s Time to End Military Assaults that Breed Terrorism
Jack Rasmus
Trump, Trade and Working Class Discontent
John Feffer
Could a Military Coup Happen Here?
Jeffrey St. Clair
Late Night, Wine-Soaked Thoughts on Trump’s Jeremiad
Andrew Levine
Vice Presidents: What Are They Good For?
Michael Lukas
Law, Order, and the Disciplining of Black Bodies at the Republican National Convention
David Swanson
Top 10 Reasons Why It’s Just Fine for U.S. to Blow Up Children
Victor Grossman
Horror News, This Time From Munich
Margaret Kimberley
Gavin Long’s Last Words
Mark Weisbrot
Confidence and the Degradation of Brazil
Brian Cloughley
Boris Johnson: Britain’s Lying Buffoon
Lawrence Reichard
A Global Crossroad
Kevin Schwartz
Beyond 28 Pages: Saudi Arabia and the West
Charles Pierson
The Courage of Kalyn Chapman James
Michael Brenner
Terrorism Redux
Bruce Lerro
Being Inconvenienced While Minding My Own Business: Liberals and the Social Contract Theory of Violence
Mark Dunbar
The Politics of Jeremy Corbyn
Binoy Kampmark
Laura Ingraham and Trumpism
Uri Avnery
The Great Rift
Nicholas Buccola
What’s the Matter with What Ted Said?
Aidan O'Brien
Thank Allah for Western Democracy, Despondency and Defeat
Joseph Natoli
The Politics of Crazy and Stupid
Sher Ali Khan
Empirocracy
Nauman Sadiq
A House Divided: Turkey’s Failed Coup Plot
Franklin Lamb
A Roadmap for Lebanon to Grant Civil Rights for Palestinian Refugees in Lebanon
Colin Todhunter
Power and the Bomb: Conducting International Relations with the Threat of Mass Murder
Michael Barker
UK Labour’s Rightwing Select Corporate Lobbyist to Oppose Jeremy Corbyn
Graham Peebles
Brexit, Trump and Lots of Anger
Anhvinh Doanvo
Civilian Deaths, Iraq, Syria, ISIS and Drones
Christopher Brauchli
Kansas and the Phantom Voters
Peter Lee
Gavin Long’s Manifesto and the Politics of “Terrorism”
Missy Comley Beattie
An Alarmingly Ignorant Fuck
Robert Koehler
Volatile America
Adam Vogal
Why Black Lives Matter To Me
Raouf Halaby
It Is Not Plagiarism, Y’all
Rev. Jeff Hood
Deliver Us From Babel
Frances Madeson
Juvenile Life Without Parole, Captured in ‘Natural Life’
Charles R. Larson
Review: Han Kang’s “The Vegetarian”
FacebookTwitterGoogle+RedditEmail