The Debt Crisis : From Europe to Where?

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The Debt Crisis : From Europe to Where?

2 The Debt Crisis: From Europe to Where?

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The Debt Crisis:

From Europe to Where?

Damien Millet,Daniel Munevar,

Eric Toussaint, Renaud Vivien

Editors

Sushovan Dhar

Sundara Babu Nagappan

Vikas Adhyayan Kendra


Vikas Adhyayan Kendra (VAK) established in 1982, is a secularorganization engaged in the study on contemporary social issuesaffecting the masses and serving as a critique of current dominantdevelopment paradigm.

The Debt Crisis: From Europe to Where?

Authors:

Damien Millet,Daniel Munevar,Eric Toussaint, Renaud Vivien

Editors:

Sushovan Dhar, Sundara Babu Nagappan

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Vikas Adhyayan KendraD-1, Shivdham, 62 Link RoadMalad West, Mumbai 400 064, INDIAPh: + 91 - 22 - 2882 2850 / 2889 8662Fax: + 91 - 22 - 2889 8941Email: [email protected]: www.vakindia.org

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charge. Solidarity contributions are welcome.

Disclaimer: Views and opinions expressed in this study are those of

the authors and are not necessarily of the editors or VAK.

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Contents

1 . Editors’ Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2. Prologue: The CADTM,20 Years of Struggle . . . . . . . . 1 1for the oppressed- Eric Toussaint

3. Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 7- Eric Toussaint

European Capitalism in Crisis

4. Greece: The Very Ssymbol of Illegitimate Debt . . . . . . 2 1- Eric Toussaint

5. Europe Gets Shock Therapy like Latin America in . . 30the 1980s and 1990s- Eric Toussaint interviewed byCarlos Alonso Bedoya

6. Greece, Ireland and Portugal: why agreements . . . . 36with the Troika are odious- Renaud Vivien & Eric Toussaint

7 . Greece: The IMF and Lagarde get it wrong . . . . . . . . . 42- Eric Toussaint & Damien Millet

8. Loans accorded by the Troika are illegitimate . . . . . . 46- Eric Toussaint interviewed by Ana Benaèiæ

9. In the Eye of the Storm: the Debt Crisis in the . . . . . . 54European Union- Eric Toussaint interviewed by the CADTM

10. Now approaching Spain, the Bank Hurricane . . . . . . . 80Continues along its Path of Destruction- Eric Toussaint

The Global Context

11 . G20: The Symbol of a System Failure . . . . . . . . . . . . . 85- Eric Toussaint

12. Barack Obama: The Change that didn’t happen . . . . . 90- Eric Toussaint & Daniel Munevar


Resistance & Alternatives

13. The International Context of the Global Outrage . . . 99- Eric Toussaint

14. Seismic Election Results in Greece . . . . . . . . . . . . . . . . 114- Eric Toussaint

15. Do we need a Public Debt? . . . . . . . . . . . . . . . . . . . . . . 1 1 7- Damien Millet & Eric Toussaint

16. Our AAA : Audit, Action, Abolition . . . . . . . . . . . . . . . 119- Damien Millet & Eric Toussaint

1 7 . Europe: What Emergency Programme for the Crisis?121- Damien Millet & Eric Toussaint

End Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

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Editors’ Note“The Euro is the fly-wheel of this multiple-speedGrossEuropäische economy. For Germany, the Eurofunctions as a streamlined Deutschmark which, because itis less vulnerable to sudden appreciation, ensures thecompetitive pricing of German exports while subtractinglittle from Berlin’s de facto veto power inside the EUeconomy. For southern Europeans, on the other hand, itis a Faustian bargain that attracts capital in good timesbut abdicates the use of monetary tools to combat tradedeficits and unemployment in bad. Now that the Iberianand Hellenic pox has infected Italy and threatens France,a hard-love vision of Euro-Europe is emerging from Berlinand Paris: fiscal integration via treaty revision. Havingalready lost control over monetary policy and been forcedto defoliate their public sectors under supervision of EUand IMF technicians, the debtor countries are now beingasked to accept a permanent Franco-German veto overtheir budgets and public spending. In the nineteenthcentury, Britain frequently sent its gunboats to imposesuch receiverships on defaulting countries in LatinAmerica or Asia. The Allies yoked Germany in a similarfashion at Versailles and thus sowed the Third Reich.”

Excerpts from “Spring Confronts Winter”by Mike Davis

New Left Review #72, November-December 2011

The European debt crisis has engulfed a large part of thecontinent as well as the political and monetary union. There isa strain to repay the debts it has built-up in recent decades.Greece, Portugal, Ireland, Italy, and Spain –all have, to varyingdegrees, failed to oblige bondholders the guarantee it wasproposed to be. Even if the ‘Famous Five’ appear on the horizonof an imminent catastrophe, the tragedy has across-the-boardconsequences that expand beyond their frontiers to the entireworld. So much that Sir Mervyn King, the head of the Bank ofEngland, in October 2011, termed it as “the most seriousfinancial crisis at least since the 1930s, if not ever.”1

Towards the end of the previous decade, with the outburst of thesovereign debt-crisis, the Greek socio-economic model collapsed


from the tip to toe. The Greek paradigm from 1994 included highpublic indebtedness as a core element. It seems that a difficulttransition from a ‘state-led familistic to a liberal, partly de-familialised capitalism’2 was taking place. However, that ‘modelin transition’ hit roadblocks due to the global financial crisis andthe structural debility of the European Monetary Union. In spiteof several attempts to classify the Hellenic crisis as purely aninternal matter, it would be hard to deny that without theinvolvement of the European financial and industrial capital,things of such magnitude were hard to take place. On the ground,they actively encouraged the Greek state to borrow incessantly.Triggered by the debt-crisis, more money was pumped intoGreece from the Euro Zone and the IMF as conditional loanslinked with structural adjustments. The conditions aimed at fiscalconsolidation through ‘austerity measures’ leading to budgetarycuts largely targeting social benefits. The successive politicaland economic course of action taken since the last two yearsexacerbated a profound and extended downturn that has almosteroded the Greek fiscal and productive foundations. It alsohampered the debt sustainability and disturbed the lives ofmillions. Unemployment, continuous loss of income, uncertainexistence, and enduring anxiety where the horizon only appearbleak, are the order of the day. Moreover, with a state that has‘limited’ its role and the employment model thrown out of gear,the neo-liberal project in Greece completed a full-circle.

Europe stands in front of a similar damage by structuraladjustments and forced austerity that Latin America wentthrough in the 1980s. The quirks of fate are obviously vicious.Even though north-central Europe has all of a sudden developedan acute case of amnesia, a few years ago the business & financialmedia was all in admiration of Spain, Portugal and even Greecefor their aptitude in clipping public spending and boostinggrowth rates. In the direct aftermath of the Wall Street fiasco,the uncertainties of the continent was predominantly focusedon Ireland, the Baltic and Eastern Europe. The Mediterraneanas a whole was perceived as reasonably well-sheltered fromthe financial tsunami crossing the Atlantic at supersonicvelocity.

Amidst the chaos that has descended in the Hellenic Republicbut not exclusively limited to it, various voices spurt up. In

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spite of a range of opinions pinning and underpinning each other,a tide of ideas runs through, sometimes like a storm, in publicmeetings, seminars, discussions and above all in the streets ofthe debt-ridden countries of the Old Continent. When protestersdemand the banks to pay, in the streets and public squares ofAthens, Thessaloniki, Madrid, Barcelona, Milan, Rome, Lisbonand in myriad cities it is evident that countless numbers arecoming close to an idea that has gained recognition due to thecrisis. The idea of “illegitimate” or “odious” debt!

The doctrine of odious debt first proposed by a Russian jurist,Alexander Sack in 1927, repeatedly echoes in the deliberationsaround the debt issue in countries of the South since the late1990s. It’s applicable for all loans consciously disbursed tocorrupt or dictatorial regimes, for objectives that the massesdon’t stand to gain. Therefore, the countervailing action is toobliterate the debt with the fall of the despot. It was invoked inIraq to cancel the debts contracted by the Saddam Husseinregime; Ecuador used it to cancel some of the loans a few yearsback. The term has now found its way to Europe and is beingembraced by swelling ranks and, which is snowballing.

On the other hand we have heard the German politiciansinsisting the Greek government pay-off its debts by selling itsislands and perhaps throw some ancient ruins into the bargain.It was so embarrassing for the then Greek Prime Minister,George Papandreou that he was obliged to make a publicclarification denying the idea of actually considering sellingany islands.

Amidst various claims and counter-claims, the idea to compile‘The Debt Crisis: From Europe to Where?’ was to orientthe readers back home about multiple facets of the deepeningcrisis that they are unaware of. The crisis as explained by EricToussaint, Damien Millet, Renaud Vivien & Daniel Munevar arescarcely touched by the corporate-controlled media andmainstream academics. It’s unfortunate but a hard reality thatthe media continues to project the crisis, primarily from the pointof view of the bankers and capitalists. Hence this modest attemptin the form this collection, to introduce the readers, scholars,students and activists, to the ‘other’ side of the politico-economicreality. In attempting to do so, we are fully aware that to producesomething on such issues at these critical times when one

Editor’s Note


catastrophe befalls over another is a little tricky. It was reallychallenging to finish the compilation since new events were takingprecedence over the others rapidly. However, when we initiatedthis effort we were hopeful that we would be able to present acoherent and cogent analysis of the recent happenings.

The current crisis in Europe and also the overall global crisisfrom which perhaps no “national” domains are excluded havemultiple dimensions. Apart from the economic policies, thereare shifting models on the basis of which different economiesand labour markets under capitalism are structured. Theconcomitant shift in welfare regimes, labour markets, nationalproduction systems, the combination of ‘financialisation’ andthe weakening of regulatory and welfare institutions withinmost European countries, have given rise to seriousdiscrimination within the European Union itself and also furthercontributed to inequity in the global economy.

The emphasis of the present collection from Vikas AdhyayanKendra (VAK) is to clearly reveal the ill-advised economicpolicy approaches which are currently leading the Euro Zoneand the rest of the world towards disaster. As in the past, VAKwould like to continue to play the role of the interface betweenthe academia and the activists. This is also an attempt tocritically feed into the contemporary mainstream discoursesthat intend to understand the approaching crisis. We hope ‘TheDebt Crisis: From Europe to Where?’ serves the purposesuccessfully.

We thank all the authors and translators for their contributionto this collection. We particularly thank Dr Eric Toussaint forguiding the compilation with attention and care. His suggestionsand advices proved extremely useful for this compendium. DrSandeep Pendse deserves special thanks for providing valuableideas. Dr.Lesile Rodricks & Wasim Shaikh for reading throughthe texts and offering us important inputs. We are deeplygrateful to Suresh Shelke and Alice Abraham, without whomthe present work could not have seen the light.

— Sundara Babu Nagappan & Sushovan Dhar

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Prologue:The CADTM, 20 years of struggle

for the oppressed

— Eric Toussaint

1 . The Committee for the Abolition of Third World Debt(CADTM www.cadtm.org) has been active for 20 years inits combat against debt, which is a powerful instrument ofdomination used by creditors to extract money from thepoor. Focusing on this intrinsic issue, the CADTM hastirelessly forged links with the worldwide struggles onvarious themes, in order to make an overall analysis ofthe capitalist system and propose alternatives3. 20 yearsafter its creation, today the CADTM is an internationalhorizontal network present in more than 30 countriesspanning 4 continents4.

2 . The CADTM is convinced that there will not be any globalrevolutionary change without numerous local struggles.Therefore, local struggles (in the neighbourhood, city,region...) are essential, but to be effective must also besystematically linked to the international one, and vice-versa.

3 . Since its inception, the CADTM has made it a point ofhonour to invite representatives of movements from thefour corners of the world to public events, to fosterconvergence. Thus it has invited striking factory workersfrom Belgium (for example, steelworkers from the ClabecqSteel Mill who engaged in an exemplary and difficult strike),representatives of the Zapatista movement from Mexico,Rosario Ibarra, a Mexican human rights activist, VandanaShiva, a feminist from India at the forefront of the ecologistmovement, representatives of the indigenous movementfrom Ecuador, representatives of the Landless WorkersMovement from Brazil, a great number of activists fromAfrica, Lidy Nacpil (the Philippines), and Beverly Keene(Argentina) of Jubilee South, Adolfo Perez Esquivel(Argentina)- Nobel Peace prize winner, René Dumont-agronomist, activist and environmentalist, Bishop JacquesGaillot, who was dealt a blow by the Vatican for his radicalstruggle for the oppressed, the geneticist Albert Jacquard,


Abraham Serfaty from Morocco, Michel Chossudovskyfrom Canada, Alejandro Olmos from Argentina, and manyother representatives of the movements for another world.

4 . On the basis of its analysis of debt and a conviction that apowerful movement for alternative globaliastion neededto be strengthened, the CADTM had participated veryactively in the creation of the World Social Forum in PortoAlegre in Brazil in 2001. It helped to strengthen the worldassembly of social movements, participated in thefoundation of the Belgian Social Forum (and memberorganisations of the CADTM international network did thesame in their respective countries) and the EuropeanSocial Forum. Its goal was to build tools for transformingthe world. In this respect, our record is very worthy,although much remains to be done. We must continue tofight tirelessly and enthusiastically.

5 . The CADTM is an international social movement, whichexplains why its programmes and objectives are differentthan other NGOs. The financing of NGOs depends on theiraction plan. So, many NGOs regularly change the themesof their action plan, for example, from decent workingconditions to food sovereignty, third world debt to climatechange.

The CADTM wants to develop a thematic continuity whileactively supporting others in their combats. It has triedto participate in a number of struggles, constantly drawingothers’ attention to the fundamental importance of debt.The CADTM’s challenge has been that other movements,such as the World March of Women (WMW), incorporatethe issue of debt in their analyses and actions. At the sametime, the CADTM has integrated the feminist struggle inits own analysis, daily practice, and action plan. This isjust one example – we could mention many others – suchas the participation in the struggle for climate justice,promotion of human rights (political, civil, economic,social, and cultural, which are indivisible), foodsovereignty, demilitarisation ... and many others equallyimportant that I have forgotten to mention.

6. After all these years spent struggling for debt cancellation;today we can see that the central issue in Europeancountries is public debt, in the sense that all social and

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economic policies adopted by governments are based onthe excuse of the recent explosion of public debt. This isan attempt to impose real structural adjustment plans,accompanied by systematic violations of fundamentalsocial rights. Whether we are in Belgium, Romania, France,Spain, Greece, Poland, Great Britain, or Ireland, publicdebt has become a crucial issue in the EU and beyond.Debt is a vital concern for people in developing countriesof the world, and it has also come to the forefront in theNorth. In the present context, our approach, whichbrought together the struggles in the North and South,has gained in legitimacy.

7 . The CADTM has gained the expertise required to helpsocial movements. Many think-tanks, research bureau(even politically leftwing ones) prioritise lobbying in orderto influence governments, ministers, parliamentarians,and directors of institutions like the World Bank and theInternational Monetary Fund. They provide research andadvocacy targeting major players, such as governmentsand directors of powerful institutions.

Our option was to take sides with the social movements,to produce a meaningful analysis, and to provide it tocitizens in grassroots organisations and associations: the“civil society from below” as Francois Houtart would say.This has a ‘multiplier effect,’ because if this analysis is reallytaken into account by social movements and by civilsociety from below, then it percolates into the seats ofpower, because a power relationship is formed. Thisbecomes a theme that is a focus of public opinion, a themeof grassroots mobilisation in the streets. Then politicalauthorities are forced to take note.

8. When international financial institutions (WB, IMF) inviteNGOs and other components of civil society, they just wantto pose before the cameras to make us believe that theyare participating in a genuine dialogue! Representativesof the IFIs adopt a hollow and noisy rhetoric. They wantto give us the impression that they have understood theirmistakes. They perform their act of contrition and assureus that they are changing their modus operandi, but inreality they apply the same completely market- andexport-oriented neo-liberal logic. The CADTM is willing

Prologue


to engage in public debates with these institutions,especially in order to make them accountable and toimprove public knowledge through these exchanges.However, the CADTM refuses to sit on their permanentconsultation bodies, because the CADTM refuses to bemanipulated.

9. The CADTM has tried to establish unity amongorganisations working on the same issue, even if they havedifferent points of view. This applies to Jubilee South,whose work we have supported since its inception in 1999.This also applies to Eurodad, a Brussels-basedorganisation, which prioritises lobbying. This applies toLatindadd, a Latin American network based in Peru. Thisapplies to all movements striving for a solution to the debtproblem. Since 2007, we have been contributing to apermanent coordination among all movements workingon the debt issue in developing countries. We have alsosucceeded in holding together an annual Global Week ofAction against Debt and IFIs. Although we do not haveexactly the same approach in terms of the content or ouranalysis and demands, although our strategies differ, thishas never prevented us from trying to work together,because it is the best way to achieve results. Our opponentsseek to divide us in order to win the battle. That is why wemust strive for unity. Not at any price, of course; however,we must make an extremely important effort to achieveunity among different movements working on the sameissue.

1 0 . It is also essential to find convergence amongorganisations working on different themes and organiseddifferently (Via Campesina, labour unions, ATTAC). Theremust be a convergence among the men and women whoplace their priority on issues such as human rights andwomen’s liberation. Left-wing political parties, socialmovements, civic organisations, and NGOs must worktogether to bring about change. In that perspective, weconvened a meeting on 29 September 2010 in Brussels. Itwas a meeting of all social movements, citizens andpolitical parties who are ready to protest in Europe againstthe use of public debt as an excuse for implementingausterity plans. Political parties and social movementswith different opinions met around the table, especially

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to convene a major European conference in 2011 againstdebt and austerity policies. There should also be unityamong the people in the North and South. That is anessential aspect of our approach. The CADTM exerts agreat deal of energy in order to make the North hear thevoices of the South- The Other Voices of the Planet.

1 1 . In this globalised capitalist world, there is a host of peoplewhose moral compass, life values, and world view do notrevolve around the market, private property, and theaccumulation of personal wealth. They have madethemselves heard through their activities towardsrejecting capitalism and bloodletting neo-liberal policies.This is particularly true of the indigenous peoples, forexample those in Latin America.

In the North, some communities have also maintainedanother type of lifestyle vis-à-vis the capitalist mindset.Sectors of the population, especially among the youth,are trying to break with the productivist logic of capitalismthrough their struggles and lifestyles. We could alsomention the networks of solidarity economy and trade inservices. The other world towards which we are striving ispartially based on that. Of course, in order to make thatother world come true, we need a true revolution in allareas.

1 2 . Has our work really been useful in any way beyond simplyraising consciousness? The answer is yes. We contributedsolidly to the implementation of the Ecuadorian debt auditin 2007-2008, from the moment the government of thatcountry decided to take unilateral and sovereign actionto work towards solving the problem of debt repayment,which at that time represented 38% of the state budget. Inthat sense, our work has been very useful, since part ofEcuador’s debt was eliminated ($3.2 billion, plus theinterest which was due until 2030). We have contributed,albeit modestly, to the fact that Ecuador’s newConstitution contains a series of Articles aimed atpreventing any future dependence on government debt.Just before this audit, we had contributed to Paraguay’sdecision for repudiating in 2005 an illegal debt owed toSwiss banks. The CADTM has also provided its adviceregarding the establishment of a Bank of the South for 7

Prologue


Latin American countries (Argentina, Bolivia, Brazil,Ecuador, Paraguay, Uruguay, and Venezuela) whoseactivity should commence shortly. The fact is whenprogressive governments have asked for our assistance,we have been ready to assume our responsibilities. Thathas never prevented us from criticising them.Furthermore, the CADTM has developed expertise ondebt and its alternatives, and can provide effective toolsto any organisation or government willing to genuinelyconfront debt issues.

1 3 . The CADTM has a moral compass and a guiding principle:to be at the sides of the exploited or oppressed wheneverand wherever it is required. In all our activities, includingwhen we plan to support certain leftist governments as isthe case in Latin America, our basic criterion is: have wehelped exploited men and women to make some progresstowards their emancipation? If the answer is yes, then weimmediately come to their aid!

— Translated bySuchandra De Sarkar & Charles La Via

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Preface

—Eric Toussaint

The editors have chosen an excellent title for this book “TheDebt Crisis: From Europe to Where?” which incorporates aseries of analyses written mainly in 2011 - 2012. The epicentreof the crisis that began in the United States in 2007 shifted toEurope in 2010 and it is necessary to ask the questions: whereis this crisis leading to? How will the rest of the world be affected?

The combined effect of a crisis of overproduction in the realestate sector in the U.S., as well as the banking and financialcrisis of great magnitude produced the economic and socialdisaster. The banking and financial crisis was itself caused bythe deregulation of the financial sector launched by thesuccessive governments in the U.S. and Europe starting fromthe widespread introduction of neo-liberal policies in the 1980s.This deregulation allowed large banks and major insurancecompanies to develop derivatives and structured products thatare powerful weapons of mass destruction. These bombs beganto explode in 2007 and the explosions are not yet over. Thecurrent crisis is clearly a major crisis of the capitalist system.The current governments benefit from it, since they can applyshock therapy. The policies they are developing will prolongand aggravate the crisis.

The European Union (EU) stands at the centre of the crisisbecause when it was formed with 27 countries, the interests ofbig capital had dominated their integration. In any case, largecompanies are not interested in reducing the differences amongthe various European economies: the gap between the legalminimum wage in Bulgaria and that in France is 12. This gap is3 or 4 in the interiors of South Asia and the same goes for LatinAmerica. Aided and abetted by European leaders, large privatecompanies operating in the EU derive maximum benefits: notaxes for the flow of their goods and services and the possibilityto exploit the huge differences in wages among workers withinthe single European market (500 million residents). To sumup, how European integration is accomplished determine theCentre/Periphery relations in Europe. This is great for theemployers but at the same time it makes economically weaker


countries vulnerable vis-à-vis the international crisis.Particularly, Greece, Ireland, Portugal, Spain, Italy, Latvia,Romania, Bulgaria, Cyprus and Hungary are affected by theEU’s menacing crisis and the list will extend in the months andyears to come.

The history of the last two centuries has taught us that a debtcrisis erupting in the economies of the capitalist Centre havesooner or later a negative impact on the economies of thePeriphery, because the ebb and flow of capital caused by theCentre’s economies stir up the international economy. Since2004, high prices of raw materials and low international interestrates combined with China’s impressive growth have protectedthe emerging markets from the most destructive effects of thebanking and financial crisis of the countries of the Centre. Theemerging economies have accumulated large foreign reservesthat may play the role of shock absorbers in the case of capitaloutflow from the Periphery to the Centre. Countries like Indiaand China are also partially protected by the fact that theirbanking system is not under the control of the Centre’s majorinternational private banks. Still it would be wrong to assumethat this time the disasters caused by large private companies inthe countries of the Centre and also by the North American andEuropean political leaders will have no consequence for theeconomies of the peripheries. Similarly, it is clear that the globalcapitalist system is also causing the climate and food crisesgravely affecting the planet’s poorest people. We must thereforerespond by breaking away with the system. To return to theEuropean debt crisis - the focus of this book published by VikasAdhyayan Kendra - there are several key lessons learned: - theneed for a clear break with the capitalist system and the need toshift most of the economic activities to the domain of commongoods; a deep collaboration of existing interests between thepeoples of the planet’s North and South (Centre and thePeriphery) that have been subjected to the dramaticconsequences of the debt system and international institutions(such as the IMF and World Bank, who have specialised in themanagement of financial crises); the need to jointly oppose allthe offensives of Capital against Labour and for that purpose, tobuild a powerful front of the oppressed men and women, acollective of the 99% against the 1% dominating the planet.

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Greece: The very symbol ofillegitimate debt

— Eric Toussaint

The Greek public debt made the headlines when the country’sleaders accepted the austerity measures demanded by the IMFand the European Union, sparking very significant socialstruggles throughout 2010. But where does this Greek debtcome from? As regards the debt incurred by the private sector,the increase has been recent: the first surge came about withthe integration of Greece into the Euro Zone in 2001. A seconddebt explosion was triggered in 2007 when financial aid grantedto banks by the US Federal Reserve, European governmentsand the European Central Bank was recycled by bankerstowards Greece and other countries like Spain and Portugal.As regards public debt, the increase stretches over a longerperiod. In addition to the debt inherited from the dictatorshipof the colonels, borrowing since the 1990s has served to fill thevoid created in public finances by lower taxation on companiesand high incomes. Furthermore, for decades, many loans havefinanced the purchasing of military equipment, mainly fromFrance, Germany and the United States. And one must notforget the colossal debt incurred by the public authorities forthe organisation of the Olympic Games in 2004. The spirallingof public debt was further fuelled by bribes from majortransnationals to obtain contracts, Siemens being anemblematic example.

This is why the legitimacy and legality of Greece’s debts shouldbe the subject of rigorous scrutiny, following the example ofEcuador’s comprehensive audit commission of public debts in2007-2008. Debts defined as illegitimate, odious or illegalwould be declared null and void and Greece could refuse torepay, while demanding that those who contracted these debtsbe brought to justice. Some encouraging signs from Greeceindicate that the re-challenging of debt has become a centralissue and the demand for an audit commission is gaining ground.


Factors proving the illegitimacy of Greece’s publicdebt

Firstly, there is the debt contracted by the military dictatorshipand which quadrupled between 1967 and 1974. This obviouslyqualifies as odious debt.5

Next, we have the Olympic Games scandal of 2004. Accordingto Dave Zirin, when the government proudly announced toGreek citizens in 1997 that Greece would have the honour ofhosting the Olympic Games seven years hence, the authoritiesof Athens and the International Olympic Committee plannedon spending 1.3 billion dollars. A few years later, the cost hadincreased fourfold to 5.3 billion dollars. Just after the Games,the official cost had reached 14.2 billion dollars.6 Today,according to different sources, the real cost is over 20 billiondollars.

Many contracts signed between the Greek authorities and majorprivate foreign companies have been the subject of scandal forseveral years in Greece. These contracts have led to an increasein debt. Here are some examples which have made the mainnews in Greece:

— several contracts were signed with the German transnationalSiemens, accused - both by the German as well as the Greekcourts - of having paid commissions and other bribes to variouspolitical, military and administrative Greek officials amountingto almost one billion Euros. The top executive of the firmSiemens-Hellas,7 who admitted to having “financed” the twomain Greek political parties, fled in 2010 to Germany and theGerman courts rejected Greece’s demand for extradition. Thesescandals include the sales, made by Siemens and theirinternational associates, of Patriot antimissile systems (1999,10 million Euros in bribes), the digitalisation of the OTE - theHellenic Telecommunications Organisation - telephone centres(bribes of 100 million Euros), the “C41” security system boughton the occasion of the 2004 Olympics and which never worked,sales of equipment to the Greek railway (SEK), of the Hermestelecommunications system to the Greek army, of veryexpensive equipment sold to Greek hospitals.

— The scandal of German submarines (produced by HDW, latertaken over by Thyssen) for a total value of 5 billion Euros,

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submarines which from the beginning had the defect of beingtilting to the left (!) and which were equipped with faultyelectronics. A judicial enquiry on possible charges (ofcorruption) against the former defence ministers is currentlyunder way.

It is absolutely reasonable to presume that the debts incurredto clinch these deals are founded in illegitimacy, if not illegality.They must thus be cancelled.

Beside the above-mentioned cases, one must also consider therecent evolution of the Greek debt.

The rapid rise in debt over the last decade

Debt in the private sector has largely developed in the firstdecade of the century. Households, to whom the banks and thewhole private commercial sector (mass distribution, theautomobile and construction industries, etc.) offered verytempting conditions, went massively into debt, as did the non-financial companies and the banks which could borrow at lowcost (low interest rates and higher inflation than for the mostindustrialised countries of the European Union like Germany,France, the Benelux countries and Great Britain). This privatedebt was the driving force of the Greek economy. The Greekbanks (and the Greek branches of foreign banks), thanks to astrong Euro, could expand their international activities andcheaply finance their national activities. They took out loansby the dozen. Chart I on next page shows that Greece’s accessionto the Euro Zone in 2001 has boosted an inflow of financialcapital, which can be in the form of loans or portfolioinvestments (Non-FDI in chart I, i.e. inflows which do notcorrespond to long term investments) while the long terminvestments (FDI- Foreign Direct Investment) have remainedstagnant.

With the vast amounts of liquidity made available by the centralbanks in 2007-2009, the Western European banks (above allthe German and French banks, but also the Belgian, Dutch,British, Luxembourg and Irish banks) lent extensively toGreece (to the private sector and to the public authorities).One must also take into account that the accession of Greece tothe Euro bolstered the faith of Western European bankers who



thought that the big European countries would come to theiraid in case of a problem. They did not worry about Greece’sability to repay the capital lent in the medium term. The bankersconsidered that they could take very high risks in Greece.History seems to have proved them right up to that point. TheEuropean Commission and, in particular, the French andGerman governments have given their unfailing support to theprivate banks of Western Europe. In doing so, the Europeangovernments have placed their own public finances in aperilious situation.

Chart I

In Chart II below we see that the countries of Western Europefirst increased their loans to Greece between December 2005and March 2007 (during this period, the volume of loans grewby 50%, from less than 80 billion to 120 billion dollars). Afterthe subprime crisis started in the United States, the loansincreased dramatically once again (+33%) between June 2007and the summer of 2008 (from 120 to 160 billion dollars).Then they stayed at a very high level (about 120 billion dollars).This means that the private banks of Western Europe used themoney which was lent in vast quantities and at low cost by theEuropean Central Bank and the US Federal Reserve in order toincrease their own loans to countries such as Greece.9 Overthere, where the rates were higher, they could make juicyprofits. Private banks are therefore in large part responsiblefor Greece’s excessive debt.

In $ million. Source: IMF

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Chart II

Evolution of Western European banks’ exposure toGreece

(In billion dollars)

Source: BIS consolidated statistics, ultimate risk basis10

As shown in Chart III below, Greek debts are overwhelminglyheld by European banks, mostly French, German, Italian, Belgian,Dutch, Luxembourg and British banks.

Chart III

Foreign holders (almost exclusively foreign banks and

other financial companies) of Greek debt securities

(end of 2008)11



Greek citizens have every right to expect the debt burden to beradically reduced, which means that the bankers must be forcedto write off debts from their ledgers.

The odious attitude of the European Commission

After the crisis broke, the military-industrial lobby supportedby the German and French governments and the EuropeanCommission saw to it that hardly a dent was made in the defencebudget while at the same time, the PASOK (Socialist Party)government set about trimming social spending (see the boxon austerity measures below). Yet at the beginning of 2010, atthe height of the Greek crisis, Recep Tayyip Erdogan, PrimeMinister of Turkey, a country which has a tense relationshipwith its Greek neighbour, visited Athens and proposed a 20%cut in the military budget of both countries. The Greekgovernment failed to grab the bait thrown to them. They wereunder pressure from the French and German authorities whowere anxious to safeguard their weapons exports. In proportionto the size of its economy, Greece spends far more onarmaments than the other EU countries. Greek militaryspending represents 4% of its GDP, as compared to 2.4% forFrance, 2.7% for the United Kingdom, 2.0% for Portugal, 1.4%for Germany, 1.3% for Spain, and 1.1% for Belgium.12 In 2010,Greece bought six frigates (2.5 billion Euros) and armedhelicopters (400 million Euros) from France. From Germanyit bought six submarines for 5 billion Euros. Between 2005 and2009, Greece was one of Europe’s five largest weaponsimporters. The purchase of fighter aircraft alone accounted for38% of its import volume, with, for instance, the purchase ofsixteen F-16 (from the United States) and twenty-five Mirage2000 (from France) – the latter contract amounting to 1.6 billionEuros. The list of French equipment sold to Greece goes on:armoured vehicles (70 VBL), NH90 helicopters, MICA, Exocetand Scalp missiles as well as Sperwer drones. Greece’spurchases have made it the third biggest client of the Frenchmilitary industry over the past decade.13

From 2010, increasingly high interest rates charged by bankersand other players in the financial markets, supported by theEuropean Commission and the IMF, have triggered the usual“snowball effect” : the Greek debt has followed an upward trend

27

as the country’s authorities take out loans in order to repayinterest (and part of the previously borrowed capital).

The loans granted as from 2010 to Greece by EU membercountries and the IMF will not serve the interests of the Greekpeople - quite the opposite. The austerity measuresimplemented entail numerous infringements of the people’ssocial rights. On those grounds,14 the notion of “illegitimatedebt” should be applied and its repayment contested.

Infringement of social rights and neo-liberal mea-sures implemented in Greece since 2010

Reduction of public sector wages by 20% to 30 %. Cuts innominal wages that could reach 20%, 13th and 14th monthsalaries replaced by an annual lump sum, the amount ofwhich varies according to wages. A freeze on wages overthe next 3 years. In the public sector, 4 out of 5 workerswho retire will not be replaced. In the private sector, mas-sive wage cuts up to 25%.

Unemployment benefits have been cut, and a poverty sup-port scheme implemented in 2009 has been suspended.Drastic cuts in benefits for large families.

Plans to end collective bargaining and imposeindividualised contracts instead. The existing practice ofan extended very low paid or even unpaid internships hasbeen legalised. Resorting to temporary workers is nowpermitted in the public sector.

Employment

Drastic cuts in subsidies to municipalities, leading to masslay-offs of workers. Sacking of 10,000 workers under fixedterm contracts in the public sector. Public companiesshowing a loss to be closed down.

Taxes

Increase in indirect taxation (VAT raised from 19% to 23%and special taxes on fuels, alcohol and tobaccointroduced). Increase from 11% to 13% of the lower VATrate (this concerns staple goods, electricity, water, etc.).



Increased income tax for the middle brackets, but reducedcorporate tax.

Privatisation

Intention to privatise the ports, airports, railways, waterand electricity supply, the financial sector and the landsowned by the State.

Pension schemes

Pensions are to be cut and then frozen. The legal retire-ment age has been increased, the number of years’ contri-butions required to be entitled to full pension benefits willbe set at 40 in 2015 up from 37, and the amount of pen-sion will be calculated on the average wages of the totalworking years and no longer on the last pay. For retiredworkers in the private sectors, the 13th and 14th monthpension payments have been abolished. Spending relatedto pension has been capped to a maximum level of 2.5% ofGDP.

Public transport fares

Price of all public transport fares increased by 30%.

The demand for an audit has gathered momentum

In December 2010, the independent MP Sophia Sakorafa madea speech in the Greek Parliament proposing the creation of aParliamentary Commission to audit the Greek public debt. Thisproposal attracted a great deal of attention.15 Sophia Sakorafa,who was a member of the government party PASOK until a fewmonths ago, voted against the 2011 budget16 partly because ofthe heavy debt repayments. When justifying her brave position,she extensively referred to the audit carried out in Ecuador in2007-2008 which resulted in a significant reduction of thecountry’s debt. She proposed that Greece should follow theEcuadorian example and asserted that there was an alternativeto submitting to creditors, whether IMF or bankers. In makingher case she placed stress on the “odious debt” that should notbe repaid. This stance was widely covered by the media. Againin the Greek parliament, the leader of Synaspismos (one of the

29

radical left parties) Alexis Tsipras also asked for an auditcommission to be set up “so that we know which part of thedebt is odious, illegitimate and illegal.” Greek public opinionis changing and the media are watching.

On 5 December 2010, a leading Greek daily published an op-edby the Greek economist Costas Lapavitsas entitled:“International Audit Commission on the Greek Debt: anImperative Request”. In his conclusion, the author writes: “Theinternational commission will have a privileged scope ofactivity in our country. You only need to think about the debtagreements made with Goldman Sachs’s mediation or intendedto finance the purchase of weapons to see how badly anindependent audit is needed. If they are proved to be odiousor illegal, these debts will thus be declared null and our countrycould refuse to repay them, while taking the people whoincurred them to court.”

On 3 March 2011, economists, activists, academics andparliamentarians from across the world have supported a callto audit Greece’s public debts. The call demands theestablishment of a public commission to examine the legalityand legitimacy of debts with a view to dealing with them as wellholding those responsible for unjust debts to account. There iswidespread anger in Greece because debt has ballooned sincethe crisis of 2007-9. There is also belief that the debt isunsustainable and that austerity measures are forcing thepoorest in society to pay for the economic problems caused bythe crisis. The Greek campaign for a public audit has obviousimportance for Ireland, Portugal, and Spain, and could lead tobroader European action against debt. Trade unions, severalpolitical parties and many intellectuals support this proposalas a means of finding a solution to debt through cancellation onthe one hand, and penalisation of companies and peopleresponsible for this illegitimate debt on the other. It should benoted that a Greek anti-debt committee was set up in 2010.17

These elements are encouraging. 2011 could mark the start ofa welcome change as regards the Left’s ability to devisesolutions to resist the diktat of creditors.

Translated by Francesca Denley and Stéphanie Jacquemontin collaboration with Judith Harris



“Europe Gets Shock Therapy likeLatin America in the 1980s and 1990s”

— Eric Toussaint interviewedby Carlos Alonso Bedoya for

the Peruvian daily paper La Primera

How would you define the predicament of those EU countrieswhich, like Greece, have huge public debts?

Their situation can be compared to that in Latin America duringthe latter 1980s.

In what ways?

The debt crisis in Latin America erupted in 1982. The crisis ofthe private banking sector started in the US and in Europe in2007-2008 and by 2010 had turned into a crisis of thesovereign debt triggered (among other things) by thesocialisation of private banks’ losses18 and by lower taxrevenues as a consequence of the crisis. In Europe, as in LatinAmerica, several years after the beginning of the crisis, privatecreditors and their representatives have managed to imposeconditionalities onto all governments. They force them toimplement brutal adjustment policies that result in cuts inpublic expenditure and a fall in purchasing power for mostpeople. This in turn means that economies sink into permanentrecession.

And yet, even at the worst moments of the crisis, LatinAmerica never reached levels of indebtedness comparable towhat we are now seeing in most Euro Zone countries (over100% of their GDP).

The levels European debt has reached are indeed impressive.In Greece it amounts to 160% of its GDP and several othercountries in the European Union face public debt that amountsto or exceeds 100% of their production. Clearly there aredifferences between the two crises but they are not fundamentalto my comparison.

You mean that your comparison focuses on the politicalconsequences of the two crises?

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Yes, indeed. When I compare the current situation in Europewith the situation in Latin America in the second half of the1980s, I wish to point out that creditors — in the case of Europe,European banks and the Troika — impose measures on Greece(and no doubt on other countries soon) that are stronglyreminiscent of the Brady Plan in Latin America at the end of the1980s.

Could you explain in more detail?

At the end of the 1980s the creditors of Latin America, i.e. theWorld Bank, the IMF and the Paris Club as well as the USTreasury and the London Club for bankers, succeeded inimposing their agenda and their conditions. Private creditorstransferred part of their loans to the multilateral institutionsand to the States via securitisation, i.e. through turning bankloans into securities. Other bank loans were downgraded andwere turned into new fixed-rate securities. So the Brady Planplayed a significant role, both in defending bankers’ interestsand in imposing permanent austerity. The rescue plan forGreece does the same thing: it reduces the value of debt stocks,which will then be swapped for new bonds, as in the Brady Plan.Private banks thus reduce their exposure to Greece (Portugal,Ireland…) as they did with Latin America. Gradually butmassively, public creditors take over and exert enormouspressure to ensure that the new bonds held by banks be fullyrepaid (interest and capital). Every cent of the loans to Greecewill be used to repay its debts. Meanwhile its public creditors(the Troika) demand permanent austerity in terms of socialexpenditure cuts, massive privatisations, regression in termsof economic and social rights, the like of which has not beenseen since the end of the World War II, 65 years ago, and asignificant surrender of sovereignty in those countriesunfortunate enough to have recourse to their loans. In LatinAmerica this period was called “the long neo-liberal night”.

Creditors also forced Latin American countries to reducewages, retirement benefits and social spending, and to complywith the absolute demand that debts had to be repaid.

This is why I am saying that we are in a similar situation. Not allEuropean countries are yet involved; only the weaker linkssuch as Greece, Portugal, Ireland, Italy, Spain, Hungary,



Romania, the Baltic Republics and Bulgaria are. However, thesecountries together account for about 170 million inhabitantsout of the total EU population of 500 million. Most otherEuropean countries also implement conservative socialpolicies, though in a less brutal way: the United Kingdom (62million inhab.), Germany (82 million inhab.), Belgium (10million inhab.) and France (65 million inhab.), for example.

The political consequence of the debt crisis in Latin Americawas the creation of the neo-liberal state. Is this what we areheading towards in Europe?

This is nothing new. For the past three decades neo-liberalpolicies have been implemented in Europe. It is obvious thatthe response to the crisis that is formulated by the IMF,governments that defend the interests of the ruling classes, bigbanks and large companies, consists in implementing a shocktherapy of the kind described by Naomi Klein. Their aim is tofinalise the neo-liberal project as it was launched by MargaretThatcher in the UK in 1979-1980 and spread through the restof Europe in the 1980s. For Central and East Europeancountries that used to be part of the Soviet bloc, it is actuallythe second shock therapy in 25 years.

But in Europe there is still some social welfare.

As I’ve just said, governments have started destroying the‘social pact’ and doing away with social rights acquired between1945 and 1970. This is what Thatcher started. After the SecondWorld War, and for thirty to thirty-five years, peoples had wona number of victories and obtained a fairly solid system ofsocial protection: collective conventions, labour laws, etc.that protected workers and prevented the abuse of casuallabour. Thatcher wanted to do away with it all, but after thirtyyears of neo-liberal policies they still haven’t completed thedestructive work they set out to do: some things remain.

And the debt crisis provides the opportunity to consolidatewhat Thatcher had started.

The crisis allows for a shock therapy of the kind creditors andthe ruling classes enforced in Latin America in the 1980s and1990s.

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In Peru it was implemented in August 1990.

We have entered a stage of new privatisations of publiccompanies. In Europe they intend to privatise the significantpublic companies that still subsist.

Will Europe also have to face the security doctrine that wasimplemented in Latin America, where the trade unions weredefined as terrorists?

A trend towards more authoritarian forms of power is clearlypresent in Europe. Over the past decade, anti-terrorist lawsthat criminalise social movements have been voted in.Repression is on the increase but does not involve the physicalelimination of activists as was the case in Latin America at theend of the 1970s and in the early 1980s. In this, too, theEuropean situation is similar to that of Latin America countries.After the bloody dictatorships (Argentina, Chile, Uruguay,Brazil), transition regimes (Chile, Brazil) or democraciesimplementing harsh neo-liberal policies were set up. In Europewe are going through a period when legislative power is pushedaside, business people become heads of state as in Italy, socialdialogue is abandoned while the right to go on strike isrestricted, picketing forbidden and demonstrations repressed.

How do European national parliaments respond to theseausterity measures?

They are pushed aside, since the Troika tells governments: ‘Ifyou want to get loans, you have to implement adjustmentmeasures and there is no time for parliamentary debate’. Someplans have to be adopted within a few days, sometimes evenwithin 24 hours.

As can be seen in Greece?

Yes, this is what has just happened in Greece. The Troikademanded a new plan. It eventually received the parliament’sassent on Sunday 12 February late at night. But on the next daythe European Commissioner for Economic Affairs said that 325million Euros of additional cuts were needed which were to bedecided by the Greek government within the next 48 hours.This shows that the Greek parliament has no power to decideand the government is actually run by the Troika.



This led to huge demonstrations.

Not only in Greece actually, but also in Portugal, Spain, Franceand Italy, with less intensity so far, but they are bound tobecome more massive. There are mobilisations in severalEuropean countries, including in the UK. In Belgium we hadthe first general strike for 18 years at the end of January 2012.It paralysed the Belgian economy and transport for 24 hours.

What should Greece do to get out of this quandary?

Greece must stop obeying the diktats of the Troika byunilaterally suspending repayment of its debts, to force itscreditors to negotiate in unfavourable conditions. If Greecestops repaying as Ecuador did in November 2008, allbondholders will sell them off at 30% (at most) of their facevalue. This will jeopardise the position of security holders andgive more purchasing power to the Greek government, even inthis precarious predicament.

Ecuador stopped paying for securities in November 2008 afteran audit of its debt, though it was not as badly off as Greecetoday. Argentina stopped paying in 2001 in a situation thatwas similar to that of Greece.

Indeed the comparison works better with Argentina which wasshort of money to pay. It suspended payment and did notresume paying for three years (from December 2001 to March2005) as regards financial markets; as for the Paris club (i.e.over 10 years) it hasn’t started repaying yet. As it did that it re-launched economic growth and imposed on creditors a debtrescheduling at 60% below its initial value.

The consequence of which is that Argentina has been excludedfrom financial markets up to this day.

This is correct, but Argentina, while excluded from the financialmarkets for the past ten years and not repaying anything to theParis Club over the same period, enjoys an average yearlygrowth rate of 8%. It shows that a country can find alternativefinancing sources outside the financial markets. Ecuador doesnot float any new securities on the markets either and its growthrate was 6% in 2011, while Greece’s GDP fell by 7%.

35

But Ecuador borrows from China at very high rates.

True. It will have to find a way of protecting its sovereignty asregards these new financing sources. This is why it is so urgentto get the Bank of the South functioning.

Let us get back to Greece. Many analysts, including you, claimthat most of the Greek debt is illegitimate.

Of course!

But surely, this can only be determined through an audit.

Part of the European social movement has drawn the lessons ofthe Latin American experience. Our proposal to set up acitizens’ audit of the debt has been widely taken up. Citizens’audits are either currently under way, or about to be, in sevenEuropean countries (Greece, France, Portugal, Spain, Ireland,Italy, and Belgium), without any government backing.

Do you think this will lead to an official audit of the debt,particularly in Greece?

We shall see. This would require a change of government, whichmeans that the social movement needs to be strong enough toput an end to governmental solutions that favour creditorsand to bring an alternative government to power. LatinAmerica needed 20 years to begin to achieve this.

A lot still needs to be done, then, before we see a change in theorientation of European governments such as that of Greece.

Indeed the current crisis may last for ten to fifteen years. Thisis only the first stage of resistance. It is going to be a long hardstruggle. It is of the utmost urgency for European socialmovements to join forces to express their active solidarity withthe Greek people and to set up a common European platform ofresistance to austerity so as to get illegitimate debts cancelled.

Translated from Spanish to French byVirginie de Romanet and Eric Toussaint,

and from French to English byChristine Pagnoulle and Vicki Briault



Greece, Ireland and Portugal: whyagreements with the Troika are odious

— Renaud Vivien & Eric Toussaint

Greece, Ireland and Portugal are the first three countries in theEuro Zone to agree to ‘bailout’ plans with the so-called Troikaconsisting of the European Commission, the European CentralBank (ECB) and the International Monetary Fund (IMF) whichplace them under the direct tutelage of their creditors. Yetthese agreements, which generate new debts and forceunprecedented austerity measures on the population, can bechallenged under international law. They are in fact ‘odious’and therefore illegitimate. As the odious debt doctrine clearlyaffirms, the debts of the State must be incurred and the fundsfrom it employed for the needs and in the interest of the State.19

However, the Troika loans are conditioned by austeritymeasures that flout international law and make it impossiblefor these countries to get out of the crisis.

Any loan granted on the condition that policiesviolating human rights are to be implemented isodious

As claimed by special rapporteur Mohammed Bedjaoui in hisdraft Article on succession in respect of State debts for the1983 Vienna Convention: “From the standpoint of theinternational community, an odious debt could be taken tomean any debt contracted for purposes that are not inconformity with contemporary international law and, inparticular, the principles of international law embodied inthe Charter of the United Nations.”20

It is obvious that the conditionalities imposed by the Troika(massive layoffs in the civil service, the dismantling of socialprotection and social services, reduction of social budgets,increase in indirect taxes such as VAT, the lowering of theminimum wage, etc.) violate the UN Charter. Indeed, amongthe obligations contained in this Charter, we note, in Article55, “higher standards of living, full employment, andconditions of economic and social progress and development

37

[…], universal respect for, and observance of, human rightsand fundamental freedoms for all without distinction as torace, sex, language, or religion.” Consequently, austeritymeasures and debts contracted in the context of these Troikaagreements are void since anything that is contrary to the UNCharter is deemed nugatory.21

Beyond the violation of economic, social and cultural rightsresulting from the implementation of such anti-socialmeasures, what is flouted by the Troika is people’s right to self-determination as covered in Article 1-2 of the UN Charter andin the two 1966 Conventions on human rights. According toArticle 1 of both Conventions: “All peoples have the right ofself-determination. By virtue of that right they freely determinetheir political status and freely pursue their economic, socialand cultural development. All peoples may, for their own ends,freely dispose of their natural wealth and resources withoutprejudice to any obligations arising out of internationaleconomic co-operation, based upon the principle of mutualbenefit, and international law. In no case may a people bedeprived of its own means of subsistence.”

The Troika’s interference in debtor States’ internal affairs, witha complete disregard for democracy, is blatantly obvious.Troika creditors sent a clear warning that elections in Irelandand Portugal were not to challenge these agreements. See, forexample, an article in the French daily Le Figaro on 9 April2011 that recalls the demands made on Portugal by the EU andEuro Zone finance ministers at a meeting in Budapest beforethe general elections in Portugal: Preparations (for theausterity measures) must start at once with a view to anagreement between parties in mid-May, and allow for animmediate implementation of the adjustment programme assoon as the new government is formed..... ministers haveclearly explained that they do not wish to have to reconsiderthe commitments attached to this aid, whatever the electionresults.22 In the case of Greece, the austerity programmeagreed on with the Troika was imposed in 2010 without evenbeing ratified by Parliament whereas it is an obligation underthe Greek Constitution (Article 36 Paragraph 2).23

The Troika’s contempt for the sovereignty of Greece, Ireland



and Portugal was made possible by the financial plight of thesethree countries (the first Euro Zone victims of the debt crisis,though undoubtedly not the last). In this respect the validityof the agreements can hardly be argued on the grounds of freeconsent. In law, when one party in a contract is not in a positionto exert its freedom of choice the contract is void. How doesthis principle apply in the present case? As they cannotreasonably contract long term loans on the financial markets,since interest rates are between 12% and 17%, these countries’governments had to turn to the Troika as lender of last resort.Taking advantage of the plight of the Greek, Irish and Portugueseauthorities, the Troika managed to enforce policies that canonly have negative consequences on the countries’ economicrecovery, given the pro-cyclical nature of the measuresadopted (that is to say, they reinforce factors that lead to lowereconomic activity).

The massive privatisations in key sectors of the economy(transport, energy, postal services, etc.) that the Troika hasimposed make it possible for private foreign companies to takecontrol and consequently limit the sovereignty of these Statesand the right of their people to dispose freely of their wealthand natural resources. Although a State does have the right, byagreement, to alienate part of its sovereignty to a foreign entity,such transfer may not, under pain of violating internationallaw, jeopardise its economic independence, which is a keycomponent of its political independence.24

Through its conditionalities the Troika not only violatedinternational law. It also abetted in the violation of thesecountries’ national laws. In Greece, in particular, what ishappening is truly a legal coup. For instance several provisionsof the 3845/2010 law drawn up to implement the austeritymeasures violate the Constitution, in particular the provisionsuppressing the legal minimum wage. The abandonment ofGreece’s sovereignty is further aggravated by the clause in theTroika agreement that provides for the application of Anglo-Saxon law and the jurisdiction of the EU court of Justice in caseof disputes. The State thus relinquishes a fundamentalprerogative in its sovereignty, namely the territorialcompetence of its national courts. At the same time, the Greeklaw implementing the austerity measures stipulates that arbitral

39

sentences (that have constitutional value) granting wageincreases in 2010 and 2011 be declared void andunenforceable. In short, as jurists Katrougalos and Pavlidishave written, State sovereignty is limited in a way very similarto the international financial control enforced on Greece in1897 as a consequence of its bankruptcy in 1893 and of Greecebeing defeated in its war against Turkey.

Any loan based on an illicit and immoral cause isodious

The legal foundation of the illicit and immoral cause tochallenge the validity of agreements can be found in severalcivil and commercial national legislations. It takes us back to aquestion raised by the doctrine of odious debt: who benefitsfrom the loans? In the case of agreements signed with Greece,Ireland and Portugal, it is obvious that the European privatebanks that granted totally irresponsible loans to these countriesare on the winning side, even though they have a large share ofresponsibility in the debt crisis. Indeed the bailing out of privatebanks by public authorities after the financial crisis burst in2007 led to the steep rise in the public debt of these States. Inthis respect we can at least describe the cause of the agreementswith the Troika as being ‘immoral’ and claim unjust enrichmentof private banks (a general principle in international lawaccording to Article 38 of the Statute of the International Courtof Justice25).

The unjustified enrichment of private banks is even moreblatant when we consider that they derive huge benefits frompublic authorities, given the discrepancy between the interestrates of approximately 4% they demand from the borrowingStates to buy 3 or 6 month securities, and the 1% interest rateat which they were able to borrow from the ECB up to April2011, before it was raised to 1.25% and then 1.5%.26 We canalso speak of unjustified (and illegal and abusive) enrichmentfor countries such as Germany, France and Austria, whichborrowed at 2% on the markets and then loaned at 5% or 5.5%to Greece and 6% to Ireland. The same can be said of the IMF,which borrows at a low interest from its members and makesloans at much higher rates to Greece, Ireland and Portugal.



The measures announced by EU leaders on 21 July 2011 werea clear admission of the unjust enrichment they are responsiblefor, and of the fraudulent nature of their policies. Theyeventually announced that the interest rates asked of Greece,Ireland and Portugal would be reduced by 2% or 3%. Thisreduction in interest rates to approximately 3.5% for loansover 15 or even 30 years is a clear acknowledgement that therates demanded were unaffordable. If they are reducing themnow, it is because of the enormity of the disaster they havehelped to create, and the fear of contagion.

What gain is there for Ireland, Greece and Portugal in makingsuch agreements with the Troika? None at all, except a littlefinancial breathing space to be used to pay back their creditors.In the mid and long term, such austerity policies will make theeconomic situation worse since they are part of a snowballeffect. In fact the burden of interests on these new debtsincreases while the measures dictated by the Troika result inreduced economic activity since there will be less demand asliving conditions deteriorate. It can thus be said that the IMFbehaves in a wilfully harmful way, given the massive gapbetween its discourse and reality. Indeed in Article 1 of itsstatutes, the IMF defines one of its main purposes as “tofacilitate the expansion and balanced growth of internationaltrade, and to contribute thereby to the promotion andmaintenance of high levels of employment and real incomeand to the development of the productive resources of allmembers as primary objectives of economic policy27” and also,“to give confidence to members by making the generalresources of the Fund temporarily available to them underadequate safeguards, thus providing them with opportunityto correct maladjustments in their balance of paymentswithout resorting to measures destructive of national orinternational prosperity.28 Similarly we can assert that theaction of the European Commission and of the ECB wilfullyharms the countries concerned.

The measures imposed by the IMF, the ECB and the EC alsocause these countries to be trapped in the vicious logic ofindebtedness since they will have to keep borrowing to be ableto repay. They are consequently looking at a period of ten,fifteen or twenty years of austerity and increasing debt.29 The

41

OECD survey on the Greek debt published on 2 August 201130

reckons that the public debt which amounted to 140% of GDPin 2010 should be back to 100% in 2035.

Faced with such a predicament, if they wish to serve theinterests of the population, these governments should repealthe agreements with the Troika, suspend repayment of theirdebts at once (with a freeze on interest) and organise audits oftheir debts with citizen participation. These audits willdetermine which portion of the debts is illegitimate and musttherefore be unconditionally cancelled. The remaining part ofthe public debt must be reduced through measures aimed atthose who benefited from it. Lawsuits must be brought againstthose responsible for the damage. Obviously, complementarymeasures will have to be taken, such as the transfer of banks tothe public sector, radical tax reform, and the socialisation ofthose sectors that have been privatised in the neo-liberalprocess.31 These are vital measures, because the cancellationof illegitimate debts, though necessary, will not be enough ifthe logic of the system remains in place.

Translated by Christine Pagnoullein collaboration with Judith Harris



Greece: The IMF and Lagardeget it wrong

— Eric Toussaint & Damien Millet

Christine Lagarde, managing director of the InternationalMonetary Fund (IMF), has made a declaration concerningGreece and Africa that requires explanation. The third worlddebt crisis started thirty years ago. Under strong andincreasing pressure to export, the poor countries bore thebrunt of the heavy increase in interest rates and the collapseof commodity prices orchestrated by the internationalfinancial establishment. Of course, the corruption,totalitarianism and megalomania of some of the leaders ofthe countries concerned made matters worse, but were notthe original cause. Africa was particularly affected, livingconditions have seriously deteriorated and the socialindexes are alarming. Public health and education systemshave been shattered by the demands of the creditors,conducted by the IMF. Questioned about Greece by TheGuardian, Christine Lagarde said: “I think more of the littlekids from a school in a little village in Niger who get teachingtwo hours a day, sharing one chair between three of them,and who are very keen to get an education.”32 ChristineLagarde did not say that Niger has been living in conditionscreated by the IMF for more than 25 years. She is fully awarethat the situation of the school children in Niger is the resultof IMF policies.

A quarter of a century later, Greece is the first Euro Zonecountry to be subjected to the harsh crisis that becamevisible in 2007 - 2008. As previously seen for the countriesof the Global South, the repayment of the debt was imposedas the top priority by Greece’s creditors, notably big Frenchand German private banks. For this, the IMF, the EuropeanUnion (EU), and the European Central Bank (ECB) haveimposed a series of totally dramatic austerity plans on theGreek population. Today, on top of a very importanteconomic crisis, Greece is also going through a serioushumanitarian crisis. The Greek people are aware of thedamage caused by IMF policies and have used the urns to

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express their rejection of austerity, after having alreadystaged a dozen general strikes, numerous streetdemonstrations and repeated occupation of public squares.

In the recent elections on May 6, Greek voters sanctioned thecoalition forces which had applied austerity plans andsurrendered to the dictates of the Troika (the IMF, the ECB andthe European Commission). New Democracy and the PASOK(Pan-Hellenic Socialist Movement) thus paid the price of theirtotal submission to Greece’s creditors. The far right party,LAOS, a member of the coalition previously in power, haspractically disappeared from the political scene.

Syriza, the main radical left-wing coalition and now the secondpolitical force in the country, has campaigned for the rejectionof austerity policies, the cessation of payments and an audit ofthe Greek State’s public debt. Their demands include a totalrecasting of the treaty on the functioning of the European Unionand the status of the ECB; the restoration of salaries andpensions, slashed after agreements signed with the Troika; anauthentically redistributive system of taxation; an audit ofbanks and the nationalisation of those which have receivedpublic funding; and finally, an end to the immunity enjoyed bymembers of parliament and public representatives.

Many Greeks wish for a government that will show the sameloyalty to the people as previous governments have shownto the national and international entities responsible forthe collapse of Europe. The majority of Greeks want toremain within the European Union and the Euro-Zone, whileat the same time demanding that their rights be respected –this, too, is the position defended by Syriza, with the aim offoiling the plans of the Troika and the banks. And this is whytheir democratic choice is meeting with such fierceopposition, both on the international scene, and within thecountry. The Greeks are made out to be the champions ofirresponsibility, tax-evasion, corruption and laziness.Threats of sanctions against Greece, should the people makethe wrong choice, have been formulated by the heads of EUStates and governments. This campaign of intimidation isdestined to persuade the Greeks that they should give upthe idea of taking their fate into their own hands. The



powerful means of communication and the blackmail usedin the pursuit of this goal are also intended to persuade thepeople of other European countries, and beyond, that thereis no alternative to the choices imposed by those who upholdthe system.

Christine Lagarde has also contributed to running down theGreek people. In the above mentioned ’Guardian’ interview,regarding the Niger children who only have two hours of schoola day, she continues: “I have them on my mind all the time.Because I think they need even more help than the people inAthens.” Concerning Athens she said, “Do you know what? Asfar as Athens is concerned, I think about all those people whoare trying to escape tax all the time.” She also has a thought forthe unemployed and those without social cover: “I think theyshould also help themselves collectively... By all paying theirtax.”

Not only does this reveal complete ignorance of what ishappening in Greece – for while the shipping magnates and theChurch escape taxation, the population certainly does not: VAThas been heavily increased, and new rates imposed — Lagarde’swords also show the extreme scorn the IMF has for the peopleof a country it is supposed to be helping through a very difficultsituation. The primary cause of these difficulties is thederegulation of the financial system, unfailingly supported bythe IMF, and secondly, the measures imposed by the IMF andthe European leaders since 20th May 2012.

For the icing on the cake: it is interesting to note thatChristine Lagarde, who earns 3,23,257 Euros a year plus57,829 Euros ‘weighting’ (indemnities for extra costs), doesnot pay income tax because she is an international civilservant. A perfect case of ’do as I say’, not ’do as I do’.Madame Lagarde, enough is enough! You are in no positionto preach to others! The organisation of which you are thedirector and the policies which it implements are bitterlycontested by numerous peoples who suffer as a result ofthem, whether they are in Africa, Europe, Latin America orAsia. The IMF should be dismantled and replaced by a new,truly democratic institution, with monetary stability andthe respect of fundamental human rights as its primary

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objectives. Fortunately, European mobilisation againstillegitimate debt, austerity plans and the Fiscal Compactare on the increase, in solidarity with the Greek peoplealong with all other peoples under attack.This would be asuitable response, likely to bring about real socialtransformation breaking away from neo-liberalism.

Translated by Vicki Briault and Mike Krolikowsk



“All the loans accorded by the Troikaare illegitimate”

— Eric Toussaint interviewed by Ana Benaèiæfor the news website net.hr33

In this interview first published in Croatian on the portal net.hrand taken up by several websites in Croatia, Eric Toussaintdevelops ways out of the debt crisis which are very useful fordifferent countries in Europe and beyond. He comments onthe situation in Greece after the elections of May 6, 2012. Hetackles the issue of the accession to the EU and the Euro Zonethat some countries like Croatia, Bosnia, and Serbia are seeking.He also answers to more general questions.

Mr. Eric Toussaint, you have taken part in Ecuador’spresidential audit committee, which provided the basis forthe non-payment of $3.2 billion, could you tell us how thiswas set up and how it worked?

The Ecuadorian government took the independent and sovereigndecision to suspend the repayment of thirty percent of their foreigndebt, accumulated over thirty years to 2006, following the resultsof a public debt audit. I was one of 18 members of the Audit Committeecreated by the new presidency of Ecuador in July 2007. Twelvemembers were Ecuadorian, and six from other countries, selectedamong public debt experts. There were also four state organsinvolved: Anticorruption Commission, Government AccountabilityOffice, Ministry of Finance and Ministry of Justice. For fourteenmonths we analysed all the contracts concerning the country’s publicdebt - to the World Bank, International Monetary Fund - bilateraldebts to France, Spain, Japan, USA and Ecuadorian governmentbonds traded on Wall Street. After four months, we had identified ahuge amount of illegitimate debt.

Thirty percent of the debt?

No, no. There was more. But the government decided tosuspend only a part (thirty percent of the total amount) of whatwe considered illegitimate. They feared that suspending thetotality would unify the creditors. So the suspension wasconcentrated on the Wall Street bonds.

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Of course the creditors were angered and put on a lot ofpressure, Raphael Correa held good for six months then offereda thirty-five percent deal: for every thousand dollars of bonds,the offer was three hundred and fifty dollars. Ninety-onepercent of bondholders accepted. The government saved sevenbillion dollars that could then be used on public expendituresuch as education, public health, infrastructures and jobcreation, etc.

This resulted in an embargo by the financial markets, but therewere no catastrophic consequences – the economy grew by3.7% in 2010 and by an estimated 5% in 2011 (final figuresare not yet available).

Absolutely nothing! No retaliation. No more than creditor’srhetoric, there was absolutely no retaliation.

What about the credit rating agencies? Did they penaliseEcuador in any way?

Yes, but without incidence. If a country decides to suspendpayments, notations from agencies don’t mean anything. Theyonly have an impact if you want to finance repayments, but ifyou don’t, there is no impact.

We are told that if a country defaults, foreign capital will flee,thus devastating our GNP, unemployment rate and generalsituation.

That did not happen in Ecuador, or Argentina. Argentinasuspended repayment of 100 billion dollars at the end of 2001,- much more than Ecuador. There was no retaliation. Argentinaincreased its growth rates to eight percent per year. Doomforetelling prophecies about capital flight, retaliation, etc., didnot materialise.

Iceland also chose bankruptcy over paying their debts.

This is what happened in Iceland. Private banks went bankruptin 2008. The governments of Great Britain and Netherlandscompensated their residents, to the tune of 3,5 billion Euros,who had lost deposits in the Icesave bank. They then turned tothe Icelandic government for reimbursement. The Icelandicgovernment agreed. However, under pressure of mobilisationin the streets and in the presence of a constitutionally



established petition against repayment, the president wasobliged to convoke a referendum; ninety-two percent of thevotes went against repayment. After negotiation among thethree governments a new agreement was put to the people whoonce again voted against repayment by a sixty-three percentmajority.

The Icelandic authorities proceeded with the liquidation ofLandsbanki, the bank concerned in the Icesave affair. The assetsto be liquidated will cover the claims of the secured creditorswhich include the British and Dutch governments. This is thedemonstration that if the people mobilise against thecollectivisation of a private debt, other outcomes are possible.It is also important to observe that in the face of the threat ofcapital flight, Iceland restricted its free movement making sucha flight impossible.

Really?

Really. If they hadn’t done so, Landsbanki assets would haveleft the country in a few days or a week. What is more:surprisingly, the IMF, which is, in theory, totally opposed tothe control of capital, accepted this decision. This was passedunder silence by the media.

How is that possible?

They absolutely wanted to be accepted in Iceland. They had tomake concessions to the people and to the government.

Croatia is not yet in the same situation as Greece. However,over a six-year period one whole year’s budget is absorbed bythe repayments of loans which have covered deficits, and theirinterest. This could mean it is impossible to entirely reimbursethe public debt. The Croatian minister of finance says that adefault would be “a tragedy”, unfair to creditors whoaccorded loan after loan, which were spent rather thaninvested for development. Is this true? Is this the whole story?

No. There are a lot of cases that show that default is not sotragic. After the Second World War, there were one hundredand sixty-nine defaults on external debts. Rather than a tragedy,it’s more or less a current event in capitalism. It’s very importantto convince the population of Croatia to proceed to a citizen’s

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audit so as to understand who the creditors are and why thecountry got into debt, also to identify, through the audit, theillegitimate part of that debt.

OK, for example: our ex-prime minister is facing trial forcorruption. The ruling party’s ex-treasurer admits receivingbribes from several firms that won the public tenders for hugeconstruction contracts. Could that be an example of...?

Illegitimate debt? It’s very clear, yes.

And we should seek cases of this kind?

Not only that. I’m convinced that large parts of the debts ofBelgium and Ireland or Spain are illegitimate, for severalreasons. For instance, the bailouts of private banks. From 2008until now, more than 26 billion Euros have been injected intoBelgian private banks.

When our state-owned banks failed during the nineties, thegovernment provided them with a lot of public money. Theywere then sold under-priced to foreign investors.

We consider all bailouts of private banks illegitimate. TheCroatian banks were sold to private investors?

Yes, very quickly after the bailouts. They failed during thewar (1992-1995) for several reasons - part of the money wasspent on weapons, the people no longer put their money in thebanks, so the banks ran out of capital, some of the savingsdisappeared during the dislocation of Yugoslavia, the stateassumed those missing deposits as public debt. A lot of moneywent astray because of loans that were never repaid to banksthat lent to firms and individuals close to the ruling party. Asimilar thing happened in the last decade, now some of thebankers that were involved are under investigation.

That should also be a subject of an audit, of course.

Most of these events happened 15 years ago. Does that havean impact on the audit?

Yes. A present debt is illegitimate if it is repaying loans whichwere contracted to bailout banks. In general, this type of 10 or15 year refinancing is done by roll-over loans that inherit theillegitimacy of their original loan. An audit must also clearly



demonstrate to the population that a debt is illegitimate. To bea success an audit must mobilise the people to put pressure onthe government to suspend payments.

This is one of the great grieves of our recent history. We bailedthose banks out; they were then sold to mostly Austrian andItalian investors who nowadays offer loans with incrediblyhigh interest rates. We are one of their favourite markets.

I am sure that the audit is possible. But you must have a socialmovement that includes jurists, lawyers, expert accountants,but also artists, who claim that illegitimate debt cannot andmust not be paid. A citizen’s audit is a collective endeavour;you have to convince public opinion. It is not easy, but it isperfectly possible.

How do you explain what happens in Greece? There areinitiatives to pronounce a great part of their debt illegitimate,but their creditors are not letting hold and their debts stillgrow.

On May 6, 2012, in the recent Greek election the people votedmost favourably for three parties. The second placed Syriza, aradical left coalition, got 17 percent of the votes. Their campaignwas based on the suspension of all external debt payment forthree to five years, audits of public debt and the private banks,the cancellation of the illegitimate debt and the application ofthe Troika (IMF, EU and ECB) austerity plans, elimination ofimmunity for those responsible for the indebtedness of thecountry. That was a good score. The polls now indicate that Syrizawill win 30 percent of the votes in the next election convoked forJune 17, 2012. In my opinion, the campaign for the citizen’saudit was not sufficiently strong. I hope the results of this newelection will permit the Greek people to re-launch that campaign.

In your opinion what part of this debt is illegitimate? TheTroika is trying to reduce it to the level of four years ago,when the crisis broke out.

All the new debt, all the loans accorded by the Troika are illegitimatebecause these loans violate social and economic rights, and the GreekConstitution. Now the majority of external Greek debt is owned bythe IMF, ECB and the EU. Private French and German banks are stillamong the main creditors, these debts are also illegitimate, and so

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the greater part of the Greek debt is illegitimate.

Do you think Croatia should join the Euro Zone?

No! Croatia, like Portugal, even Spain, Ireland and Greece, iscertainly not able to compete with Germany, Netherlands orAustria within the same currency. Entering the Euro Zone willsuppress the leeway that accompanies an independent nationalcurrency. The UK, which is much more in debt than Spain doesnot have such problems, nor does Poland. These countries havetheir own money. They are in a much better position thanGreece or than Hungary, Spain and Ireland who have alsoexperienced a very harsh real estate bubble. No, I don’t thinkCroatia should enter the Euro zone.

What about the fiscal union? We saw that Hungary waspunished by the EU for not reducing their deficit (to 3% oftheir GDP), causing big street demonstrations. Is that arealistic scenario for Croatia, considering our deficit nowrevolves around five percent of the GDP and the springprognosis of the European Commission tells us it will stay atthat level in 2013?

I don’t think that integration of Croatia into the EuropeanUnion right now would be any better than entering the Eurozone. I would not have said that three years ago, but the EUhas been evolving very badly. The crisis is very hard insidethe EU and the policies of fiscal austerity adopted by thegovernments of the EU, not only the German government,but also the French, Austrian and Belgian governments,make this crisis worse.

That makes the recession even deeper?

Yes, it has provoked a major recession in the majority of theEU countries. So, it wouldn’t be good for a country like Croatia.It would be better to look for regional and bilateral agreementsand to maintain the maximum of sovereignty, not only by anindependent currency, but also with independent traderelationships.

It is said that the GNP of the forty-one Heavily Indebted PoorCountries (combined population: 567 million) is less than thecombined wealth of the world’s seven richest people. Would



you confirm this?

Yes, yes, sure. There have never been such levels of inequalityin all the history of humanity - between countries, but alsobetween the citizens within the same country. The question ofredistribution of wealth on a worldwide scale, but also on thenational scale, to reduce the disparities and the inequalities isa central problem. We must invest a lot of energy to changethis situation; it is totally unjust and absurd. If you look at whatis going on, for example, in the US, the situation is tremendous.The richest one percent has greater wealth than the poorest 40percent of the population.

Less than one percent of what the world spends each year onarmaments could have put every child into school by the year2000 and yet it didn’t happen. The malnutrition of more than100 million people could be relieved with 3 billion dollars ayear. NATO is investing one billion more than that to modifyone hundred and eighty “stupid” free fall nuclear bombs - into“smart nukes”. Would you comment on this?

Global military expenditure has reached more than onethousand billion dollars per year, fifty percent of which is spentby the United States alone, NATO representing a large part ofthis. Russian and Chinese military budgets are much lower. Allin all there is sufficient investment in armament to destroy ourplanet - seven times. That’s a lot of money causing a lot ofproblems for humanity, we have to mobilise ourselves on this,to refute the propaganda that presents military expenditure asnecessary for the defence of the civilised world, protection ofdemocracy and the populations. It is the exact opposite.Military expenses are very dangerous for the survival ofhumanity.

What about the theories that our world is overpopulated? Arethey racist? They put the accent on the natality of developingcountries, as opposed to the relative demographic stability ofthe developed countries.

There are racist roots to this, but also a lot of exaggeration.There are seven billion human inhabitants on Earth and weknow we can nourish 12 billion people without any problem, ifthe food is correctly distributed. We don’t have a problem of

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overpopulation. The problem of humanity is inequality andthe fact that one billion people suffer hunger and malnutritionand that the other part of humanity uses food to produceethanol, biofuels, etc. It’s not only the inequality, but also theabsurdity of the productive model.

What impact does education and women’s emancipation haveon lower birth rates?

If living conditions were better for the people of the Third Worldcountries demographic increases would slow down. The peopleare very poor and don’t have the protection they need, it isrational to produce sufficient children so that enough of themwill survive to take care of their parents in old age. There areno pensions in the poorest countries. If there were organisedsocial protection and pensions, the families would be lessnumerous. This is the most efficient solution to this problem.

In conclusion, what can a small country like Croatia do toturn around some of these horrific world trends and make theworld more humane? Everything we and our diplomacy didin the last twenty years was, pardon my language, ‘suckingup to the big organisations like EU or NATO’. Is Croatia sosmall that it can make no difference?

A country like Croatia should try to maintain its sovereignty,strengthen the social movements and improve the integrationand solidarity between the European forces. When I speak aboutCroatia not entering the EU, it is not in the nationalistic view.You can be internationalists; you could develop solidarity andcollaboration with other people and countries as a sovereignstate, without being a member of EU or NATO, etc. It is possible.It is important to understand that it makes no sense to wait forthe governments to do what we want. We have to organiseourselves, as citizens, to promote alternative solutions and tochange the balance of power. After that, we may impose agovernment that really is the expression of the people’s will.

English version prepared in collaboration withStephanie Jacquemont and Mike Krolikowski



In the eye of the storm: the debt crisisin the European Union

— Eric Toussaint interviewed by the CADTM

In July-September 2011 the stock markets were again shakenat international level. The crisis has become deeper in the EU,particularly with respect to debts. The CADTM interviewed EricToussaint about various facets of this new stage in the crisis.

Part 1: Greece

Is it really true that Greece has to commit to paying about15% interest rates to be allowed to contract ten year loans?

Yes, it is; markets are only ready to buy the ten-year bondsGreece wishes to issue on condition it commits to paying suchextravagant rates.

Will Greece contract ten-year loans on such conditions?

No, Greece cannot afford to pay such high interest rates. Itwould cost the country far too much. Yet almost every day wecan read in both mainstream and alternative media (the latterbeing essential to develop a critical opinion) that Greece mustborrow at 15% or more.

In fact, since the crisis broke out in spring 2010, Greece hasborrowed on the markets for 3 months, 6 months or 1 year, nomore, at interest rates ranging between 4 and 5%.34 Note thatbefore speculative attacks against Greece started, it could borrowat very low rates since bankers and institutional investors(pension funds, insurance companies) were eager to lend.

For instance, on 13 October 2009, it issued three monthTreasury bonds also called T-Bills with a very low yield of 0.35%.On the same day it issued six month bonds at a 0.59% rate.Seven days later, on 20 October 2009, it issued one year bondsat 0.94%.35 This was less than six months before the Greekcrisis broke out. Rating agencies had given a very high ratingto Greece and the banks that were granting one loan afteranother. Ten months later, it had to issue six month bonds at a4.65% yield – in other words, 8 times more. This denotes afundamental change in circumstances.

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Another significant fact points to the banks’ responsibility: in2008 banks demanded a higher yield from Greece than in 2009.For instance in June-July-August 2008, before the crashproduced by the Lehman Brothers bankruptcy, rates were fourtimes higher than in October 2009. They were at their lowest(below 1%) in the fourth term of 2009.36 This may seemirrational, since a private bank is certainly not supposed tolower its interest rates in a context of major international crisis,least of all with a country such as Greece, which is prompt toborrow; but it was perfectly logical from the point of view ofbankers out to maximise profits while relying on public rescuein case of trouble. After the Lehman Brothers bankruptcy, thegovernments of the US and European countries poured hugeamounts of cash to bail out banks, restore confidence and boosteconomic recovery. Banks used this money to lend to countriessuch as Greece, Portugal, Spain and Italy, convinced as they(rightly) were that if there were any problem, the ECB and theEuropean Commission would help them out.

You mean that private banks deliberately pushed Greece intothe trap of an unsustainable debt by offering low interest rates,and then demanded much higher rates that made it impossiblefor Greece to borrow beyond a one year term?

Yes, exactly. I don’t mean that there was some sort of plot butit is obvious that banks literally threw capital into the arms ofcountries such as Greece (notably by lowering the interest ratesthey demanded) since they considered that the money they sogenerously received from public authorities had to be turnedinto loans to Euro Zone countries. We have to bear in mind thatonly three years ago States appeared to be the more reliableactors while the capacity of private companies to repay theirdebts was questionable.

To go back to the concrete example mentioned above, on 20October 2009 the Greek government sold its three-month T-Bills with a 0.35% yield in an attempt to raise EUR 1,500 million.Bankers and other institutional investors proposed about fivetimes this amount, i.e. 7,040 million. Eventually thegovernment decided to borrow 2,400 million. It is noexaggeration to claim that bankers literally threw money atGreece.



Let us also go back to the time sequences in the increase ofloans granted by West European banks to Greece between 2005and 2009. Bankers of Western European countries increasedtheir loans to Greece (to both public and private sectors) inseveral stages. Between December 2005 and March 2007, theamount of loans increased by 50%, from just under USD 80billion to 120 billion. Although the subprime crisis had brokenout in the US, loans increased again, this time by 33%, betweenJune 2007 and summer 2008 (from 120 to 160 billion), thenthey stayed at a very high level (about 120 billion). This meansthat Western European private banks used the money theyreceived at very low rates from the ECB, the Bank of England,the US Federal Reserve and the US money market funds in orderto increase their loans to countries such as Greece37 withouttaking risk into consideration. Private banks thus bear a heavyresponsibility for the crushing debts of Greece. Greek privatebanks also loaned huge amounts to public authorities and tothe private sector. They too have a significant responsibility inthe present situation. Consequently the debts claimed fromGreece by foreign and Greek banks as a result of theirirresponsible policy, should be considered illegitimate.

Part 2: The Great Greek Bond Bazaar

You say that since the crisis broke out in May 2010 Greece hasstopped issuing 10-year bonds. Why then do markets demanda yield of 15% or more on Greece’s 10-year bonds?38

This has an influence on the sale price of older Greek debt bondsexchanged on the secondary market or on the OTC market.There is another much more important consequence, namelythat it forces Greece to make a choice between two alternatives:

a) either depend even further on the Troika (IMF, ECB, EC)to get long-term loans (10-15-30 years) and submit totheir conditions;

b) or refuse the diktats of markets and of the Troika andsuspend payment while starting an audit in order torepudiate the illegitimate part of its debt.

Before we look at these alternatives, can you explain what thesecondary market is?

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As it the case for used cars, there is a second-hand market fordebts. Institutional investors and hedge funds buy or sell usedbonds on the secondary market or on the OTC (over thecounter) market. Institutional investors are by far the mainactors. The last time Greece issued ten-year bonds was on 11March 2010, before speculative attacks started and the Troikaintervened. In March 2010, to get 5 billion Euros, it committeditself to an interest rate of 6.25% every year until 2020. By thatdate it will have to repay the borrowed capital. Since then, aswe have seen, it no longer borrows for ten years because ratesblew up. When we read that the ten-year interest rate is 14.86%(on 8 August 2011 when the 10-year Greek rate, which hadbeen as high as 18%, was again below 15% after the ECB’sintervention), this indicates the price at which ten-year bondsare exchanged on the secondary or OTC markets.

Institutional investors who bought those bonds in March 2010are trying to sell them off on the secondary debt market becausethey have become high risk bonds, given the possibility thatGreece may not be able to refund their value when they reachmaturity.

Can you explain how the second-hand price of the ten-yearbonds issued by Greece is determined?

The following table should help us understand what is meantby saying that the Greek rate for ten years amounts to 14.86%.Let us take an example: a bank bought Greek bonds in March2010 for EUR 500 million, with each bond representing 1,000Euros. The bank will cash EUR 62.5 each year (i.e. 6.25% ofEUR 1,000) for each bond. In security market lingo, a bondwill yield a EUR 62.5 coupon. In 2011 those bonds are regardedas risky since it is by no means certain that by 2020 Greece willbe able to repay the borrowed capital. So the banks that havemany Greek bonds, such as BNP Paribas (that still had EUR 5billion in July 2011), Dexia (3.5 billion), Commerzbank (3billion), Generali (3 billion), Société Générale (2.7 billion),Royal Bank of Scotland, Allianz or Greek banks, now sell theirbonds on the secondary market because they have junk or toxicbonds in their balance sheets. In order to reassure theirshareholders (and to prevent them from selling their shares),their clients (and to prevent them from withdrawing their



savings) and European authorities, they must get rid of as manyGreek bonds as they can, after having gobbled them up untilMarch 2010. What price can they sell them for? This is wherethe 14.86% rate plays a part. Hedge funds and other vulturefunds that are ready to buy Greek bonds issued in March 2010want a yield of 14.86%. If they buy bonds that yield EUR 62.5,this amount must represent 14.86% of the purchasing price, sothe bonds are sold for only EUR 420.50.

Nominal value Interest rate Value of the Price of the Actual yield onof a 10-year on coupon paid bond on the 8 August 2011bond issued 11 March 2010 each year secondary if the buyerby Greece on to the owner of market on bought a EUR11 Mar 2010 a EUR1,000 bond 8 August 2011 1,000 bond

for EUR 420.50

Example EUR 1,000 6,25% EUR 62,5 EUR 420,50 14,86%

To sum up: buyers will not pay more than EUR 420.50 for aEUR 1,000 bond if they want to receive an actual interest rateof 14.86%. As you can imagine, bankers are not too willing tosell at such a loss.

You say that institutional investors sell Greek bonds. Do youhave any idea on what scale?

As they tried to minimise the risks they took, French banksreduced their Greek exposure by 44% (from USD 27 billion toUSD 15 billion) in 2010. German banks proceeded similarly:their direct exposure decreased by 60% between May 2010and February 2011 (from EUR 16 to EUR 10 billion). In 2011this withdrawal movement has become even more noticeable.

What does the ECB do in this respect?

The ECB is entirely devoted to serving the bankers’ interests.

But how?

Through buying Greek bonds itself on the secondary market.The ECB buys from the private banks that wish to get rid ofsecurities backed on the Greek debt with a valuation haircutof about 20%. It pays approximately EUR 800 for a bondwhose value was EUR 1,000 when issued. Now, as appearsfrom the table above, these bonds are valued at much less onthe secondary market or on the OTC market. You can easily

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imagine why the banks appreciate being paid EUR 800 by theECB rather the market price. This being said, it is anotherexample of the huge gap between the actual practices of privatebankers and European leaders on the one hand and theirdiscourse on the need to allow market forces to determineprices on the other.

Part 3: The ECB, ever loyal to private interests

On 8 August 2011 the ECB started buying bonds issued byEuropean States that had run into trouble. What do you thinkof this?

A first important point to remember: the media announcedthat the ECB would start buying bonds without specifying thatthis would only occur, as usual, on the secondary market.

The ECB does not buy bonds on the Greek debt directly fromthe Greek government but from banks on the secondary market.This is why banks were pleased on 8 August 2011.

Indeed, between March 2011 and 8 August 2011 the ECB claimsthat it did not buy any bonds on the secondary market. Thiswas a source of aggravation for the banks since, as they wantedto get rid of the Greek bonds and the bonds of other Statesexperiencing difficulties, they had had to sell them at knock-down prices on the secondary market. Most of them only solda few because prices were really too low.39 This is why theyinsisted that the ECB start buying again.

The ECB’s return to the secondary market raises the price ofGreek bonds, is that it?

Yes, but only for a while, and what matters is that the ECB buysin huge quantities and at a higher value than the market price.Between May 2010 and March 2011 it bought Greek bondsfrom bankers and other institutional investors for EUR 66billion. Between 8 and 12 August, i.e. within five days, it boughtGreek, Irish, Portuguese, Spanish and Italian bonds for EUR 22billion. Over the following week it bought another 14 billions’worth. We do not know the proportion of Greek bonds but wecan see that the purchase was massive. What is clear is that theECB’s practice of buying bonds makes it possible for institutionalinvestors to speculate and make juicy profits.



Indeed, banks can buy bonds at cut prices on the secondarymarket or much more unobtrusively on the OTC market that isoutside any regulation (42.5% of their face value in the daysfollowing 8 August 2011 and even lower a few weeks later) andsell them to the ECB at 80%. The volume of this kind of transactionmay be marginal; it is difficult to know exactly. But they certainlyare most profitable and I cannot see how the ECB or marketauthorities could prevent this, even if they wanted to.

We have to remember that transactions on the secondarymarket are barely regulated, and that next to the secondarymarket there is the OTC market that is not regulated at all bythe public authorities. On a regular basis, debt bonds are soldand bought as ‘short sales’, i.e. a buyer, for instance a bank, canbuy bonds for dozens of millions without having to pay forthem when receiving them. Buyers promise they will pay; theyget the bonds, sell them on, and pay what was owed with theproceeds of the resale. This proves that the purchase was neverintended to be used for its own yield, but was bought to be soldon immediately to maximise profit (speculation).

Of course if they cannot sell these bonds on at a good price or atall, they cannot foot the bill. This can lead to a crash, sincehundreds of institutional investors play the same game and theamounts at stake are astronomical. Transactions on securitiesbacked on the public debt of States facing problems amount totens or hundreds of billions of Euros on a liberalised market.

Why doesn’t the ECB buy directly from the States that issue thebonds instead of buying on secondary markets?

Because the governments concerned wanted to preserve themonopoly of the private sector on providing credit to publicbodies. Direct lending to member States is prohibited by theECB’s own statutes as well as by the Lisbon Treaty, and this alsoapplies to central banks in the EU. The ECB therefore lends toprivate banks which in turn lend to States with otherinstitutional investors.

As mentioned above, French, German and other banks soldGreek bonds massively in 2010 and in the first term of 2011.The ECB has so far been their first buyer and it buys above thesecondary market price.40

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As you can see, this makes for all sorts of manipulations by thebanks and other institutional investors, since bonds arewarranted to the holders and the markets are liberalised. Clearlythe private banks put pressure on the ECB for it to buy bonds ata higher price, claiming that they needed to get rid of them toclean up their balance sheets and so prevent another large-scale financial crisis.

July and August were good months for such blackmail, as thestock markets went through a fall of 15% to 25% in their indicebetween 8 July and 18 August 2011. Share prices of those banksthat lent money to Greece, French banks in particular, literallyplummeted. Panic-stricken, the ECB gave in to the bankers’and institutional investors’ pressure and started buying bondsagain. The ECB’s intervention saved the day (at least for a while)for a number of major banks, particularly French ones. Onceagain public institutions helped out the private sector. But thereis an even more outrageous aspect to the ECB’s behaviour.

Can you explain?

It’s very easy. It lends money at a very low rate to privatebanks, 1% from May 2009 to April 2011, 1.5% today, merelyasking banks that receive the loans to provide a financialguarantee. Now what the banks provide as guarantee are thevery bonds (called ‘collaterals’) on which they receive, if theyare Greek, Portuguese or Irish bonds, interest rates rangingfrom 3.75 to 5% if they were issued for less than a year, andmore if they are bonds maturing after 3, 5 or 10 years.

Why do you call this outrageous?

Here is why. Banks borrow at 1% or 1.5% from the ECB to grantloans to some States at 3.75% at least. Once they have boughtthe bonds and cashed their interest, they win twice over: theyleave these bonds as collateral to borrow again at low ratesfrom the ECB and loan this money to States at high interestrates. The ECB makes it possible for them to make even morejuicy profits.

Moreover, from 2009-10 the ECB has changed its safety andsecurity criteria and agreed to banks using high-risk bonds ascollateral, which obviously encourages those banks to makeinconsiderate loans since they are sure to be able either to sell



the bonds to the ECB or to use them as guarantee.41 It seemslogical to consider that the ECB should behave differently andlend directly to States at 1 or 1.5%, without lavishing gifts tobankers as it does.

But does it have a choice since this is prohibited by its statutesand the Lisbon Treaty?

A number of dispositions in the Treaty are not adhered toanyway (the debt/GDP ratio that should not be over 60%, thegovernment deficit/GDP ratio that should not be over 3 %), soconsidering the circumstances we can forget about that onetoo.

For the next stage we need to be aware that various EU treatieshave to be abrogated, that the ECB statutes have to be radicallychanged, and that the EU has to be founded on other premises.42

Yet to achieve this, the balance of power has first to be changedthrough massive street mobilisations.

Part 4: A European Brady Plan: Austerity for life

After the European Summit of 21 July 2011 it was announcedthat the Greek debt was to be reduced by calling upon bankers.Was this a good move?

Not at all. Those decisions do not provide countries facingfinancial problems with a favourable solution. The decisionstaken on 21 July, supposing they are ratified by the parliamentsof the member States in September-October 2011, will onlyslightly loosen the noose that strangles those countries andparticularly their populations.

Moreover, in the case of Greece (soon followed by othercountries), European governments have relied on bankers, whoare largely responsible for the disaster, to devise a policytailored to their own needs. They set up an ad hoc cartel of themajor creditor banks under the grand but misleading name ofInstitute of International Finance (IIF), which has drafted amenu with various options offering four possible scenarios.43

As recalled by Crédit Agricole, one of the main French banks(it owns a bank in Greece, ‘Emporiki,’44 stuffed full of Greekbonds), the IIF clearly found its inspiration in the Brady Planthat was implemented in the 1980s-90s to face the debt crisis

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in 18 emerging countries45. Heads of State, the EC and bankers,relayed by the media, announced that this would reduce thedebt by 21%, which is wrong. Actually, at best, the Greek debtwould be reduced by EUR 13.5 billion, i.e. 4% of the currentprincipal, which amounts to EUR 350 billion (which will furtherincrease in the coming years). The 21% figure is the haircutbankers are ready to apply to the value of the Greek bonds theyhold. It is just a bookkeeping operation. Indeed it does notaffect at all what the Greek government has to pay. Bankers areso pleased that their proposal should have been accepted bythe Heads of State and the ECB that several of them announcedas early as late July-early August that they provisioned 21%losses on Greek bonds maturing in 2020. For instance, BNPParibas provisioned EUR 534 million, and Dexia 377 million.46

By doing that, banks that play a leading part in the IIF hope toget parliaments in the EU countries to ratify the agreementsmade with the Heads of State and the ECB. Besides, suchexpected loss provisioning can be offset from their profits toreduce taxation. So far, however, there is one trouble-makeramong the bankers, namely the Royal Bank of Scotland (RBS),which withdrew from the IIF and announced that it would applya 50% haircut instead of 21% and provision losses for GBP 733million, which shows that the 21% cut is far from sufficient.Moreover, according to the Financial Times and the Belgianfinancial daily L’Echo47 the International Accounting StandardsBoard (IASB) sent a letter to the European Securities andMarkets Authority which regulates the European financialmarkets, calling into question banks that apply a 21% cut ontheir Greek bonds when the market to market value is less than50%.

The 21 July 2011 agreement is also said to mean that theTroika’s loans to Greece, Ireland and Portugal would beextended over a longer period with lower interest rates. Isthis the case?

European governments did announce that they intended toreduce the interest rates they charge Greece, Ireland andPortugal by 2 or 3 points.48 Announcing a reduction of 3.5% ininterest rates for 15 or even 30 year loans amounts toacknowledging that the rates they had demanded so far wereprohibitive. The move is motivated by the obvious disaster



they have contributed to bring down on those countries andby the risk of the crisis spreading to other countries. Themeasures announced by European governments on 21 July2011 are a clear acknowledgement of the ‘unjust enrichment’they are responsible for and of the fraudulent nature of theirpolicies.

What is unjust enrichment?

Unjust enrichment is abusive enrichment, profit gained throughunlawful means. It corresponds to a general principle ininternational law defined in Article 38 of the statutes of theInternational Court of Justice.49 States such as Germany,France and Austria borrow at 2% on the markets and lend thesame money to Greece at 5% or 5.5%, to Ireland at 6%. Similarlythe IMF borrows from its members at low interest rates andlends to Greece, Ireland and Portugal at much higher rates.

What is the fraudulent nature of the Troika’s policies?

Fraud50 is an important notion in international law. It refers toan intentional deception made to damage another individual.If a State were led to contract a loan through the fraudulentbehaviour of another State or an international organisationthat is party to the negotiation, it may invoke fraud as groundsfor declaring the contract void, since it was agreed to throughdeceit. Now the Troika uses the plight of Greece, Ireland andPortugal to enforce measures that go against citizens’ socialand economic rights, challenge collective conventions, andcontravene the country’s sovereignty and in some cases alsoits constitution. Thanks to some Italian newspapers, we knowthat in early August 2011 the ECB benefited from speculativeattacks against Italy forcing its government to implement thesame kind of antisocial measures as Greece, Ireland andPortugal. If the Italian government did not comply, the ECBsaid it might not help Italy at all.

What the members of the Troika are doing, can be compared tothe odious behaviour of someone who, while claiming to help aperson in a difficult predicament, would actually make it worseand benefit from it. We can also consider that it is a criminal actplanned collectively by the IMF, the ECB, the EC, and thegovernments that are supporting their action. Associating in

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order to plan and carry out a criminal act increases theresponsibility of the aggressors.

There is more: the economic policies enforced by the Troikawill not allow the affected countries to improve their situation.For three decades this kind of damaging policy has beenimplemented on behalf of large private companies, the IMFand the governments of industrialised countries, in indebtedcountries of the South and in a number of countries of theformer Soviet bloc. The countries that complied most diligentlyhave had to face terrible times. Those that refused the diktatsof international bodies and their neoliberal doxa have faredmuch better. This has to be recalled for we have to make itknown that the results of the policies demanded by the Troikaand institutional investors are a foregone conclusion. Neithertoday nor tomorrow will they ever have the right to claim.They did not know what their policies would result in? We canalready see what is happening in Greece.

For over a year now, the CADTM has been warning against adebt reduction led by creditors, namely the Troika, bankersand other institutional investors. Is this justified?

Of course! The current operation is led by creditors and gearedto their own interests. As indicated above, the current plan is aEuropean version of the Brady Plan.51 Let us remember thecontext in which this plan was implemented at the end of the1980s.

In the early years of the crisis that broke out in 1982, theIMF and the governments of the US, the UK and other majorpowers helped private bankers in the North that had takenhuge risks as they granted loan after loan to countries of theSouth, particularly in Latin America (as was to happen laterwith subprime mortgages and loans to countries such asGreece, Eastern European countries, Ireland, Portugal andSpain). When developing countries, starting with Mexico,were close to defaulting, the IMF and countries of the ParisClub agreed to lend them capital, provided they furtherrepay private banks of the North and implement austerityplans (the notorious structural adjustment policies). Next,as the debt of the South was snowballing, they set up theBrady Plan (after the name of the US Treasury Secretary of



the time) that involved a restructuring of the debt of themain indebted countries with bond exchanges. Theparticipating countries were Argentina, Brazil, Bulgaria,Costa Rica, Côte d’Ivoire, the Dominican Republic, Ecuador,Jordan, Mexico, Nigeria, Panama, Peru, the Philippines,Poland, Russia, Uruguay, Venezuela and Vietnam. At thetime, Nicolas Brady announced that the amount of the debtwould be reduced by 30% (actually, when there was areduction it was much less than that, and in several majorcases the debt even increased) and the new bonds (the BradyBonds) guaranteed a fixed interest rate of about 6%, whichwas very favourable to bankers. It also ensured thatausterity policies would continue under the supervision ofthe IMF and the World Bank. Today, under other latitudes,the same logic produces the same disasters.

It is most interesting to look at a posteriori assessments by twowell-known US neoliberal economists, Kenneth Rogoff, formerchief economist with the IMF, and Carmen Reinhart, universityprofessor and advisor to the IMF and the WB. Here is what theywrote in 2009 about the Brady Bond. They first assert:“Conspicuously absent from the large debt reversal episodeswere the well-known Brady restructuring deals of the 1990s.”

They then base their negative assessment on the followingelements: “In fact, in Argentina and Peru, three years afterthe Brady deal, the ratio of debt to GDP was higher than it hadbeen in the year prior to the restructuring!

By the year 2000, seven of the seventeen countries that hadundertaken a Brady-type restructuring (Argentina, Brazil,Ecuador, Peru, the Philippines, Poland and Uruguay) hadratios of external debt to GDP that were higher than thosethey had experienced three years after the restructuring, andby the end of 2000, four of those countries (Argentina, Brazil,Ecuador and Peru) had debt ratios that were higher than thoserecorded before the deal.

By 2003, four members of the Brady bunch (Argentina, Côted’Ivoire, Ecuador and Uruguay) had once again defaulted onor rescheduled their external debt.

By 2008, less than twenty years after the deal, Ecuador had

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defaulted twice. A few other members of the Brady group mayfollow suit.”52

The European version is true to the original Brady Plan downto its finest details. In the context of the plan, participatingstates had to buy US treasury zero-coupon bonds53 asguarantee in case of defaulting. The European plan devised bythe banks, the EC and the ECB (with the full support of the IMF)proposes four options. In the first three, Greece, through theEuropean Financial Stability Facility (EFSF), buys zero-couponEuro bonds as a guarantee that it will repay the principal onthirty-year bonds.54

What do you think of this Plan?

It will not help Greece to clear its debts for two essentialreasons. Firstly, the debt reduction is completely insufficient;and secondly, the economic and social policies implementedby Greece to meet the Troika’s demands will further weakenthe country. As a consequence the new loans granted to Greecein the context of this plan as well as the former, nowrestructured, debts can be defined as odious.55

The ECB is said to be against a strong haircut of the Greekdebt.

Correct. The ECB is trapped by its own policy: as it bought lotsof Greek bonds on the secondary market and agreed to banks,including Greek banks, depositing Greek bonds as guaranteeon the loans it grants, the assets in its balance sheet consist ofhuge amounts of Greek bonds (plus Irish, Portuguese, Italianand Spanish bonds). If a 50 or 60% haircut were to be appliedto Greek bonds, its balance sheet would be unbalanced. Thatbeing said, it is still quite feasible since this is merely a matterof book-keeping.

The ECB’s opposition to a strong haircut coincides once againwith the interests of private bankers who do not agree to theirassets being devalued either. The ECB has put pressure on EUHeads of State and on the EC for them to strengthen theEuropean Financial Stability Facility so that it can buy highrisk bonds. It wants to get this over with as soon as possible.



Part 5: CDS and rating agencies: factors of risk anddestabilisation

You haven’t talked about Credit Default Swaps (CDS) yet.

CDS is a derivative financial product which is not submitted toany form of public control. They were created in the first half ofthe 1990s in the middle of the era of deregulation. Credit DefaultSwap literally means permutation of unpaid debts. Normally,it should allow the holder of a loan to obtain compensationfrom the CDS seller in the case of default by the bond-issuer,whether a government or a private company. I use theconditional for two main reasons. Firstly, a CDS can be boughtas protection against the risk of non repayment of a bond thatthe buyer does not have. This is the same as taking out insurancefor the house next door, hoping that it will catch fire so thatone can get the money. Secondly, CDS sellers do not begin bybanking enough funds to indemnify victims of defaults. If awhole lot of private companies having issued bonds should gobankrupt, or if a major lender State should default on payments,it is quite certain that CDS sellers would be incapable ofindemnifying as promised. In 2008, the collapse of the North-American company AIG, the biggest international insurancecompany (which was actually nationalised by Bush to avoidthe consequences of bankruptcy) and that of Lehman Brotherswere directly linked to the CDS market. AIG and Lehman hadboth been very active in this sector.

The CDS enables all sorts of manipulations. I had theopportunity to observe closely an attempt at manipulationwhen I was a member of the audit commission for the internaland external debts set up by the government of Ecuador in2007, which delivered its report in September 2008. While wewere auditing the Ecuadorian debt and President Rafael Correawas threatening to stop paying the illegitimate part of the debtto the international money markets, a private North-Americancompany contacted the Ecuadorian government with a mostedifying proposal. The company suggested that PresidentCorrea should let it be known that he was going to suspendpayments just before the next due-date three weeks later. Thiswould enable the company to sell CDSs for a value they hadcalculated at USD 300 million. The final outcome was supposed

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to be as follows: in reality, Ecuador would pay what it owed asusual. This would mean that the company would not need toindemnify the CDS holders and it would give half the proceedsto the Ecuadorian government. The company claimed that thisoperation was completely free of any risk of prosecution as itwould be an over-the-counter transaction outside USgovernment control. It claimed to have already carried outsimilar transactions on several occasions. In the end, theEcuadorian government refused the offer, opting for anotherstrategy which produced good results. The point about thistrue-life story is that it illustrates that issuers and buyers ofCDSs can carry out all sorts of manipulations. Let us not forgetthat right up until the AIG disaster and the collapse of LehmanBrothers, the IMF, the US Federal Reserve and the ECBrepeatedly claimed that CDSs were a new product that offeredexcellent guarantees against risks. Since then, their discoursehas changed, but nothing, absolutely nothing, has been doneto regulate the CDS market. Meanwhile, in view of the size ofthe phenomenon, CDSs constitute a huge time-bomb hangingover the international finance system. The fact is that CDSshould be outlawed.

Monetary and financial authorities have en-couraged the creation of a time-bomb composed

of CDS.

In 2007 when the crisis had already broken out in theUSA and was spreading to the EU, Alan Greenspan, formerDirector of the US Federal Reserve, wrote: “A recent fi-nancial innovation of major importance has been thecredit default swap. The CDS, as it is called, is a deriva-tive that transfers the credit risk, usually of a debt instru-ment, to a third party, at a price. Being able to profit fromthe loan transaction but transfer credit risk is a boon tobanks and other financial intermediaries, which, in or-der to make an adequate rate of return on equity, have toheavily leverage their balance sheets by accepting de-posit obligations and/or incurring debt. Most of the time,such institutions lend money and prosper. But in periodsof adversity, they typically run into bad-debt problems,



which in the past had forced them to sharply curtail lend-ing. This in turn undermined economic activity more gen-erally.

A market vehicle for transferring risk away from thesehighly leveraged loan originators can be critical for eco-nomic stability, especially in a global environment. Inresponse to this need, the CDS was invented and took themarket by storm. The Bank for International Settlementstabulated a world-wide notional value of more than $20trillion equivalent in credit default swaps in mid-2006,up from $6 trillion at the end of 2004. The buffering powerof these instruments was vividly demonstrated between1998 and 2001, when CDSs were used to spread the riskof $1 trillion in loans to rapidly expanding telecommuni-cations networks. Though a large proportion of theseventures defaulted in the tech bust, not a single majorlending institution ran into trouble as a consequence. Thelosses were ultimately borne by highly capitalised insti-tutions—insurers, pension funds, and the like—that hadbeen the major suppliers of the credit default protection.They were well able to absorb the hit. Thus there was norepetition of the cascading defaults of an earlier era.”56

In 2007 the IMF issued the following declaration refer-ring to the health of the United States and particularlyCDSs, labelled new risk-transfer markets: “Although com-placency would be misplaced, it would appear that inno-vation has supported financial system soundness. Newrisk transfer markets have facilitated the dispersion ofcredit risk from a core where moral hazard is concen-trated to a periphery where market discipline is the chiefrestraint on risk-taking.…Although cycles of excess andpanic have not disappeared — the subprime boom-bustbeing but the latest example — markets have shown thatthey can and do self-correct.” (IMF, 2007 ConsultationsReport, Article 4 with the United States)57.

Clearly, certain supposedly reputable banks are still cov-ering themselves against defaults through CDSs. Thus theDeutsche Bank announced at the end of July 2011 that ithad reduced its exposure regarding the Italian debt by

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88%. The principal German lender claims to have reducedits exposure in Italy from EUR 8 billion to EUR 997 mil-lion. According to the Financial Times, the Deutsche Bankachieved this not by selling over 7 billion Euros worth ofItalian bonds, but by a stroke of book-keeping wizardry,buying up CDSs to hedge its investments against possibledefault on the part of Italy.58

On another level, hedge funds, particularly active on theOTC and CDS markets, are worried at the perspective ofthe Greek debt being partly written off. They are wonder-ing whether they will retain enough street cred to con-tinue selling CDSs once they have failed to indemnify CDSholders of the Greek debt.59

How much responsibility do rating agencies bear for the crisis?

The North-American Standard & Poor’s and Moody’s and theFranco-American Fitch are the three private agencies whichrule the roost regarding credit ratings and the credibility ofbond issuers, whether they be State or corporate.60 They haveexisted for almost a century but it was not until the 1970s-1980s, with the financialisation of the economy, that theirbusiness took a sudden leap. However they are constantly in asituation of conflict of interests. Until the 1970s, it was theprospective buyers of bonds issued by the State and bycompanies who paid rating agencies for their advice on thequality of the issuers. Since then, the situation has beencompletely reversed: now it is the issuers of bonds who pay theagencies to rate them. What motivates the government and thecompanies is of course to get good ratings so that they can paythe lowest possible interest rates to those who buy their bonds.Let us recall that until the eve of the collapse of Enron in 2001,highly paid rating agencies attributed top marks to the powersupplier. Again, in 2008, it was the same story with theinvestment banks, Merrill Lynch and Lehman Brothers. Andagain with Greece in 2009 - early 2010! These are ampledemonstrations of the harm they do. They should be sued forthe damage caused by the results of the ratings they hand out.Risk assessment is a task which should only be entrusted topublic bodies.



Part 6: Has the crisis peaked yet?

Has the crisis peaked yet?

The crisis is far from over. Even if we only consider the financialaspects, we must be aware that private banks have continuedto play an extremely dangerous game which benefits them aslong as nothing goes wrong, but which is prejudicial to themajority of the population. The amount of bad assets on theirbalance-sheets is enormous. If we look at only the top 90European banks, the fact is that over the coming two years,they will have to refinance debts to the tune of an astronomicalEUR 5,400 billion. That represents 45% of the wealth producedannually in the EU. The risks are colossal and the policiesadopted by the ECB, the EC and the member States of the EUwill not solve anything – indeed quite the contrary.

A central aspect of the risks taken by the European banks needsto be emphasised. They finance a significant part of theiroperations by making short-term loans in dollars from theNorth-American lenders known as “US money market funds”at a lower rate than the ECB’s. Furthermore, to return to thecase of Greece, how could the European banks possibly settlefor 0.35% over 3 months if they had to borrow from the ECB at1%? They have always financed their loans to European Statesand companies using loans they themselves took out from theUS money market funds – and they continue to do so. Nowthose money market funds were scared by what was happeningin Europe and also by the dispute over the US public debtbetween Republicans and Democrats. So by June 2011, thatsource of low-interest finance had just about dried up, whichhas hurt major French banks most. This was what precipitatedthe tumble they took on the Stock Exchange and led to theincrease of pressure on the ECB to buy back their bonds andthus provide them with new money. In short, this demonstratesthe extent of the knock-on effect between the economies of theUSA and the EU. It further explains the continual contactbetween Barack Obama, Angela Merkel, Nicolas Sarkozy, theECB, the IMF … and the major banks from Goldman Sachs toBNP Paribas and the Deutsche Bank. A breakdown in the flow ofdollar-loans to European banks could cause a very serious crisisin the Old World, just as difficulties encountered by European

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banks in repaying their US lenders could trigger off a new crisison Wall Street.

Since 2007-2008, banks and other institutional investors havedisplaced their speculation activities from the property market(where they had created a bubble which burst in nearly a dozencountries, including the USA) to the public debt market, thecurrency market (where the equivalent of USD 4,000 billionchanges hands every day, 99% purely for speculative purposes)and the primary resources market (petroleum, gas, minerals,food commodities). These new bubbles can burst at anymoment. A possible trigger could be if the US Federal Reservedecided to raise interest rates (followed by the ECB, the Bank ofEngland, etc.). In this respect, in August 2011 the Fedannounced its intention to maintain its base rate near zero until2013. However other events could trigger off a new bank crisisor a crash on the Stock Exchange. The events of July-August2011 show us it is time to muster our energy in order to preventthe private financial institutions from doing any furtherdamage.

The extent of the crisis is also determined by the volume of theUS public debt and the way it is financed in Europe. Europeanbankers hold more than 80% of the total debt of an array ofEuropean Union countries in difficulty such as Greece, Ireland,Portugal, the Eastern European countries, Spain and Italy. Involume, Italian public debt paper amounts to EUR 1,500 billion,more than twice the combined public debt of Greece, Irelandand Portugal. Spain’s public debt comes up to EUR 700 billion,i.e. about half of Italy’s. The arithmetic is simple: the publicdebts of Spain and Italy added together represent three timesthe sum of those of Greece, Ireland and Portugal. As we saw inJuly-August 2011, while each country continued to pay off itsdebts, several banks almost collapsed. The ECB had to interveneto save the day. The financial scaffolding of the European banksis so fragile that an attack through the Stock Exchange is enoughto bring them down... Not to mention what would happen if theStock Exchange crashed, which cannot be ruled out.

So far, with the exception of Greece, Ireland and Portugal, theStates have managed to refinance their debts by taking out newloans as and when the borrowed capital fell due. The situation



has worsened significantly over the last few months. By July/early August 2011, the interest rates demanded by theinstitutional investors to enable Italy and Spain to refinancetheir public debt as it fell due with 10-year loans had literallyexploded to reach 6%. Once again, the ECB had to intervene,buying up massive amounts of Spanish and Italian debt paperto satisfy the bankers and other institutional investors and bringdown interest rates. For how long, though? Italy will have toborrow about EUR 300 billion in August 2011 and July 2012as that is how much they will require to honour bonds that falldue over that short period. Spain’s needs will be considerablylower, at about EUR 80 billion, but that is still a hefty sum. Howwill the institutional investors behave over the coming twelvemonths and what will happen if their borrowing conditions onthe North-American money market funds become stiffer? Manyother events could aggravate the international crisis. One thingis certain: the present policies of the EC, the ECB and the IMFcannot result in a favourable outcome.

On several occasions you have written that the private debtwas far greater than the public debt. So far you’ve been talkingabout public debt.

There is not a shadow of a doubt that the private debts aremuch higher than the public debts. According to the last reportby the McKinsey Global Institute, the sum total of private debtworldwide comes to USD 117,000 billion, i.e. about three timesthe sum of all public debts, which is USD 41,000 billion. Thereis a great risk that private companies, including banks alongwith the other institutional investors, will not be able to repaytheir debts.

Bankers, chief executives of other companies, the traditionalmedia and governments only discuss public debt and use itsincrease as a pretext to justify new attacks on the social andeconomic rights of the majority of the population. Austerityand the reduction of public deficits by axing social budgets andcivil service jobs have become the only way of raising funds,along with privatisations and more consumer taxes. Forappearances’ sake in Europe, some governments have added atiny tax for the rich and talk of taxing financial transactions.

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Obviously the increase of public debt is the direct result of 30years of neo-liberal policies. They have used loans to financefiscal reforms in favour of the wealthy and of large privatecompanies. They have rescued banks and large companies bygetting the State budget to take on part of their debt or otherlosses. Due to the recession, there have been new falls in taxrevenues and an increase in some public spending to helpvictims of the crisis. The combined effect of these differentfactors has been to increase the public debt. It all comes downto deliberately unjust social policies which aim systematicallyto favour one social class only. A few crumbs are tossed to themiddle classes to keep them quiet. On the other hand, the greatmajority of the population have been hit by these policies andseen their rights trampled underfoot. That is why the publicdebt has to be seen as globally illegitimate. And that is why Ihave been focusing on the public debt in this interview, becausewe absolutely must find a positive solution to this problem.

Part 7: Alternative ways out of crisis

During this talk, you have claimed that Greece is forced tochoose between two options: either to eat humble pie,resigning itself to turning to the Troika; or to refuse the dictatesof the markets and the Troika by suspending repayment andcalling an audit in order to be able to repudiate the illegitimatepart of the debt. You have described the first option. Couldyou now explain the second in more detail?

We talked about the case of Greece. It is important to mentionthat other countries are now being confronted with the samechoices – Ireland, Portugal, not forgetting Hungary, Bulgaria,Romania, or even Latvia – to mention ones in the EuropeanUnion. There is every reason to believe that tomorrow it willbe the turn of Italy and Spain. And we should not be surprisedto see yet other EU countries in a similar predicament the dayafter tomorrow, because the crisis is accelerating rapidly.Outside the EU, Iceland is another high risk case.

The best thing would be for these countries, subject to blackmailby speculators, the IMF and other organisations such as theEuropean Commission, to resort to a unilateral moratoriumon public debt payments. Commitment to such a unilateralsovereign act would completely transform the balance of power



to the detriment of the creditors. Whether they are banks,insurance companies or pension funds, they would be in suchhaste to sell off their bonds that interest rates would plummetto almost nothing. As for the Troika, it would be obliged to seekto negotiate concessions. Russia in 1998, Argentina in 2001and Ecuador in 2008 all declared unilateral moratoria on theirdebt payments, and they all came out of it very well.61

It is important to take stock of these recent experiences and tosee how to apply the best strategy so that the population cansee improvements in their living conditions and make atangible break with the capitalist system.

What other immediate measures are needed alongside aunilateral suspension (moratorium) of debt payments?

A unilateral moratorium should be combined with an audit ofpublic loans (with the participation of civil society). The auditmust allow the necessary proofs and arguments to be broughtbefore the government and popular opinion to justify thecancellation/repudiation of the part of the debt identified asillegitimate. International law and each country’s domestic lawsoffer a legal basis for the sovereign unilateral act ofcancellation/repudiation.62

For countries that resort to suspension of payments, thereneeds to be a moratorium without delay interest on the partnot paid.

In other countries, such as France, Belgium, Great Britain, it isnot necessarily imperative to decree a unilateral moratoriumwhile the audit is made. The audit is required to determine theextent of cancellation/repudiation to be effected. Should theinternational conjuncture deteriorate, suspension of paymentscould become a necessity, even for countries that claim to besafe from the blackmail of private creditors.

And how can civil society participate?

The participation of civil society is imperative to guaranteethat the audit is carried out both efficiently and transparently.The audit commission should be composed of, for example,different bodies of the State concerned, so that they can reporton its work. In any case, it is the participation of the social

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movements, of grassroots civil society, that will be the key tothe audit’s success. Social movements can designate their ownexperts in public finance auditing, economists, jurists andconstitutionalists. Obviously the different social movementsaffected by the debt crisis must also be represented. The auditought to help determine the different responsibilities in theindebtedness process and demand that those responsible,nationally and internationally, be brought to justice.

In most cases, the ruling class has no interest in seeing anauthentic audit carried out under the auspices of civil society.In other cases, it may resign itself to the idea in order tocircumvent the problem.

That is quite true. The case I mentioned earlier corresponds toa situation where strong popular mobilisation brings left-wingforces into government who will adopt policies in the interestsof the people or go even further. I am reminded of somethingArthur Scargill, one of the main leaders of the Miners’ Strike inBritain in the mid-eighties, said. Basically he said that theyneeded a government as true to the interests of the workers asMargaret Thatcher was to the interests of the capitalist class.In the present situation in Europe, we are still far from achievingthat. We are confronted with governments who are hostile tothe idea of an audit and unwilling to call debt repayment intoquestion. That is why we need to constitute proper citizens’audit commissions without government participation.

Who will have to foot the bill of debt cancellation?

Whatever happens, it is only right and proper that the privateinstitutions and high-earning individuals who hold the debtpaper should bear the brunt of cancelling illegitimate sovereigndebt since they are largely responsible for the crisis, andfurthermore, they have largely profited from it. Making thembear the cost of cancellation is only fair, if there is to be a returnto greater social justice.

Will small stock-holders or salaried workers who hold publicdebt paper through pension savings also have to pay up?

A proper survey of debt-stock holders needs to be drawn up sothat citizens of modest or middling means among them can beindemnified.



What will happen to those responsible for illegitimate or odiousdebt?

If the audit proves the existence of offences linked toillegitimate indebtedness, the offenders will be severelycondemned to make reparation and should not escape prisonsentences in accordance with the seriousness of their felony.As for government authorities that have instigated illegitimateborrowing, they must be held accountable.

What about the part of the debt that cannot be declaredillegitimate, illegal and/or odious?

For debts that are not deemed illegitimate, creditors should bemade to contribute through reduction of stock and interest rates,as well as by rescheduling payments over a longer period. Heretoo, positive discrimination should be adopted in favour of smallpublic debt holders, allowing them to be repaid on normal terms.Moreover, the amount of funds in the State budget earmarkedfor debt repayment should be limited as befits the state of theeconomy, the government’s capacity to repay and theincompressible nature of social spending. Such practices willemulate what was done for Germany after the Second World War.The 1953 London Agreement on the German debt, whichconsisted, for example, of reducing the debt stock by 62%,stipulated that the ratio of debt service to export revenues shouldnot exceed 5%.63 A legal framework is also required to avoid arepetition of the crisis that started in 2007-2008: socialisingprivate debts should be prohibited; a permanent audit of publicdebt policy with citizens’ participation should be mandatory;there should be no prescription for offences linked to illegitimateindebtedness; illegitimate debts should be ruled null and void…and so on.

Debts can be cancelled, but what could be done about therest?

A whole panoply of further measures is needed. Austerityprogrammes must be stopped; banks should be transferred tothe public sector; radical tax reforms are required; sectorsprivatised during the neoliberal era should be socialised theremust be a radical reduction of working hours.64 All thesemeasures have to be implemented, as debt cancellation,

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however necessary; will not suffice if the logic of the systemremains intact.

Translated by Christine Pagnoulle and Vicki Briaultin collaboration with Judith Harris



Now approaching Spain, the bank hurricanecontinues along its path of destruction

— Eric Toussaint

All eyes are turned toward Spain and its banking sector. AfterGreece, Ireland, and Portugal, we may ask ourselves if thebailout plans are behind us or whether we are simply in the eyeof the cyclone. We must remain lucid and recognise that thefinancial and banking crisis is far from over, both in Europeand the United States. It will have long-lasting repercussionson the rest of the world economy, and on living conditionseverywhere. Yet, in Europe, in the first quarter of 2012, themajor media outlets backed the declarations made by Europeanleaders, and representatives of the ECB and private banks toconvince public opinion that the policies implemented hadenabled the banking system to be stabilised.

According to the prevailing rhetoric, the mounting fear stemsfrom the over-indebtedness of countries, a possible default byGreece, and the adverse effects it would have on Spain andItaly. As far as the banks are concerned, the rehabilitation issupposed to be going forward, and the ECB has everythingunder control. From January to the early May 2012, thefollowing general message was repeated ad infinitum: “Thanksto the 1000 billion Euro loan banks have been given by the ECBin two phases (December 2011 and February 2012) for 3 yearsat 1% interest, private financial institutions are now in a goodposition to handle the difficulties facing countries in terms ofsovereign debt. The financial markets have been stabilised, andthe stock markets have risen after a particularly bad year.Public finances are being cleaned up thanks to the golden rule,which is being adopted everywhere, the efforts made bycountries to reduce expenditures, and the reform of the labormarket to make it even more flexible and of retirement regimesto cut costs. Some additional efforts must be made, but the endof the tunnel is in sight. Sweet dreams, dear friends!”

In May 2012, this rosy message was strongly refuted. It hadbecome clear that private banks have not fundamentally cleanedup their accounts, have not modified their high-risk behaviour,

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and their Directors have not lost their thirst for hefty bonusesand golden parachutes. Bankers consider that public authoritieswill always be there to save their skin. Bank bailouts with publicfunds continue. The depression is deepening, and public debt isincreasing due to the combined effect of the bailouts and thedepression. Meanwhile, the financial markets are blackmailingthe weakest members in the Euro Zone more than ever before.

The banking system is in the eye of the cyclone, which iscontinuing along its path, hitting all major private bankinginstitutions one at a time as it hums along, and paying no heedto national borders. Contrary to a real hurricane, which is anatural phenomenon, the financial cyclone is 100% artificial:it is the direct product of the cyclical nature of capitalism,worsened by 30 years of neo-liberal deregulation.

The Spanish case is emblematic because it demonstrates thatthe crisis does not stem from excessive public debt run up byspending too much money on social programs. In 2007, whenthe crisis erupted in the United States, and before Spain wassubmerged in it, Spanish public debt was only 36% of its grossdomestic product. Spain was one of the model students in theEuro Zone with a public debt rate far below the 60% thresholdstipulated in the Maastricht Treaty, and its fiscal balance waspositive (+1.9% of its GDP, whereas Maastricht imposes amaximum 3% negative fiscal balance). At that time, Spanishpublic debt only accounted for 18% of its total debt. Clearly,public debt is not the culprit; rather the deepening crisisaffecting Spain was directly caused by the private sector,namely the real estate and credit sectors.

In May 2012, Bankia, the 3rd largest bank in Spain in terms ofassets, requested 19 billion Euros in government aid (in additionto the 4.5 billion already given). The Bank of Spain estimatesthat the Iberian banking system is sitting on toxic assets of 176billion Euros. Various specialists estimate that 40 to 200 billionEuros are needed to recapitalise the Spanish banks.

The Spanish private finance industry is far from being an isolatedcase. Bailed out a second time in October 2011, the French-Belgian-Luxembourg bank group Dexia now acknowledges lossesof €11 billion in 2011, and the downslide is not over: it again callsupon governments to recapitalise (at least €10 billion are



needed). JP Morgan, one of the big US corporate banks, had toacknowledge losses of $2 billion in May 2012 (this announcementtriggered a $25 billion loss in its market capitalisation within afew days) and far more substantial damages are to be expected.Greek banks are on the ropes, facing a massive bank run, in whichtop managers and shareholders are also participating, and canonly survive today thanks to emergency loans granted on a dailybasis by the National Bank of Greece up to an amount of €100billion, with the ECB’s consent.65

Among the 800 European banks that borrowed this amountfrom the ECB, several (including some of the biggest) are againor will soon be short of cash, and they are urging the ECB torenew the same kind of low rate and fairly long term loans.

While attention is focused on the public debts accumulated by States,the main cause of the crisis lies with the balance sheets of privatebanks (and of some major insurance groups). Indeed they haveaccumulated huge debts66 in order to finance high risk operationsthat often result in abysmal losses that occur as contracts onstructured products and other toxic assets reach maturity.

The lesson to be drawn is that we must, now more than everbefore, demand the transfer of banks to the public sector undercitizen control. We must refuse costly bailouts that increasepublic debt without solving the bank crisis. Expropriation mustoccur without compensation for big shareholders (smallshareholders will be compensated), and the cost of cleaning upthe accounts of expropriated institutions will be paid for by theirpatrimony at large (for they usually own a patrimony that extendsfar beyond banks). It is necessary to balance the power relationsso that public authorities can repudiate the illegitimate part ofthe debt and release resources to set up policies that further fullemployment and public investments in activities that improvepeople’s standards of living, preserve the environment, and breakwith capitalism and productivism. We have to carry out a numberof consistent policies in terms of economic and social alternativesthat lead to a post-neoliberal, post- productivist, and anti-capitalist society.67 On our way to radical change, a citizen auditof the debt is a valuable and indispensable tool to raise awarenessand mobilise people.

Translated by Christine Pagnoulle and Charles La Via

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G20: The Symbol of Systems Failure

— Eric Toussaint

The G20 is no more legitimate than its progenitor the G7(Canada, France, Germany, Italy, Japan, UK and USA). It waslaunched by the industrialised countries three years ago whenthey were beginning to feel the effects of the biggest economiccrisis since the 1930’s. The G20 was thwarted from the start tothe finish of its summit in Cannes on 3rd and 4th November2011. That the EU and Euro Zone are in crisis is flagrant, and atthe heart of all the concerns. The about-turn exercised byGeorge Papandreou three days before the start of the summit,when he announced a Greek referendum for January 2012,caused uncertainty to hover over the most recent agreementsaimed at avoiding a chain reaction of bankruptcies among themajor European banks and its collateral effects on their NorthAmerican counterparts.68

The G20 agenda, that had been very carefully prepared overseveral months, was completely turned upside down. In patheticmanner, all the state leaders and business captains suddenlybecame dependent on the Merkel - Sarkozy couple’s ability,before the end of the summit, to persuade the Greek authoritiesto abandon the proposed referendum. If the plan for areferendum had been confirmed, and had it involved askingthe Greek people to accept the agreements made at theEuropean summit of the 26th and 27th October 2011, this wouldhave caused a banking and financial panic.

Why? Because all the signs indicated that the plan would berejected: according to polls carried out after the 27th October,only 12% of the Greeks approved the plan. The danger ofrejection would have provoked, during the month of November2011, a plunge in the value of Greek bonds, obliging the bigFrench banks, among others, to affect a write-down of theirGreek assets to the tune of 80% to 90%. These banks’shareholders would have sold their stock, thus causing acollapse in stock prices. Italian and Spanish bonds would havebeen subject to speculative attacks which the Euro Zone wouldhave been incapable of withstanding, the EFSF (the EuropeanFinancial Stability Facility) not having sufficient means to do


so. The French and German banks, along with other holders ofItalian and Spanish debt, would have foundered.

It is clear that George Papandreou, faced with renewed popularunrest on 28th October, the national holiday, and criticismwithin his own coalition, was doing what he could to gain timeand to ensure a parliamentary vote of confidence. His U-turnwas not motivated by a sudden will to hear the voice of thepeople, he who over the last eighteen months has cast aside themost elementary democratic rules and backed down on hiselectoral commitments. Once his 1st November promise of areferendum was known, it was largely rejected by the Greekpopulation, as well as by left wing political parties and socialorganisations.

However, it was for totally different reasons that the Europeanleaders were unanimously opposed to any public consultationwhatsoever concerning the new austerity plan imposed onGreece in the framework of the October 2011 agreement.

That the EU is in crisis was blatantly obvious at the summit,and it was not the leaders of the European institutions whoplayed the main roles. J.M. Barroso and H. Van Rompuy,respectively presidents of the European Commission and theEuropean Council, were no more than mere onlookers, whilethe presidents of the two strongest countries of the Euro Zoneled the important negotiations from beginning to end.

George Papandreou has stepped down and it looks likely that agovernment of national unity would undertake to apply theausterity measures that the Greek majority refuses. Yet even ifthis provides temporary respite for the plan to save Athens (itwould be more accurate to say, for the plan to save the Euroand the big private banks), Greek discontent is such that nothingis certain.

Italy is already signalled as the next weak link in the Euro zone,with a sovereign debt six times that of Greece. The G20 hasfailed the Italian Government abysmally. S. Berlusconi has hadto accept that his country be put under the permanent scrutinyof the IMF. Coming out of the meeting, Christine Lagarde,Managing Director of the IMF, said of the Italian head ofgovernment, “we will subject him to a reality test.” She went on

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to talk about Italy: “I am going to send them a team of probablyfive or six experts every three months.”69 That a foundingmember country of the G7 should be subjected to suchhumiliating treatment illustrates the extent of the damage tothe Euro Zone and the EU. Not to forget that Mario Draghi, thenew president of the European Central Bank, was until lastmonth the Director of the Italian Central Bank after havingserved S. Berlusconi as minister. The announcement by MarioDraghi, ex-director of Goldman Sachs, of a reduction of 0.25%of the ECB prime rate is another concession to bankers havingdifficulty finding cheap funding.

Another failing of the EU and the Euro Zone: the EuropeanFinancial Stability Facility has not yet entered into its newjudicial framework, nor had its means enlarged as agreed at theEuropean summit of 21st July 2011. The BRIC (Brazil, Russia,India and China) have clearly announced their refusal to fundthis facility.

Nor is the IMF coming out as well as its managing directorwould have us believe: the 500 billion promised at the G20summit in London in 2009 remains unconfirmed.

This is the consequence of the refusal by the G7 to accept oneof the demands of the BRIC. They wanted, in return for theiraide to the IMF, EU and to the USA, a greater weight in thedecision-making of the IMF and the World Bank, along with anew distribution of voting rights and more key positions inthose institutions. It’s a lose-lose situation: the G7 cannot getthe emerging countries to open their purse-strings; and theemerging countries cannot obtain a status in keeping with theireconomic and political weight in the international institutions.

In spite of having to face a worsening economic crisis and verygloomy prospects for 2012, the governments of theindustrialised countries refuse to take the elementary measuresneeded to put the private financial sector in order and to give aboost to the economy: separating deposit and commercialbanks, prohibiting certain speculative transactions, taxingfinancial transactions, capping directors’ fees with very strictcontrols on bonuses, reprisals against tax havens, increases inpublic expenditure to boost employment, protecting thepurchasing power of wage earners and claimants... Of all these

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measures which at one moment or another during the crisishave been suggested by leaders such as Nicolas Sarkozy, thehost of the G20 summit, none have been put into practice. Yetsuch measures constitute the absolute minimum for aprogramme like the one Franklin F. Roosevelt adopted to getthe USA out of the great depression.

B. Obama and the European leaders have chosen otherwise:massive structural support for banks and other financialinstitutions to avoid massive serial bankruptcy, together withreinforcement of neo-liberal policies (reduction of publicspending, reduction of household and population purchasingpower, the destabilisation of salaried employment, a new waveof privatiastions, increases in indirect taxation). There is nodoubt about the consequences of these choices: pauperism ofthe majority of the population in the countries concerned,aggravation of the inequality gap, the risk of increasingbankruptcy in the banking sector, as no serious limit has beenplaced on their speculative activities, slow economic growthwith periods of recession for the next ten to fifteen years, thecontinuation of structural indebtedness on the part of publicauthorities because of insufficient fiscal revenues, and thecontinuation of the Euro Zone crisis.

The gulf between realpolitik and the ranting speeches againstmarket abuse is obvious in the following passage from thesummit’s final Declaration: “We will not tolerate a return to thebehaviours observed in the financial sector before the crisis,and we will strictly control the application of our commitmentsregarding banks, the over-the-counter derivatives markets andpay practices.”

Particularly lethal in the developing countries, especially inAfrica : the nutrition crisis, principally provoked by speculationon agricultural produce, was also on the G20 agenda but gaverise to no particular decisions; the declaration merely mentionsthat there must be “a reduction in the effects of price volatility”.

After the G20, the European “indignés” and the Occupy WallStreet movement see their convictions reinforced. Those whosupposedly pilot the planet are incapable of finding the rightsolutions and have put their whole weight against the idea thata people may pronounce an opinion on the neo-liberal policies

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they impose. The lesson will not be forgotten. Clearly, the needfor a different, truly democratic, international architecture hasbecome a matter of urgency. Anti-capitalist choices must nowbe made: the dictatorship of the creditors refused. Banks mustbe expropriated without indemnity, by the people; there mustbe repudiation of illegitimate debt and radical redistributionof wealth.

Translated by Mike Krolikowski and Vicki Briault.

The Global Context


Barack Obama: The change that didn’thappen

— Eric Toussaint & Daniel Munevar

With the announcement of the candidacy of Barack Obama forthe President of the United States in 2012, the campaign trailhas officially started. Contrary to what one might have expectedtwo years ago, Obama faces a tough re-election challenge.Furthermore, a victory does not seem guaranteed. Despite thestabiliastion of the financial system, achieved through a massivehandout of public resources without any type of restrictions tothe same people responsible for generating the crisis, the realeconomy is still awaiting the arrival of a true economicrecovery. While 89% of the benefits of economic growth in theUnited States during the Obama administration have gone tothe corporate sector, ordinary citizens continue to face a harshsituation characterised by high levels of unemployment, areduction of income as well as record numbers of foreclosuresacross the nation. It is precisely the inability of theadministration to provide answers and solutions to the pressingproblems of the population that calls into question its abilityto win the election, despite having an advertisement budget ofmore than a billion dollars available for this purpose.

However, this situation is not surprising if we take intoconsideration the decisions Obama has made since 2008. Alarge proportion of the millions of voters who supported himwere expecting for the new elected president to appoint a teamof progressive economists which would promote a modernversion of the ‘New Deal’, with the objective of reformingcapitalism and starting a new era of regulation of the economy.As it happened, reality was quite different. Obama insteaddecided to chose the most conservative economists close tothe Democrats, those responsible for promoting the de-regulation of the financial system under President Bill Clinton.When we stop and observe three emblematic names, thecoherence of his choice is revealing.70

The first of these advisers is Robert Rubin, Secretary of theTreasury from 1995 to 1999. Rubin was Co-Chair and Co-CEO

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of Goldman Sachs from 1990-92 before he joined the Clintonadministration. Upon arrival at the Treasury, Rubin was facedwith the first major failure of the neo-liberal model in thenineties, the Tequila Crisis in Mexico. Afterwards he stronglysupported, along with the IMF, the implementation of harshausterity measures that aggravated the financial crisisexperienced by South East Asian countries in 1997-1998,shortly followed by the crisis in Russia and Latin America. Rubinhas never doubted the benefits of liberaliastion and decisivelycontributed to impose policies on developing countries thatundermined the living conditions of its population and greatlyincreased inequality. In the United States, he exerted powerfulinfluence to secure the repeal of the Glass Steagall Act, enactedin 1933. This law, among other things, emphasised in theincompatibility of deposit and investment banking, creating aclear cut division among the two activities. Once Glass SteagallAct was abolished, the door was open to all sorts of greedyrentiers eager for maximum profits regardless of the risk, whichended up creating the conditions for the recent economic crisis.To close the loop, the repeal of the Glass Steagall Act allowedthe merger of Citicorp with Travelers Group to form the bankinggiant Citigroup. In 2000, Robert Rubin joined the leadershipof Citigroup, which the U.S. government had to bailout inNovember 2008, guaranteeing more than 300 billion dollarsin assets! It’s important to point out that the services providedby Rubin as chairman of Citigroup’s executive committee weregenerously rewarded. According to the Financial Times, Rubinreceived over 118 million dollars in salary plus bonuses andstock between 1999 and 2008.71 However, it was during hisparticipation of the Board of Directors when Citigroup plungedinto an increasingly risky financial policy that led to the fiascowhich ended up costing the U.S. Treasury the astronomicalsum of 45 billion dollars.72

The second adviser was Lawrence Summers, who inherited thepost of director of the National Economic Council at the WhiteHouse during the first half of the Obama administration.However, his career included a number of failures which couldbecome permanent. In December 1991, while he was chiefeconomist of the World Bank, Summers dared to write in amemo: “Countries with small populations in Africa have a very

The Global Context


low pollution. Air quality is uselessly higher than in LosAngeles or Mexico. It is necessary to encourage the movementof polluting industries to the LDCs. There must be some degreeof pollution in countries where wages are lower. I think theeconomic logic which dictates that toxic waste should bedirected where wages are lower is inexorable. [...] The concern[about the toxic agents] will obviously be higher in a countrywhere people live many years and therefore more likely getcancer, than in a country where infant mortality in childrenunder 5 years old, is 200 per thousand.”73 With Summers incharge, the productivist capitalism would enjoy a splendidfuture.

Having been named Secretary of the Treasury under PresidentClinton in 1999, Summers put pressure on the World Bankpresident, James Wolfensohn, to get rid of Joseph Stiglitz whohad succeeded him in the post of chief economist of the Bank.Stiglitz was very critical of neo-liberal policies that Summersand Rubin pursued in all parts of the world where financialcrisis took place. After the arrival of George W. Bush, Summerscontinued his career by becoming president of HarvardUniversity in 2001. He came back to the spotlight in February2005, when he won the enmity of the entire universitycommunity after a discussion at the National Bureau ofEconomic Research (NBER)74. Asking himself questions aboutthe reasons why there are few women in prominent positionsin science, Summers pointed out that women are less equippedthan men for science, ruling out any other possible explanationsuch as social or family background or tendencies towardsdiscrimination. This statement caused great controversy, bothinside and outside the university75. Despite apologising for hisremarks, the protests of a majority of teachers and students ofHarvard forced him to resign in 2006.

Summers biography, which is available on the Website ofHarvard University at the time of his presidency, stated thathe “led the effort for the implementation of most importantfinancial deregulation of the past 60 years”. You could not beclearer! Lawrence Summers resigned in September 2010 fromhis post in the National Economic Council at the White House.

The third adviser in question is Paul Volcker, who as chairman

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of the Federal Reserve dramatically increased interest rates inthe United States in October of 1979. This interest rate hikebecame the main trigger of the public debt crisis in both Southand the North of the planet, in the early 80s76.

The fourth adviser, Timothy Geithner, has been namedSecretary of the Treasury. Before his appointment in thecabinet, Geithner was the President of the New York FederalReserve. He was Deputy Secretary of the Treasury forInternational Relations between 1998 and 2001, working underthe supervision of Rubin and Summers, and active in Brazil,Mexico, Indonesia, South Korea and Thailand. All thesecountries suffered severe crisis during that period and becamesymbols of the disasters brought by neo-liberalism. The policiespromoted by the aforementioned group of economistsdisplaced the burden of the cost of the financial crisis upon theback of the population of the countries affected. Rubin andSummers are Geithner mentors. In February 2009, Geithnerwas about to lose his appointment because the press revealedthat he had defrauded the Treasury by hiding a paymentreceived from the IMF. The loss for the Treasury due touncollected taxes amounted to 34.000 dollars77. Finally, tosecure his nomination, Geithner repaid his debt to the Treasury.With Obama, Geithner continues to defend the major privatefinancial institutions, deaf to the fundamental human rights,ridiculed in the U.S. and everywhere because of the economicpolicies he vehemently defends.

Barack Obama’s decision was not trivial. He was in a position tochange the terms of the policy discussion by appointingadvisors with a Keynesian background. Economists like JosephStiglitz, Paul Krugman, Nouriel Roubini and James K. Galbraithwere willing to take on this responsibility. Nevertheless, Obamachose some economists responsible for the deregulation of thefinancial sector in the 90s; in other words, friends or agents ofWall Street.

The economic policies that Barack Obama and his team enactedin 2009 are far from those proposed in 1933 by Franklin D.Roosevelt’s in the first 100 days of his administration.

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The Change That Was Not

Despite being elected on the premise of hope and change, 2years in power have shown that Obama is more than happy tofulfil the role of a mere guardian of the status quo. Contrary tothe expectations of certain sectors, the Obama administrationstayed on the course set by the Bush administration in keyissues on foreign and economic policy. The difference betweenthe two governments has been then more a matter of style thansubstance.

The lack of concrete actions to address the social crisis thatoriginated in the economic and financial collapse of 2008, haveeroded the liberal base which initially supported the Obamaadministration. To date, 14.4 million families have lost theirhomes since the beginning of the crisis and about 25 millionpeople are in a situation of unemployment or precariousemployment. The policies implemented so far, have beendesigned to support and ensure the survival of financialinstitutions responsible for the economic crisis instead ofaddressing the urgent needs of a large segment of the U.S.population.

Given the composition of the Obama administration’s economicteam the path followed should not have represented anysurprises. People directly responsible for the excesses offinancial institutions in their capacity as regulators of thesystem, such as, Timothy Geithner or Ben Bernanke, faced fromthe beginning serious conflicts of interest. Their interest restsquarely on concealing their responsibility rather than onpromoting the implementation of measures aimed atovercoming the economic crisis. Losing sight of this elementof individual responsibility, on political and legal terms, wouldprevent understanding how on the face of allegations of abuseby financial institutions in the eviction of families from theirhomes or speculation with the bailout funds provided by thegovernment, The White House has defended the interests ofWall Street over and over again.

However, it is clear that the biggest capitulation to the financialsector was the Frank-Dodd Financial Reform Act. Missing theopportunity to restrain the excesses of financial sector thatwas presented with the crisis, the Obama administration carried

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out the implementation of a reform that completely fails toimpose controls on critical areas of operation of finance.Adopted in 2010, this law not only allows the use of dubiousaccounting practices (which allow hiding losses in the balancesheets of financial institutions), but also strengthens theprerogatives of the institutions deemed “too big to fail”. It alsocompletely brushes aside the regulation of financial derivatives.It is this lenient attitude towards the financial sector by theObama administration which allows understanding how not asingle executive of the sector has been prosecuted for a financialcollapse, that as early as 2004 the FBI had characterised as anepidemic of mortgage fraud.

On the face of this situation it is not surprising that the Americanpeople have turned their backs to the Democratic Party in theCongress and Senate elections that were held in November2010. With an ultra-conservative discourse, and takingadvantage of the uncertainty and anxiety caused by theeconomic crisis, the Republican Party regained control ofCongress and threatens to take control of the Senate in 2012.In response to the loss of Congress, Obama ordered somechanges in its economic team, with the departure of prominentmembers, such as Lawrence Summers, Cristina Roehmer andPaul Volcker. However, the name of the replacements indicatesthat the changes are merely cosmetic in nature. These includeGene Sperling, another former Clinton administration advisorwhich strongly advocates in favour of tax cuts, and WilliamDaley, the former Midwest Chairman of JPMorgan, running theChicago office.

Since taking control of the Congress in of November 2010, theRepublicans have consistently blocked all of the initiativesbrought forward by the Obama administration, taking fulladvantage of the control that the Congress has over thegovernment budget and the debt ceiling. The Republicanstrategy of systematically blocking government efforts, thusdecreasing the chances of its re-election, has reached itsclearest expression with the ongoing battle to raise the Federaldebt ceiling. A prerogative of the Congress of the United States,the debt ceiling sets a maximum amount of debt that can beissued by the Federal Government and was created as amechanism to exercise control by the legislative branch of the

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government over the executive power. Historically, theincreases of the debt ceiling have been carried out as anafterthought of the political process. However in the currentsituation, and as it was the case in 1995, the Republicans haveused their control of Congress to force the government to makecuts in social spending at the risk of refusing to raise the debtlimit. Subsequently Obama gave in to their demands.

If we can learn from recent history, the most affected by cuts inpublic spending will be the unemployed and poor of theAmerican society, while bankers and speculators will continueto be protected by the Obama administration. This definitelywas not the change that the American people had in mind whenthey voted for Obama in 2008.

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Resistance & Alternatives

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The International Context of theGlobal Outrage

— Eric Toussaint

Part 1

Looking back on the movements thatpreceded the Arab Spring, the Indignados,

and the Occupy Wall Street

In 2011, social and political rebellion has re-emerged in thestreets and on squares all over the world. It has appeared innew forms and been given new names: the Arab Spring, theIndignados, the Occupy Wall Street (OWS) movement. The mainregions affected are North Africa and the Middle East (includingIsrael), Europe and North America. Not all countries in thoseareas have been equally affected by this new wave ofmobilisations and new forms of organisation. In the countriesin which it has not been massive, active minorities haveattempted to give it wider legitimacy with varying results78. Inthe Southern hemisphere, only Chile has experienced amovement that can be compared to that of the Indignados in2011 79.

If we try to sum up what has been achieved by the anti-globalistmovement over the past two decades, we can distinguishbetween different phases related to the overall developmentsin the world.

From 1999 to 2005, in response to a heightening of the neo-liberal offensive in Northern countries, large-scalemobilisations occurred against the WTO (Seattle in November1999), the World Bank, the IMF, and the G8 (Washington inApril 2000, Prague in September 2000, Genoa in July 2001).The World Social Forum emerged in that context in Porto Alegrein January 2001. Over the following years the movement spreadto several continents (Latin America, Europe, Africa, SouthAsia, and North America). New international networks werecreated: Jubilee South (on the issue of debt), ATTAC (againstthe dictatorship of financial markets), the World March of


Women, Our World Is Not for Sale, and others. Older networks(dating back to the first half of the 1990s) such as Via Campesina,CADTM (North/South network that focuses on the debt, theWB and the IMF) were strengthened. The anti-globalisationmovement developed in these years, mainly within the contextof the WSF

Key dates in the construction of thealter-globalist movement

The mobilisations that occurred in 1999-2000 were pre-pared for by other actions, such as

€ the mobilisation against the G7 in Paris in July 1989 onthe occasion of the bicentenary of the French Revolution,which led to the Appel de la Bastille (Bastille Call) forcancelling third world debt (the CADTM’s founding text,see http://www.cadtm.org/Appel-de-la-Bastille-pour-l).

€ the (neo) Zapatista uprising that erupted on 1 January1994 and had a major international impact for severalyears, particularly during an international meeting in theChiapas in 1996 with the Surrealist name ‘Intergalacticmeeting in defence of humankind’ (in which manyinternational movements participated including theCADTM).

The 50th anniversary of the World Bank and IMF was com-memorated by a huge protest in Madrid in 1994. This dem-onstration inspired the French when they founded ‘Lesautres voix de la planète’ (the other voices of the planet)collectives during the mobilisation against the G7 in Lyonin 1996. The Spanish initiative brought together NGOs,the CADTM Belgium and movements such as the 0.7% plat-form in which young people struggled to convince theircountry to devote 0.7% of the GDP to public aid to devel-opment, and also trade unions, feminist and environmen-tal movements (Ecologistas en Acción). Already at thecounter-summit in Spain an alliance of movementsemerged that would later converge on Seattle in 1999, thenon Porto Alegre in 2001, and so on. In 1997, EuropeanMarches against unemployment, job insecurity, and so-

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cial exclusion played a decisive role in Amsterdam, dur-ing an EU counter-summit.

See CADTM Les manifestes du possible (Manifestoes ofwhat is possible), Syllepse-CADTM, 2004 http://www.cadtm.org/Les-Manifestes-du-possible

After 20 years of neo-liberal domination in South America,massive uprisings in several countries proved to be successful:the water war in Bolivia in 2000, the Indian uprising in Ecuadorthat overthrew the neo-liberal president (2000), the rebellionthat overruled Argentina’s neo-liberal president (end of 2001)and opened a pre-revolutionary crisis in December 2001 andon into 2002, the popular uprising in Venezuela in April 2002to bring Hugo Chavez back to the presidency after a coup (11-13 April 2002), the ‘gas war’ in Bolivia in 2003 with the pro-Washington neo-liberal president being overruled, andsimilarly the overruling of the pro-US neo-liberal president inEcuador in 2005… In the wake of such mobilisations,governments that at least partly broke off with neo-liberalismand opposed the US domination, launched political reformsand partly restored public control over natural resources(Venezuela from 1999, Bolivia in 2006, Ecuador in 2007).Yielding to popular pressure, the Argentine government, whichwas not particularly left-wing, implemented heterodoxmeasures that contrasted with those taken by the PTgovernment in Brazil and by the Uruguayan Broad Front, whichparadoxically carried on with the same policies of their neo-liberal predecessors while adding a significant amount of‘assistancialism’ that improved the condition of the poorerclasses and thus consolidated their voter base. The Free TradeArea of the Americas (FTAA) that Washington wanted to set upwas abandoned in 2005 thanks to the opposition of a majorityof South American governments and social mobilisation.

Meanwhile 9/11, 2001 led to a new US war offensive inAfghanistan and Iraq that reeked of oil grabbing and militarypositioning. The offensive was accompanied by a restriction ofdemocratic liberties, especially in the US and the UK: war onterror was the perfect excuse. Faced with such hard-lineimperialism, the anti-globalisation movement managed to

Resistance and Alternatives


bring out 12 to 13 million people to march against war all overthe world in February 2003, but was unable to prevent theinvasion of Iraq one month later. The decline of the WSF startedin 2005. One of the reasons was the International Council’srefusal to allow the forum to develop from a forum whereactivists could meet and exchange ideas to an open anddemocratic instrument for political action. We should add theinstitutionalisation of the process, dominated as it was by NGOsand leaders of social movements that were all too closelyaligned with social liberal governments, such as the Lulagovernment in Brazil and Prodi’s in Italy.

After 2004 there were no more large-scale internationalmobilisations against the IMF, the WB, the G8, NATO, the WTO,or imperialist wars. The alter-globalisation movement wasobviously losing momentum though WSFs may have been quitesuccessful, as in Belém (Brazil) in 2009, and to a lesser extentin Dakar in February 2011.

In 2005, when they adopted the EU constitutional treatyagainst the will of the people, the European ruling classes andgovernments reinforced the neo-liberal capitalist orientationof an integrated Europe within the context of the EU and theEuro Zone that gradually extended to 17 countries.Industrialised capitalist countries as well as China andcommodity exporting countries still seemed quite healthy. Theruling classes led their offensive by imposing more precariousworking conditions and greater imbalance in the distributionof wealth, but consumption sustained through credit and thereal estate bubble produced a misleading sense of abundanceand well-being in countries such as the US, the UK, Spain,Ireland, Greece, and several central European countries thatwere new EU members. On the other hand, the perceptibleeffects of climate change triggered a growing awareness of thedeleterious consequences of productivist capitalism.

— Translated by Christine Pagnoullein collaboration with Charles La Via.

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Part 2

The global crisis that preceded the ArabSpring, the Indignados, and the Occupy Wall

Street movement

In 2007, the capitalist sky started to darken: the biggest crisisof capitalism since the 1930s had erupted. The different crisesthat ensued were interconnected: the banking and financialcrisis, real estate crisis, and economic crisis in the mostindustrialised countries, and the food crises in the Southerncountries, particularly in Africa and certain Asian countries(Latin America was less significantly affected), which mainlyresulted from the economic policies practiced in the mostindustrialised countries, in particular: (1) the shift away fromreal estate speculation (when the housing bubble broke)towards the grains futures markets; (2) support for bio-fuelproduction. In 2008, the food crisis caused hunger riots inmore than 15 countries, as the number of starving peopleincreased from 850 million to more than one billion80. Theeconomic health of China, which is the workshop of the world,led to workers’ strikes in the former Middle Kingdom thatresulted in wage increases (which were at that point very low).The worldwide crisis in governance is obvious, as the followingthree examples show: (1) The process to further deregulatetrade, defined in Doha in November 2001, is at a standstill, andthe WTO is simply spinning its wheels. (2) Between 2002 and2008, the IMF experienced a radical crisis: two ManagingDirectors in a row did not finish their term of office; emergingcountries reimbursed their debt to the IMF in advance in orderto escape from its direct supervision and to follow partlyheterodox economic policies; (3) The G7 (the United States,Germany, the United Kingdom, Japan, France, Italy, andCanada), where the financial and economic crisis originated,cannot pretend once again to find and impose solutions, becausethe emerging economies are in good economic shape, havesubstantial currency reserves, and have reduced their debt (atleast their external debt). The leaders of the most industrialisedcountries convened the G20 in 2009, and asked the emergingcountries to help them get out of the economic quagmire inwhich they were stuck. Great promises were made: the capitalist



system will be reformed or even rebuilt on new foundations,the international finance system will be cleaned up by regulatingthe tax havens, bankers and their traders will be forced to stoptheir extravagant behaviour, speculation on foodstuffs will belimited, major institutions like the IMF and the World Bank willbe reformed to give a little more voice to emerging countries,solutions will be found to mitigate climate change… In the finalanalysis, none of these promises have been put into practice.Meanwhile, the IMF has returned to the centre stage. Whereasit had to take the pressure off emerging countries and was onthe brink of financial suffocation (to such an extent that it hadto lay off staff), it decided to attack again, but this time theNorthern countries. In 2008-2009, it imposed its neo-liberalprescriptions in Iceland and in several countries in Centraland Eastern Europe (former members of the Soviet bloc whichbecame members of the European Union or candidates foraccession81). In 2010, it was Greece and Ireland’s turn. In 2011,Portugal was once again submitted to some brutal financialwater boarding. The G20 decided to bailout the IMF even if theprocess was complicated to enact since the major powers werereluctant to give the emerging powers the role they deserved,even though they had asked them for financial support82. At aEuropean summit in December 2011, the EU, without the helpof the United Kingdom, decided to channel 150 billion Euros tothe IMF.

In 2008-2009, the crisis in the most industrialised countriesadversely affected the Chinese economy, where the authoritiesreacted by launching a vast economic stimulus packagefinanced by the State (which the IMF had always refused to dowhen Southern countries were facing such a crisis).

In 2007-2008, the dominant classes and governments in powerin the most industrialised countries became frightened: thecapitalist mirage was quickly evaporating, capitalism wascaught up in its own contradictions and starting to appear tobe the very cause of the crisis. To avoid massive protests, whichmight become quite radical or even anti-capitalist, at the endof 2008 and in 2009, Washington (where Barack Obama hadarrived in January 2009), the European Commission, and thecapitals of the old continent created social shock absorbers,except in European periphery countries such as the Baltic

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Republics, Hungary, and the Ukraine. The shock doctrine reallystarted being implemented in 2010. In 2011, it was appliedmore violently. The attacks against what remained of the rightsacquired by workers after World War II were brutal,particularly in the periphery countries, within or outside ofthe European Union.

Meanwhile, in 2008-2009, the epicentre of the crisis, whichhad been in the United States moved to the European Union forthree reasons: 1. The organisation of the European Unionaccentuated the crisis because the instruments for aid and fortransferring funds to the most fragile countries wereprogressively disappearing; 2. Private European banksthreatened to collapse and to cause a new financial cataclysmsimilar to the one created by the bankruptcy of LehmanBrothers. Saved by the States, they continued takingtremendous risks with the money lent to them for almostnothing by the Fed, the ECB, Bank of England, and Swiss NationalBank; 3. Instead of adopting an economic stimulus policy andimposing strict rules on the banks, the European Commissionand national governments imposed severe austerity measures,which reduced demand and resulted in depressed economicactivity. As a consequence, public debt, which was much lowerthan the debt held by private corporations, exploded. Inseveral European countries, including Spain, Ireland, the UnitedKingdom, and Hungary, when the housing bubble brokehundreds of thousands of heavily indebted families lost theirhomes or apartments. Hundreds of thousands of constructionjobs were also eliminated. In 2010-2011, the Europeangovernance crisis took on major proportions. Increasinglyfrequent crisis summits were held to concoct bailout plans,which have not yet been able to solve anything. Banks are onceagain on the brink of disaster, and if they have not yet fallen offthe cliff, it is only thanks to the additional support provided bynational governments.

Translated by Charles La Via



Part 3

From the Arab Spring to the Indignadosmovement to the Occupy Wall Street

Living conditions in Tunisia and Egypt, neither of which exportraw materials, or only marginally, have worsened over recentyears. The resulting civil protest has been met with brutalrepression. In Tunisia first, this led to a mass reaction, whichquickly took on a political dimension. People gathered in thestreets and squares to face the forces of repression, which left300 dead, and demanded the departure of the dictator, BenAli. He was forced to step down on 14 January 2011. From 25January 2011 on, the movement spread to Egypt where thepopulation had been subjected to decades of neo-liberalcounter-reforms dictated by the World Bank and the IMF, witha dictatorial regime allied, like Tunisia, to the major Westernpowers — as well as being totally compromised by an alliancewith the Israeli government. On 11 February 2011, less than amonth after Ben Ali’s demise, Mubarak too was obliged to resignfrom office. Repression clamped down on other countries inthe region as civic unrest spread like wildfire. The process ofstruggle throughout the region is far from over. In Tunisia andEgypt, the ruling classes, helped by the major Western powers,are trying to control the situation to prevent the movementfrom becoming a full-blown social revolution.

The wind of rebellion has swept across the Mediterranean fromNorth Africa towards southern Europe. In Portugal, on 12 March2011, hundreds of thousands of temporary workers demonstratedin the streets but the movement did not last. On 15 May, theprotest reached Spain and carried on until 23 July, beforeescalating to a global level on 15 October 2011. Meanwhile, themovement had reached Greece from 24 May 2011. Puerta delSol Square in Madrid, Catalonia Square in Barcelona, SyntagmaSquare in Athens and hundreds of other squares in Spain andGreece vibrated to the same rhythms in June 2011. In July andAugust, social protest also shook Israel: the Rothschild Boulevardin Tel Aviv was occupied but with no threat to the governmentand without seeking to connect with the Palestinian cause. InSeptember, the movement crossed the Atlantic. From the EastCoast of the United States, where it started in New York and Wall

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Street, it spread over a large part of U.S. territory to the WestCoast where Oakland was the site of the most radical action. On15 October 2011, the date fixed by the Indignados movement inSpain, over a million people were demonstrating around theworld, from Japan to the West Coast of the United States, mainlyin the highly industrialised countries. The most imposing of the15 October demonstrations were those in Madrid, Barcelona,Valencia, Athens and Rome. In Spain, where the action started,almost half a million demonstrators marched through the streetsof about 80 different towns, including at least 200,000 in Madrid.Demonstrations took place in the world’s main two financecentres, New York and London, as part of this vast movement.In over 80 countries and nearly a thousand different cities,hundreds of thousands of people, young and old, marched inprotest against the way governments were dealing with theinternational economic crisis. Governments had rushed to theaid of the private institutions who were responsible for thecollapse and who were taking advantage of the crisis to enforceneo-liberal policies such as massive redundancies in the publicsector, drastic cuts in social spending, massive privatisation,measures undermining collective solidarity (cutting retirementpensions and unemployment benefits, sabotaging negotiatedagreements between employers and workers, and so on.)Everywhere the need to repay the public debt is the pretextinvoked to justify increased austerity measures. Everywheredemonstrators condemn the banks.

There is no permanent organisation behind this movement andit has not sought to establish any kind of internationalcoordination; nevertheless, communication is clearlyfunctioning well.

Translated by Vicki Briaultin collaboration with Christine Pagnoulle



Part 4

Common features of the various 2011mobilisations

In 2011 we come across several common features when lookingat the Arab Spring, the Occupy Wall Street or the Indignadosmovements in various countries. (1) Demonstrators reclaimedpublic space; they even settled there, they organised manymarches. In the past radical actions have often started at placesof work or study and involved their occupation. Althoughstrikes and factory or school occupations did take place in somecountries such as Egypt or Greece, the most common form ofaction consisted of reclaiming public space. For a significantnumber of protesters it was impossible to organise anything attheir workplace, mainly because of repression and the dispersalof workers. Many are unemployed (this is one of the reasonsfor their involvement) or have to make do with some casualpart-time job. In some countries we find many unemployedgraduates among the demonstrators. In countries such asSpain, which was badly hit by the real estate crisis, or Israel,where there is a severe shortage of low-rent housing, many arethe victims of the real estate crisis. Beyond these reasons, thedetermination to occupy city squares expresses the will to gettogether, to muster up forces in a show of strength togovernments that are perceived in Tunisia, Spain, Greece,Egypt, or even in the US, as completely impervious to the needsand demands of the majority of their citizens. The demand forgenuine democracy (democracia real) is at the very heart ofthose movements. (2) In several countries communication andmobilisation partly relied on social networks such as Facebookor Twitter, though this should not be over-emphasised. (3) Thereliance on ‘meetings’ has been another common feature. Inthe same vein we notice reticence or downright refusal to electrepresentatives. There is a call for direct participativedemocracy. (4) In many cases, civil disobedience has beensystematically used as an act of resistance in the face oftotalitarian governments (as in Tunisia or Egypt) or of agovernment that is so cut off from the people that it usesrepression to evacuate public squares or prevent meetings (asis regularly the case in the US). This is a far remove from

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traditional demonstrations that were more like processionsthan to protest marches. In some respects the movement isthe expression of a qualitative leap. Until now, the dominantideology and repression had succeeded in splitting people upand making them feel isolated through fear of repression, fearof losing their jobs, lodgings, retirement benefits, savings, etc.But the depth of the crisis and the critical number ofdemonstrators have made it possible for many to break out oftheir isolation, feeling that there was not much left to lose. Formany demonstrators this is the first time they have been partof a collective protest with a political dimension. (5) In mostcases no list of demands was drafted, though the Indignados’working committees did produce proposals and declarations.In this respect we ought to underline the significance of thejoint declaration of protesters on Puerta del Sol and onSyntagma Square (Sol-Syntagma): ‘No to the payment ofillegitimate debt. This is not our debt. We owe nothing, we sellnothing, and we will pay nothing83.’ In the case of Tunisia andEgypt, they agreed on a central demand, namely that thedictator should step down fast: ‘Dégage!’ (6) Protesters did notcome together on any community basis, whether political,generational, religious, social, or ethnic. There is a real medley,even if some of the categories that are the most exploited aresometimes under-represented. The Occupy Wall Street sloganwas soon adopted all over the world: ‘We are the 99%’.

We could add a seventh common feature: nowhere has the WorldSocial Forum, the European Social Forum, or the Social Forumof the Americas served as reference. Nor is there any referenceto an anti-globalisation or global justice movement. In thisrespect the cycle that opened with the creation of the WSF in2001 seems to be completely over, another cycle has started,we will see what it opens onto. What matters is to be part of it.

As well as these common features, there are glaringly obviousdifferences. In North Africa and the Middle East the main targetsare dictatorial regimes (though the social issue is indeedpresent and even a triggering element). In more industrialisedcountries the targets are banks and lackey governments.Defending public goods is a demand they share. The social issueis voiced by refusing precarious jobs, rejecting the privatisationof public services (education, health care, etc.), demanding a



solution to the housing and mortgage crisis (particularly inSpain and in the US, where students also have to take out loansthat amount to USD 1,000 billion), and more generally byrefusing to pay for a crisis that was caused by 1% of very richpeople…

Among industrialised countries there is also a marked differencebetween the radical Greek movement, with its similarities tothe pre-revolutionary crisis seen in Argentina in 2001-2002,and the situation in Spain, not to mention the US. The diverginghistories of the social movements in these countries and thedifferent degrees of recognition of hard left political parties(the Greek radical left with the Communist Party amounts to25 to 30% of voters and can thus have a significant influence ontrade unions, as indeed in Portugal, while the situation iscompletely different in the States) have not been erased by themovement that emerged in 2011.

Translated by Christine Pagnoullein collaboration with Vicki Briault

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Part 5

Indignadas and Indignados of the World,Unite!

The future of the Arab spring and the Indignados and OccupyWall Street movements is very difficult to foresee. The Tunisianand Egyptian uprisings are likely to lead to a transition similarto those that ensued in Latin America, the Philippines and Koreawith the end of dictatorships in the 1980s, or in South Africa inthe 1990s and in several sub-Saharan African States: with thestabilisation of a neo-liberal bourgeois regime. Today is adifferent era, the Muslim world presents very specificcharacteristics, and the geo-strategic stakes are significant(especially as regards Egypt and the Middle East, less soTunisia): history is an open process. The capacity of theoppressed to organisation will be decisive.

For the Occupy Wall Street movement – OWS – and itscounterparts in the rest of United States territory, will thecurrent phase of repression and the rigours of winter take itstoll on the movement’s impetus? Will attempts by theDemocrats to appropriate the OWS for the purposes of the 2012election campaign succeed in dividing it?

In the case of the Indignados in Europe, apart from Greecewhere it directly opposes the government, we shall see if itmanages to consolidate in Spain, gather new strength inPortugal, take hold in Italy, and whether it will eventually affectIreland and other European countries. In the case of Greece,Spain and Portugal, the movement was born when the Socialistswere in power and applying their neo-liberal policies to thebenefit of the bankers responsible for the crisis. Since then,elections have brought back the right, which is intent onimposing an even harsher austerity cure. In Greece, the returnof the right came without an election with the forming of anational unity government between the Pasok, the right andthe extreme right. With the political context thus modified,will the Indignados Movement recover its strength and comeinto direct conflict with these governments? The outcome willbe decisive for the country’s capacity to weather the worseningcrisis. Will the Irish people shake off its present torpor? Will



there be an Outraged Irish movement? Italian socialmovements played a decisive role in the early 2000s duringthe rise of the anti-globalisation movement and the Europeanand World Social Forum. This was followed by a certain ebb, bya period of adaptation to the social liberal policy of RomanoProdi’s government and of demoralisation following the returnof Silvio Berlusconi. What will happen with the big-businessgovernment of Mario Monti and the partial placing underguardianship of Italy by the European Commission and theIMF? Will the Indignados movement take on a specificallyItalian colouration in 2012, or will the resistance be mainlypursued through other channels? As for France, which saw apowerful social movement in 2010 for the defence of pensionrights and which remained on the fringe of the Indignadosmovement in 2011, will this movement finally take root whenthe new austerity measures come into full force, whether underNicolas Sarkozy or François Hollande? And what about inUnited Kingdom, Germany and Belgium, for instance? If theprivate banking crisis brings new bankruptcies in the wake ofthe collapse of the Franco-Belgian Dexia in October 2011, whatwill be the effect on the populations concerned?

Whatever the various outcomes, it is clear that thanks to theArab spring, the Indignados movements and Occupy WallStreet, the bottom line for the year 2011 is a positive one forthe struggle of social movements. The people have ridthemselves of dictatorships in North Africa, and in the UnitedStates, Occupy Wall Street has upstaged the Tea Party, while inseveral European countries resistance is being organised on alarge scale and through new channels. One thing is certain: theissue of the debt will increasingly be the cornerstone of thefight to resist austerity programmes and the wanton destructionof social benefits. Repayment of the public debt is both apretext for imposing austerity measures and a powerfulmechanism for the transfer of revenues from those low downon the scale to those at the top (from the 99% to the 1%). Thefight to break the infernal cycle of debt is a vital one. If it is notenergetically pursued, there is little chance of overcoming thenext neo-liberal offensive. In addition, in countries like Spainand Ireland where the bursting of the real estate bubble affectedhundreds of thousands of families, cancellation of the mortgage

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debt and the guarantee of a right to decent housing arebecoming key issues. In a number of countries (Greece, France,Portugal, Spain, Italy, Ireland, etc.) the creation of citizen debtaudit collectives is a significant step towards reinforcing theIndignados movement dynamics wherever it is operating andfor mounting a counter-offensive on a European scale.

Indignadas and Indignados of the World, Unite!

Translated by Judith Harrisin collaboration with Christine Pagnoulle



Seismic election results in Greece:Syriza, the radical left-wing coalition

comes first in all major cities andamong people aged 18-35. Its

campaign advocated suspending debtpayment and cancelling austerity

measures

— Eric Toussaint

1. Results

At the May 6 polls, the radical left-wing coalition Syrizabecomes the second “party” in numbers of voters as it movesfrom 4.5% at the previous elections (2009) to 16.8% (52 MPsinstead of 13). It is the first party in the major agglomerationsand among people aged 18-35.

The Socialist Party (PASOK) lost 2/3 of the votes it hadreceived in 2009 (from 44% to 13.2%, a loss of 119 MPs, from160 to 41!). PASOK pays ‘cash on the nail’ their rigorousausterity programme and subjection to the ‘Troika’ and bigprivate business interests.

New Democracy, the main right-wing party that entered thegovernment in December 2011, still comes first but with anenormously reduced score down from 33.5% to 18.9%.However, it gains seats because of an iniquitous dispositionthat grants 50 seats as a bonus to the party that pooled mostvotes. So while it lost 40% in votes New Democracy wins 17MPs (from 91 to 108). On the eve of the elections on May 6,New Democracy only had 71 MPs because of many defectingrepresentatives (PASOK had lost 31 MPs from 2010 to 2012 asa protest against its anti-popular stance). While NewDemocracy only has 2.1% more than Syriza, it has twice asmany seats (108 for New Democracy against 52 for Syriza).

Golden Dawn, a neo-Nazi group with paramilitary leaningsgets into parliament. From marginal votes it gets close to 7%

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and 21 MPs. It will thus receive public funding to develop.

The Communist party KKE records a slight progression(from 7.5 to 8.5%, it wins five seats from 21 to 26).

Democratic Left -DIMAR- (that split off from Syriza in 2010-2011) gets 6% votes and 19 MPs.

The Greens don’t reach the 3% threshold to have any MP, asis the case for the far right party LAOS that pays for itsparticipation in the government (it had 17 MPs after the formerelections).

Antarsya (far left coalition) stays around 1.1%

Left of PASOK: Syriza + PC (KKE) + Dimar + Antarsya = 97 seats(as for now) instead of 34 seats in 2009. It might be the highestresults of left-wing parties since 1958.

On the far right Golden Dawn got 21 seats against 17 for LAOS in2009.

2. Partial comment

The score of the neo-Nazi party is most worrying (see theanalysis of a fast evolving context by Yorgos Mitralias http://www.cadtm.org/spip.php?page=imprimer&id_article=7899,in French)

The principal point to be retained from this election is the highlypositive result of the Syriza coalition that ran its campaign onthe issue of immediate and unconditional suspension of Greekdebt repayments for a period of three to five years, thecancellation of austerity measures enforced since 2010, thenon-fulfilment of agreements with the Troika, thenationaliastion of a significant part of the banking sector, theneed to set up a left-wing government to implement thesemeasures. Several Syriza MPs actively support a citizens’ auditof the Greek debt and the need to cancel illegitimate debts,among them Sofia Sakorafa, who broke up with Pasok in 2010as a protest against austerity. We will see whether Syriza willkeep this orientation after its electoral success. It is encouragingto know that so many voters supported these radical proposals.The future will tell whether Syriza can meet the challenge ofthis remarkable popular support.



“On his upcoming talks to explore whether he will be able toform a majority coalition with parties of the left and partiesrepresenting environmental concerns, the head of Syriza laidout the five points that will be the focus of discussions:

1. The immediate cancellation of all impending measures thatwill impoverish Greeks further, such as cuts to pensions andsalaries.

2. The immediate cancellation of all impending measures thatundermine fundamental workers’ rights, such as the aboli-tion of collective labour agreements.

3. The immediate abolition of a law granting MPs immunityfrom prosecution, reform of the electoral law and a generaloverhaul of the political system.

4. An investigation into Greek banks, and the immediate publi-cation of the audit performed on the Greek banking sectorby Black Rock.

5. The setting up of an international auditing committee to in-vestigate the causes of Greece’s public deficit, with a mora-torium on all debt servicing until the findings of the auditare published.”84

The task will not be easy as so far the communist party KKE,with which it would be necessary to enter into an alliance,categorically declines, claiming that Syriza is a pseudorevolutionary party and retreating into some haughty isolation.

See the final results at

http://www.guardian.co.uk/news/datablog/interactive/2012/may/06/greece-elections-results-map

The map of votes by constituencies is also most useful. Click onconstituencies to see results.

See 2009 and 2012 results http://en.wikipedia.org/wiki/Greek_legislative_election,_May_2012

Translated by Mike Krolikovsky and Christine Pagnoulle

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Do we need a public debt?

— Damien Millet & Eric Toussaint

The answer is YES. A State must be able to contract loans inorder to improve its population’s living standards, for instancewhen it carries out major work of public utility and invests inrenewable energies. These public loans could be used to movefrom an economy geared to the needs of car drivers to one thatgives priority to public transport, to shut down nuclear plantsand replace them with renewable sources of energy, torenovate, upgrade or build from scratch public buildings andsocial housing that would require less energy and be equippedwith state-of-the-art facilities.

In any case, even though we definitely do not wish to stay in acapitalist economy, the economic dynamics of the systemdemands that in a macroeconomic perspective the surplusproduced should be anticipated through monetary creation.Selling goods at a profit is only possible if there is more moneyaround after than before production starts. A capitalisteconomy without debt does not make sense.85 Particularly intimes of recession, public spending (which alone can generateadded collective wealth) depends on added tax revenues fromthe richer fringes of the population, on cancelling illegitimatedebts and on contracting public loans under citizens’ control.

The point is to define a transparent policy for public loans. Theproposal we put forward is as follows: 1. the aim of the publicloan must be a sustainable improvement in living conditions;2. the public loan must part of a redistributive policy thatreduces inequalities. Therefore we propose that financialinstitutions, corporations and very rich households be legallyobliged to buy state bonds with either no interest or cost-of-living indexation, for amounts that are proportional to theirincomes and their assets, while the other members of thepopulation can buy public bonds with a guaranteed positivereturn (say 3%) higher than the current inflation rate. Thus ifthe annual inflation rate should reach 3%, the interest rateactually paid by the state would be 6%. Such measures ofpositive discrimination (similar to those used to fight racialoppression in the US, castes in India or gender-based


inequalities) will make it possible to move towards more taxjustice and a less unequal distribution of wealth.

Cancelling illegitimate debt is a necessary but insufficientcondition. Other measures that improve the lot of the majorityare essential if Europe is to come out of the crisis with betterprospects. The discussion is open.

Translated by Christine Pagnoullein collaboration with Vicki Briault

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Our AAA : Audit, Action, Abolition

— Damien Millet & Eric Toussaint

AAA…. Three letters that sound like a sardonic laugh denotingthe top credit rating given by the ratings agencies. A companyor a State with an AAA rating is considered credit-worthy bylenders and speculators and can borrow at more favourablerates. But to obtain – or maintain – this symbolic grade,European governments will go to any lengths, including theapplication of austerity policies that place their economiesunder the diktat of creditors. The AAA is a front that concealssocial regression on a grand scale, human rights violations,and blood, sweat and tears for the most vulnerable citizens.

AAA…. that rings like the laugh of the hyena as creditors reapprofits while people’s rights are sacrificed with the activecomplicity of the heads of European States, the EuropeanCommission, the International Monetary Fund and theEuropean Central Bank. Lenders and speculators have takenthe most reckless risks, convinced that the public authoritieswould bail them out in time of crisis. Up to now they have beenright. Bank bailouts have been organised, States have providedguarantees amounting to thousands of billions of Euros, andthe wishes of creditors have been pandered to. States havespent colossal sums to bail out banks before imposing massiveausterity measures which the people often oppose withdetermination. Street protests, general strikes, the Outraged(Indigné) movement and social struggles are reasons for hopeif they can succeed in federating at European level. It is timefor peoples of Europe to unite.

For three decades, neo-liberal policies have raisedindebtedness to an intolerable level for the middle and lower-middle classes who largely carry the burden of repayment.The public debt of European countries has two main causes: onthe one hand, the fiscal counter-revolution starting in the 1980sthat favoured the richest, and on the other hand, the responsesof States to the present crisis brought about by unbridledinvestments by bankers and hedge funds. Financialderegulation has removed essential safeguards and enabledthe creation of increasingly complex products, leading to


serious excesses and a global economic and financial crisis.

The present policies protect those responsible for the crisisand oblige the victims – in other words the people – to pay thecost. For this reason the debt is largely an illegitimate one. Aslong as the current logic persists, the diktats of creditors willbring constant social regression. A citizens’ audit of the publicdebt, together with a penalty-free moratorium on repayments,is the only solution for determining the illegitimate, or evenodious, part of the debt. This part must then be unconditionallyabolished. And for this illegitimate debt to be Abolished, thepeople must continue to mobilise and by their concertedAction impose a different policy that finally respectsfundamental and environmental rights.

This Action must be the way to building a Europe based onsolidarity and co-operation, a Europe that refuses thecompetitive dictates of the present system. The neo-liberallogic has brought about the crisis and revealed its own failings.This logic, which underlies all the founding documents of theEuropean Union, in particular the Stability and Growth Pactand the Stability Mechanism Treaty, must be vigorouslyundermined. Budgetary and fiscal policies should not beuniform, since European economies are very disparate, butshould rather be coordinated in order to find a solution thatraises the standard. Europe must also drop its under-siegeattitude towards immigration applicants and become a just andsupportive partner for peoples in the South. The first step mustbe to unconditionally cancel Third World debt. It is clear thatthe present European treaties must be repealed and replacedby new ones in the context of a genuine democratic constituentprocess that will be the cornerstone for a different Europe.

Audit-Action-Abolition: this is the AAA we want, an AAAof the people, not the ratings agencies. We place this demand atthe very heart of the public debate to affirm that alternativepolitical, economic and financial choices are possible. Onlypowerful social struggles can make this “peoples’ AAA” a realityand a means of effecting a radical change in logic.

Translated by Judith Harris

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Europe:What emergency programme for the

crisis?

— Damien Millet – Eric Toussaint

The European governments, in accordance with IMF criteria,have made the choice of imposing strict austerity measures ontheir peoples. The notable amongst them are slicing awaypublic spending, lay-offs, pay freezes and salary cuts for civilservants, reduced access to vital public services and welfare,later retirement age, etc. Increased cost for public transport,water distribution, health services, education, etc. Heavierindirect and particularly unfair taxes like VAT. There has beenmassive privatisation of companies in competitive sectors.These are the strictest austerity policies since 1945. Theconsequences of the crisis are multiplied by the so-calledremedies which protect the interests of capital. Austerityseriously aggravates economic slowdown producing a snowballeffect: weak growth, when there is any, automatically increasespublic debt. The meaning of ‘triple A’ becomes clear: wageAusterity, monetary Austerity and budgetary Austerity.

The people are less and less willing to accept the injustice ofthese reforms and the serious social regression they incur.Relatively, it is the workers, the unemployed and the lowestincome households who are called upon by the States to ensurethe continued fattening of the creditors. Amongst these it is, asusual, women who bear the brunt of precarious, part-time andunderpaid employment86 as imposed on them by the presentsocial and patriarchal system. The struggle for a different sociallogic is inseparable from the struggle for the absolute respectof women’s rights.

Let’s look at what this implies.

Reducing the public deficit is not in itself an objective. In certaincircumstances, it may be used to stimulate economic activityand ease the conditions of the victims of the crisis. Onceeconomic activity has picked up, public deficits must bereduced, not by reducing social expenditure, but by increasing


tax revenues from the estates and incomes of the highest netvalue sector, cracking down on tax evasion, imposing highertaxes on capital gains and financial transactions. Deficitreduction also means non-payment of the part of the publicdebt found to be illegitimate, the compressing of militarybudgets and other spending that is socially unnecessary anddangerous for the lives of people and the environment. On theother hand it is fundamentally necessary to increase budgetsfor socially useful ventures and to relieve the effects of theeconomic depression.

Spending in favour of renewable energies, infrastructures forimproved public transport, schools or public health facilitiesmust be increased. Boosting the economy by stimulating publicor private demand stimulates tax revenues. Furthermore, thecrisis must offer an opportunity to break with the capitalistlogic and create a radical change in society. This new logic,which still remains largely unexplored, must cast awayproductivism and different forms of oppression such as racismand patriarchy in favour of ecological considerations and thepromotion of collective commons.

For this it is necessary to build a vast anti-crisis movement, atlocal levels as well as on a European scale, combining creativeenergies and a balance of power favourable to radical solutionscentred on social and climatic justice.

1. Stop unfair austerity plans which aggravate thecrisis

Putting an end to antisocial austerity measures is an absolutepriority. By public street demonstrations, strikes, refusal ofunfair and unpopular taxes, governments must be forced todisobey the European authorities and repeal austerity plans.

2. Cancel the illegitimate public debt

Carrying out a public debt audit under citizens’ control, coupledin certain cases with unilateral and sovereign suspension ofrepayment of public debt, would enable repudiation of theillegitimate part and greatly reduce the remainder.

There must be no question of accepting public debt

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renegotiations decided by creditors, primarily because of thesevere conditions that go with them. The March 2012 Greekpublic debt plan was accompanied by the application of anotherdose of measures that trample on the economic and socialrights of the people and the sovereignty of the Greekgovernment87. According to a Troika study, despite a debtreduction accepted by the private creditors, Greek public debtwill rise to 164% of GNP in 2013!88 This operation must bedenounced in its present state in favour of an alternative.Unilateral debt repudiation by a debtor country is a very strongsovereign act.

Why must the indebted State radically reduce its public debtby cancelling what is deemed to be an illegitimate debt? First,for reasons linked to social justice, but also for economicreasons that everyone can understand and fight to achieve. Tosuccessfully emerge from the current crisis, we cannot simplycreate an economic stimulus package based on public demandand that of households. For if we were simply to be satisfiedwith such a stimulus package, combined with fiscal reformbased on redistribution, the additional fiscal revenues wouldbe to a large extent siphoned off by the repayment of the publicdebt. The higher contributions imposed on the richesthouseholds and major corporations would be greatly offset bythe income they earn from government bonds, they being themain bond holders and beneficiaries of these bonds (whichexplain why they refuse to consider cancelling this debt). It istherefore necessary to cancel a very large proportion of thepublic debt. The scale of this cancellation will depend on thelevel of awareness among the victims of this debt system (thecitizen debt audit could play a crucial role to this end), the waythe economic and political crisis develops, and especially thereal power relations that emerge in the street, in the publicspace, and in the workplace through present and futuremobilisations. For certain countries such as Greece, Portugal,Ireland, Spain, and Hungary, cancelling the debt is an extremelyhot topic. For Italy, France, and Belgium, it is starting to beone, and it will soon be a core issue in political debatesthroughout the rest of Europe.

For the countries already being blackmailed by speculators,the IMF, and other institutions such as the European



Commission, it would be appropriate to call for a unilateralmoratorium on the repayment of public debt. This proposal isgaining popularity in the countries most seriously affected bythe crisis. Such a unilateral moratorium must be combinedwith a citizens’ audit of public borrowing, which will providethe public with the tangible proof and arguments needed torepudiate the part of the debt identified as illegitimate. AsCADTM has demonstrated in several publications, internationallaw and domestic law provide a legal basis for engaging in suchsovereign action unilaterally.89

The audit will also identify the various responsibilities for theindebtedness process, and demand that those responsible bothnationally and internationally be brought to justice. Whateverthe case may be, it is legitimate for the private institutions andwealthy individuals who own these government bonds to bearthe burden of the cancellation of this illegitimate sovereigndebt, because they are to a large extent responsible for today’scrisis, from which they have also profited. The fact that theymust bear this burden is simply a fair and fitting step towardgreater social justice. To that effect, it is also important toestablish a list of owners of such government bonds in order toindemnify citizens holding bonds but having only low ormedium incomes.

If the audit shows up offences linked to illegitimate debt, theperpetrators must be sentenced to pay reparations, anddepending on the seriousness of their acts, these sentencesshould include prison sentences. Authorities who havecontracted illegal loans must answer to the court.

As for the debt not found to be illegitimate by the audit, itwould be appropriate to force creditors to act positively byreducing total debt stock and interest rates, as well asprolonging the payback period. Here again, it would be usefulto adopt an ‘affirmative action’ policy in favour of those whoown small quantities of government bonds and who should bepaid back at the normal rate. In addition, an upper limit shouldbe set on the proportion of the State budget allocated to pay offthe debt according to a country’s economic health, the capacityof a government to pay back, and essential, irreducible socialexpenditures.

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3. For a fair redistribution of wealth

Direct taxes on the income of the wealthiest individuals andlargest corporations have continued to drop since 1980.Hundreds of billions of Euros in tax breaks have been handedout to the wealthiest, who have used them to speculate andaccumulate yet more wealth.

In-depth fiscal reform aiming for social justice (reducing boththe revenues and the patrimony of the wealthiest in order toincrease those of the majority of the population) must beharmonised at European level in order to prevent fiscaldumping91. The goal is to increase public revenue, particularlyvia a progressive tax on the income of the wealthiest individuals(the marginal income tax rate can easily be increased to 90%92),as well as the tax on wealth as of a certain level, and corporatetax. This increase in revenue must go hand in hand with a rapiddrop in the price of basic goods and services such as basicfoodstuffs, water, electricity, heating, public transport, andeducational equipment, particularly via a significant andtargeted reduction of VAT on these vital goods and services. Afiscal policy should also be adopted in favour of environmentalprotection by creating a dissuasive tax for industries thatpollute.

Several countries can combine their efforts to adopt a tax onfinancial transactions, particularly on foreign exchangemarkets, in order to increase government revenues, limitspeculation, and promote exchange rate stability.

4. Wage war on tax havens

Tax evasion through tax havens is the cause of lost resourcesthat could be used for development in Northern as well asSouthern countries. The different G20 summits have refused,despite their declarations of intention, to face this problem.One simple measure would be to prohibit all persons orcompanies within a country’s territory, to execute transactionswith or through tax havens, punishable by a fine, equal to thesize of the transaction. Beyond that, these financial black holesfavour illicit activities, corruption and white collar criminality.The industrial powers, which have accepted them for years,have all the necessary means to act.



Organised tax evasion deprives the community of considerablemeans and destroys jobs. Important public resources shouldbe allotted to financial services so they may efficiently, and asa priority, track down and prosecute the fraud organised bybig business and high net worth families. The results should bemade public and the guilty heavily penalized.

5. Rein in the financial markets

Global-scale speculation represents several times the richesproduced on our planet. Sophisticated packages make suchspeculation completely uncontrollable. The complexity of thesystem de-structures the real economy, and discretion andopacity are the rule. This being the case, to tax faulting creditorsthey must first be identified. The dictatorship of the marketsmust be put to an end. Speculation on public debt bonds,currency exchange and staple commodities93 must beprohibited along with short selling94 and “Credit Default Swaps”.Over the counter second markets, which are real black holesescaping all regulation and surveillance, must be closed.

The credit rating agencies must also be strictly reformed andcontrolled, and prohibited from rating sovereign debt. Far fromhaving an objective and scientific monitoring method, theyare structurally involved in neo-liberal globalisation and have,on several occasions, been at the root of social disasters. Thedowngrading of a country’s rating often raises the interest ratesit must pay to successfully borrow on the financial markets -resulting in a deterioration of the economic situation of thecountry. The “follow my leader” behaviour of the speculatorsmultiplies these difficulties, which will weigh still heavier onthe population. The embedded submission of the ratingagencies to the financial establishment makes them a majorinternational actor. Their share of responsibility in theevolution of the crisis is not sufficiently highlighted by themedia. The economic stability of the European countries hasbeen put into their hands, without safety nets, without seriouscontrol by the authorities. For this reason their potential fordamage must be removed. To prevent other politicallydestabilising manoeuvres a strict control of capital movementsmust be restored.

127

6. Transfer the banks and insurance companies to apublic sector under citizens’ control

Through their own errors many banks are in a position ofinsolvency rather than simply having cash-flow problems. Thecentral banks’ policy of granting them unlimited credit withoutimposing a change in the rules aggravates the problem.

We must get back to fundamentals. Banks, by reason of theirsize and the potentially devastating effects their badmanagement can have on the economy, should be publicservices. Banking is too serious a business to be handled byprivate interests. Banks use public money guaranteed by theState and provide a basic fundamental service to society. Forthis reason they should become a public service.

States should reclaim their power of intervention and controlof economic and financial activity. They also need instrumentsto make investments and to finance public spending that wouldrequire only a minimum of resources from the money markets.To achieve this it is necessary to expropriate the banks, withoutcompensation, creating a public sector under citizens’ control.

In some cases, expropriation of private banks could be costlyif the State is put under the obligation of taking on the debtsand toxic financial products they still hold. These costs mustbe recovered by the dispossession of the estates of the majorshareholders. The banks have often been pushed towardsinsolvency by major shareholders who are private companiesand who have holdings and make generous profits in othereconomic sectors. Their overall assets must be tapped to avoid,as much as possible, the nationalisation of losses. The Irishexample is emblematic; the way Allied Irish Banks wasnationalised at the cost of the Irish taxpayer is unacceptable.

We support an option that implies the elimination of thecapitalist banking sector, as much in the savings and loansbranches as in the merchant and investment branches. In thisway there would remain just two kinds of banks: public bankswith a public service status and moderate-sized cooperativebanks.

Although its state of health is less publicised, the insurancesector is also at the heart of the current crisis. The big insurance



companies have cut capers as risky as those of the private bankswith whom they have many close ties. A large part of theirassets are made up of treasury bonds and derivativeinstruments. Chasing a maximum of immediate profits, theyhave put the premiums paid by their prudential, privateretirement scheme and life insurance holders dangerously atrisk. The expropriation of these contracts would avoid theircollapse and protect the savers and policy holders. Thisexpropriation of insurance companies must go hand in handwith a consolidation of general pension schemes.

7. Socialising companies that have been privatizedsince 1980

A characteristic feature of the last thirty years has been theprivatisation of companies and public services. From banks tomanufacturing industries, from the post office andtelecommunication companies to energy and transport,governments sold off the economy wholesale, thus deprivingthemselves of the capacity to regulate. Those public goods,produced as they are by collective labour, must become publicproperty again. New public companies will have to be createdand public services will have to be adapted to the needs of thepopulation, for instance, to meet the issue of climate changethrough the creation of a public service to insulate homes.

8. Radically reducing working hours so as toguarantee full employment and adopting anincome policy to achieve social justice

Sharing wealth on a different basis is the best possible answerto the current crisis. The share in produced wealth available toworkers has sharply decreased over the past decades, whilecreditors and shareholders have increased their profits andused the accumulated money to speculate. Increased wagesnot only lead to decent standards of living but also boost thefinancing of social security and retirement benefits.

With shorter working hours - without wage reduction but withmore jobs - we can improve the workers’ quality of life andprovide employment to those who need it. Radical reductionof working hours also creates an opportunity to change the

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pace at which we live, to enrich our social relationships, and torelinquish a consumerist approach. More leisure time meansan opportunity for all, to actively participate in political life, tostrengthen solidarity, to engage in volunteer work, and getinvolved in cultural activities.

The level of minimum wage, average wage and social benefitsalso has to be significantly raised. On the other hand a strictceiling should be placed on CEOs’ incomes, whether thecompany is private or public. Bonuses, stock options, executiveretirement packages and other unwarranted benefits shouldalso be forbidden. We must decide on a maximum income. Werecommend a maximum discrepancy in income of 1 to 4 (asPlato recommended some 2,400 years ago) with all sources ofincome being taxed together.

9. Public borrowing that promotes improvedstandards of living, common goods and a breakwith the logic of environmental destruction

A State must be able to borrow so as to improve livingstandards, for instance through community work andinvestments in renewable sources of energy. Some of thefinancing can be supported by the current budget thanks toclear political choices, but loans can facilitate a more inclusiveapproach, for instance moving from a form of mobility thatcaters for individual cars to wide-scale development of publictransport, shutting down nuclear plants and replacing themwith renewable sources of energy, creating or reopening railwaylines all over the country, starting with cities and suburbs, orbuilding and renovating low energy and well equipped socialhousing and public buildings. We must urgently define atransparent public borrowing policy. Our proposal is as follows:

1. The aim of the loan must be to improve standards of livingand break with the current logic of environmental destruc-tion;

2. The loan must be part of a redistributive policy that reducesinequalities. This is why we suggest that financial institu-tions, private corporations and rich households be legallycompelled to buy government bonds at 0% interest rate andwithout any indexing for an amount that is proportional to



what they own while other citizens can buy bonds on a vol-untary basis and with a positive return higher than the rateof inflation. If annual inflation rises to 3%, the interest rateactually paid by the government for the corresponding yearwould be 6%. Such a measure of positive discrimination (com-parable to those used to fight racial oppression in the US,the caste system in India, or gender inequalities) will con-tribute to greater tax fairness and a more equitable distribu-tion of wealth.

10. Debating the Euro

The current debate on whether countries such as Greece oughtto exit the Euro Zone is definitely necessary. Clearly the Eurois a straight-jacket for Greece, Portugal and Spain. If the issuefigures less prominently in the present programme, it is becausesocial movements and left-wing parties are still divided bycontradictory arguments. Our main concern is to bring peopletogether on the vital issue of the debt and for the moment leaveaside what divides us.

11. An Alternate European Union, built on Solidarity

Several provisions in the treaties governing the EU, the EuroZone and the ECB have to be repealed. For instance, we mustcancel Articles 63 and 125 of the Lisbon Treaty which prohibitany restriction of movements of capital and any assistance tomember States in a precarious position. We must also get outof the ‘Stability and Growth Pact’. The European StabilityMechanism has to be cancelled too. Moreover we have toreplace the current treaties with new ones in the context of agenuinely democratic constituent process so as to draft a pactof solidarity among peoples that is mindful of both employmentand the environment.

We have to completely overhaul the monetary policy as wellas the status and functioning of the ECB. The politicalauthorities’ inability to bring it around to creating money is aheavy drawback. When it set the ECB above governments andthus above peoples the EU made a disastrous choice; it choseto subordinate human life to financial concerns instead of thereverse.

131

With several social movements denouncing rigid andinadequate statutes, the ECB had to change its established roleat the height of the financial crisis. Unfortunately it agreed ondoing this for the wrong reasons, not to ensure that the interestsof people would be taken into account but to cover for creditors.This is proof enough that we need a new deal: the ECB andnational central banks must be allowed to directly financemember States striving towards social and environmental goalsthat meet the fundamental needs of people.

Nowadays economic activities as diverse as the constructionof a hospital or a purely speculative venture are financed alongsimilar lines. The government should apply different rates: lowrates for socially fair and environmentally sustainableinvestments, very high or indeed prohibitive rates forspeculative operations, which in fact ought to be prohibited insome areas.

A Europe built on solidarity and cooperation should allow usto break with the ultimately debasing competitive model. Neo-liberal logic has brought us to the current crisis and exposedits failure. It has forced social indicators down: less socialprotection, less employment, less public services. The handfulof people who have benefited from the crisis have done so bydenying the rights of the majority. The culprits are in thewinning seats, the victims have to pay! This logic, whichunderlies all founding EU documents, must be broken. AnotherEurope based on cooperation among member States andsolidarity among peoples must become our top priority. Toachieve this, tax and fiscal policies must be coordinated andnot uniformised, so as to yield an ‘upward’ trend (Europeaneconomies are too diverse to be merged into one single mould).European-scale global policies including massive publicinvestments to create public employment in key areas such assupport services, renewable energy, fighting climate changeor basic social sectors must be implemented. A different policywill require a process coordinated by the people, in order todraft a Constitution and thus build another Europe.

This other democratic Europe must strive to enforce such non-negotiable principles as tax and social justice, improvedstandards of living, disarmament and radical reduction of



military expenditure, sustainable choices in sources of energywithout the use of nuclear power, a ban on genetically modifiedplants. It must also put an end to its policy of besieged fortresstowards immigration applicants and become a partner in fairtrade with peoples of the South. The first step in this directionmust be to unconditionally cancel Third World debt. Cancellingthe debt is a common denominator in all the struggles we musturgently fight in both the North and the South.

— Translated by Judith Harris, Mike Krolikowski,Charles La Via and Christine Pagnoulle

133

Endnotes

1 h t t p : / / w w w . t e l e g r a p h . c o . u k / f i n a n c e / f i n a n c i a l c r i s i s /

8812260/World-facing-worst-f inancial-cris is- in-history-

Bank-of-England-Governor-says.html

2 Maria Karamessini, M. (2009) ‘From a state-led familistic

to a liberal partly de-familialised capitalism: the difficult

transition of the Greek model’, in G. Bosch, S. Lehndorff

and J. Rubery, European employment models in flux: acomparison of institutional change in nine European coun-tries, Basingstoke: Palgrave Macmillan

3 Please see the political charter of the CADTM Interna-

tional Network at http://www.cadtm.org/Political-Charter

4 Please see the list of member organiastions and the

mapping of the network at http://www.cadtm.org/Con-

tacts,338 Also see the Functional Charter of the CADTM

Network at http://www.cadtm.org/Technical-charter

5 According to Alexander Sack, who theorised the doctrine

of odious debt, “If a despotic power incurs a debt not for

the needs or in the interest of the State, but to strengthen

its despotic regime, to repress the population that fights

against it, etc, this debt is odious to the population of all

the State. This debt is not an obligation for the nation; it

is a regime’s debt, a personal debt of the power that has

incurred it, consequently it falls with the fall of this

power” (Sack, 1927). For a concise overview, see (in

French) “La dette odieuse ou la nullité de la dette”, a

contribution to the second seminar on International law

and Debt organised by CADTM in Amsterdam in Decem-

ber 2002, http://www.cadtm.org/La-dette-odieuse-ou-la-

nullite-de . See also “Topicality of the odious debt doc-

trine”, http://www.cadtm.org/Topicality-of-the-odious-

debt,3515 and

http://www.cadtm.org/Topicality-of-the-odious-debt

6 Dave Zirin, “The Great Olympics Scam, Cities Should Just

Say No”,

www.counterpunch.org/zirin07052005.html : “But for

those with shorter memories, one need only look to the


2004 Summer Games in Athens, which gutted the Greek

economy. In 1997 when Athens “won” the games, city

leaders and the International Olympic Committee esti-

mated a cost of 1.3 billion. When the actual detailed

planning was done, the price jumped to $5.3 billion. By

the time the Games were over, Greece had spent some

$14.2 billion, pushing the country’s budget deficit to

record levels.”

7 See a detailed summary of the Siemens-Hellas scandal at

http://www.scribd.com/doc/14433472/Siemens-Scandal-Si-

emens-Hellas . The charges made by the German courts

against Siemens were so undeniable that in order to avoid

a sentence in due form, the company agreed to pay a fine

of 201 million Euros to the German authorities in October

2007. The scandal has tarnished Siemens’s image to such

an extent that, in an attempt to redress the situation, the

transnational company conspicuously announces on its

web page that it has contributed 100 million Euros to an

anti-corruption fund.

See : http://www.siemens.com/sustainability/en/compli-

ance/collective_action/integrity_initiative.php

8 Taken from C. Lapavitsas, A. Kaltenbrunner, G.

Lambrinidis, D. Lindo, J. Meadway, J. Michell, J.P.

Painceira, E. Pires, J. Powell, A. Stenfors, N. Teles : “The

Euro zone between austerity and default”, September

2010. http://www.researchonmoneyandfinance.org/media/

reports/RMF-Eurozone-Austerity-and-Default.pdf.

9 The same occurred at the time for Portugal, Spain, and

countries of Central and Eastern Europe.

1 0 Taken from C. Lapavitsas et al., op. cit.

1 1 Taken from C. Lapavitsas et al., op. cit. According to the

BIS in December 2009, the French banks owned 31 billion

dollars of the Greek public debt, the German banks 23

billion dollars.

1 2 2009 figures. Among the NATO members, only the

United States spends more than Greece (4.7%) in propor-

tion to its GDP.

1 3 Some of the data mentioned is taken from François

Chesnais, “Répudiation des dettes publiques Européennes

135

!” in Revue Contretemps n°7, 2010, which is itself based

on the data of the Stockholm International Peace Re-

search Institute (SIPRI), www.sipri.org/yearbook

1 4 At least one argument can be added for that new debt to

be declared illegitimate or void, and it goes as follows: for

a contract between two parties to be valid, according to

Common Law, the principle of contractual autonomy, of

the voluntary consent of both parties, must be fully

respected, meaning that each party to the contract must

be in a position to say no or refuse any clauses of the

contract which go against its interests. When in March-

April 2010 the financial markets started to blackmail

Greece and when then the European Commission and the

IMF united to impose draconian conditions on Greece

(very harsh austerity measures that infringe social and

economic rights), it can be considered that Greece was

not really in a position to exert its autonomy and refuse

t h e m .

1 5 See http://tvxs.gr/node/73861/450287

1 6 See http://www.hri.org/news/greek/eraen/last/10-12-

2 2 . e r a e n . h t m l

1 7 See its website http://www.contra-xreos.gr/. This commit-

tee joined the CADTM international network in December

2 0 1 0 .

1 8 The cost of rescuing banks has been taken on by European

governments. Countries on which the debt impact has

been most acute are Ireland, the UK, Spain, Belgium, and

the Netherlands. Other bailouts are in the offing.

1 9 Alexander Nahum Sack, Les Effets des Transformations

des États sur leurs dettes publiques et autres obligations

financières, Recueil Sirey, 1927.

2 0 Mohammed Bedjaoui, Ninth report on succession in mat-

ters other than treaties, Definition of an odious debt, 129,

h t t p : / / u n t r e a t y . u n . o r g / i l c / d o c u m e n t a t i o n / e n g l i s h /

a_cn4_301.pdf.

2 1 Monique and Roland Weyl, Sortir le droit international

du placard, PubliCETIM n°32, CETIM, November 2008.

2 2 http://www.lefigaro.fr/conjoncture/2011/04/08/04016-

20110408ARTFIG00645-le-portugal-au-regime-sec.php

End Notes


See also Virginie de Romanet, «Le Portugal: dernière

victime en date du modèle néoibéral » 2011

http://www.cadtm.org/Le-Portugal-derniere-victime-en

2 3 Georgios Katrougalos and Georgios Pavlidis, « La Constitu-

tion nationale face à une situation de détresse financière

: leçon tirées de la crise grecque (2009-2011) »

2 4 h t t p : / / u n e s d o c . u n e s c o . o r g / i m a g e s / 0 0 0 3 / 0 0 0 3 3 1 /

033110fb.pdf

2 5 It is also mentioned in several national civil codes, for

instance in Spain (Articles 1895ff) and in France (Ar-

ticles 1376ff).

2 6 It is to be kept in mind that the Maastricht treaty forbids

direct loans from the ECB to States.

2 7 See http://www.imf.org/external/pubs/ft/aa/aa01.htm

2 8 Authors’ emphasis.

2 9 Eric Toussaint, « Aides empoisonnées au menu Européen

», 2011

3 0 http://www.oecd.org/document/62/

0,3746,fr_21571361_44315115_48475902_1_1_1_1,00.html

3 1 Read the article Eight Key Proposals for Another Europe

http://www.cadtm.org/Eight-key-proposals-for-another

3 2 For the full interview, see: www.guardian.co.uk/world/2012/may/25/christine-lagarde-imf-Euro

3 3 Ana Benaèiæ is journalist <[email protected]>

Original interview: http://danas.net.hr/intervju-tjedna/eric-touissaint-linic-nije-u-pravu-bankrot-i-neplacanje-duga-nisu-tragedija

3 4 Hellenic Republic Public Debt Bulletin, n0. 62, June

2011. Available at www.bankofgreece.gr

3 5 Hellenic Republic Public Debt Bulletin, n0. 56, December

2 0 0 9 .

3 6 Bank of Greece, Economic Research Department – Secre-

tariat, Statistics Department – Secretariat, Bulletin of

Conjunctural Indicators, Number 124, October 2009.

Available at www.bankofgreece.gr

3 7 The same can be observed in the same period with

Portugal, Spain, and CEE countries.

137

3 8 On 25 August 2011 the Greek rate for 10 years reached

18.55%, on the day before, 17.9%. The rate for 2 years

was a staggering 45.9%. http://www.lemonde.fr/Europe/

article/2011/08/25/les-taux-des-obligations-grecques-a-dix-

ans-at te ignent-un-nouveau-record_1563605_3214.html

(accessed 26 August 2011)

3 9 In the Hellenic Republic Public Debt Bulletin, n0. 62,

June 2011, p. 4, we clearly see that the secondary

market literally dried up from May 2010 when the ECB

started buying bonds.

4 0 By the end of 2009 before the Greek crisis broke out,

French financial institutions (mainly banks) held 26% of

Greek bonds sold abroad, German banks held 15%, 10%

for Italy, 9% for Belgium, 8% in the Netherlands, 8% in

Luxembourg, 5% in Britain. In short, financial institu-

tions, especially banks, of seven EU countries held no less

than 81% of Greek bonds sold abroad.

4 1 Just try to get a major loan from a bank with high risk

bonds as evidence of your solvency, and see where it gets

you!

4 2 See our Eight key proposals for another Europe (particu-

larly proposal n0. 8 on the issue of the EU)


4 3 They are summed up in an article in The Financial

Times on 26 July 2011, p. 23, and in the Crédit

Agricole’s bulletin Perspectives Hebdo 18-22 July 2011.

4 4 h t t p : / / w w w . l e s e c h o s . f r / e n t r e p r i s e s - s e c t e u r s / f i n a n c e -

m a r c h e s / a c t u / 0 2 0 1 5 8 9 1 2 2 7 2 8 - l e s - m e t i e r s - d e - c r e d i t -

agricole-compensent-le-fardeau-grec-210653.php (accessed

26 August 2011).

4 5 Argentina, Brazil, Bulgaria, Costa Rica, Côte d’Ivoire, the

Dominican Republic, Ecuador, Jordan, Mexico, Nigeria,

Panama, Peru, the Philippines, Poland, Russia, Uruguay,

Venezuela and Vietnam.

4 6 Financial Times, 6-7 August 2011.

4 7 L’Ëcho, 31 August 2011. See also TF1 “La BNP a-t-elle

sous-estimé son risque grec?”

http://lci.tf1.fr/economie/entreprise/la-bnp-a-t-elle-sous-

estime-son-risque-grec-6663932.html

End Notes


4 8 See the official declaration of the EU Council: http://

w w w . c o n s i l i u m . E u r o p a . e u / u e d o c s / c m s _ d a t a / d o c s /

pressdata/en/ec/123978.pdf

4 9 It is also mentioned in several national civil codes, for

instance in those of Spain (Articles 1895ff) and France

(Articles 1376ff).

5 0 Article 49 of the Vienna Convention of 1969 and of the Treaty

of Vienna of 1986.

5 1 See Éric Toussaint, The World Bank : the Never-ending

Coup d’État, Mumbai: Vikas Adhyayan Kendra; (2007),

chapter 15.

5 2 Carmen M. Reinhart, Kenneth S. Rogoff, This Time is

Different: Eight Centuries of Financial Folly, Princeton

University Press, 2009, pp. 84-85. Accessed online as

googlebook.

5 3 These are bonds that do not give a right to periodic

interest payments or coupons, hence their name. They

are bought at a discount price from their face value,

which is paid when the bond reaches maturity. Zero-

coupon bonds are usually inflation indexed.

5 4 See Crédit Agricole, Perspectives Hebdo 18 - 22 July

2011, p. 3.

5 5 On the odious and consequently void nature of debts

claimed by the Troika from Greece, Ireland and Portugal

(to which we can add debts claimed by the IMF from

Romania, Latvia, Bulgaria and Hungary, i.e. countries

that are all members of the EU) see Renaud Vivien and

Eric Toussaint, ‘Greece, Ireland and Portugal: why agree-

ments with the Troika are odious’ http://www.cadtm.org/

Greece-Ireland-and-Portugal-why

5 6 Alan Greenspan, The Age of Turbulence, Adventure in a

New World, London, Penguin, 2007, pp. 371-2.

5 7 See http://www.imf.org/external/pubs/ft/scr/2007/

cr07265.pdf. For more on the IMF’s errors of judgement

concerning the USA and Ireland, see: François Sana “Zéro

de conduite pour le FMI” http://www.cadtm.org/Zero-de-

conduite-pour-le-FMI

5 8 Financial Times, “Deutsche hedges Italian risk”, 27 July

2011, p. 13.

139

5 9 Financial Times, “Greek rescue plan worries hedge funds”,

supplement FTfm, 8 August 2011.

6 0 There are others, such as the Chinese Dagong, but they

have little influence.

6 1 See Damien Millet, Éric Toussaint (eds), La dette ou la

vie, Aden-CADTM, 2011, chapter 19. On 19 July 2011,

the Financial Times (p.7) devoted a whole page to the

relative success Argentina had had after refusing to

repay a substantial part of her debt. Referring to Argen-

tina and Russia, Joseph Stiglitz, winner of the Bank of

Sweden’s prize for economics in memory of Alfred Nobel

in 2001, who presided President Bill Clinton’s council of

economists from 1995-1997 and was Chief Economist and

Vice-President of the World Bank from 1997 to 2000,

argues strongly in favour of suspending repayment of

public debt. In a collection of essays published in 2010 by

Oxford University Press (Barry Herman, José Antonio

Ocampo, Shari Spiegel, Overcoming Developing Country

Debt Crises, OUP Oxford), he claims Russia in 1998 and

Argentina in the 2000s demonstrated that unilateral

suspension of debt payment could be beneficial for coun-

tries who decide to take that course of action. “Both

theory and practice suggest that the threat to turn off

the credit tap has probably been exaggerated” (p.48). In

an article published in the Journal of Development Eco-

nomics entitled “The elusive costs of sovereign defaults”,

Eduardo Levy Yeyati and Ugo Panizza, two eonomists who

have worked for the InterAmerican Development Bank,

present the results of their meticulous research into cases

of default of payment in about forty countries. One of

their main conclusions was: “Periods of default of pay-

ment mark the end of economic recovery “ (in Journal of

Development Economics 94, 2011, p. 95-105). For more

on Russia and Argentina, see also: C. Lapavitsas, A.

Kaltenbrunner, G. Lambrinidis, D. Lindo, J. Meadway, J.

Michell, J.P. Painceira, E. Pires, J. Powell, A. Stenfors, N.

Teles: “The Eurozone between Austerity and Default”,

September 2010, http:/

www.researchonmoneyandfinance.org/media/reports/RMF-

Eurozone-Austerity-and-Default.pdf. About lessons for

Greece from Argentina , see Claudio Katz : http://

End Notes


w w w . c a d t m . o r g / I M G / p d f /

L e c c i o n e s _ d e _ A r g e n t i n a _ p a r a _ G r e c i a _ _ C A D T M _ - 1 _ -

_Claudio_Katz.pdf

6 2 See Damien Millet, Éric Toussaint (eds.), La dette ou la

vie, Aden-CADTM, 2011, chapters 20 and 21.

6 3 See Eric Toussaint, The World Bank: the Never-ending

coup d’état, Mumbai: Vikas Adhyayan Kendra; (2007),

Chapter 4.

6 4 Read the article Eight Key Proposals for Another Europe


6 5 Financial Times, 22 May 2012, “Secret €100bn assistancepropping up Greek Banks”, p. 4.

6 6 Debt owed to public institutions (the ECB, Fed, and nationalcentral banks), debt owed to Money Market Funds, debtowed to other private banks, debt in the form of bonds thatthey sell on financial markets, debt owed to their clientswho deposit their cash funds there in their regular checkingor savings accounts on a daily basis (for example, theirsalary at the beginning of every month, but this can also bethe cash reserves of a small, medium or large company).

6 7 See Eric Toussaint “Eight urgent proposition for anotherEurope” http://www.cadtm.org/Eight-key-proposals-for-an-

other

6 8 See Eric Toussaint « Les banques sont le maillon faible en

Europe »

6 9 Interview with Christine Lagarde published in Le Monde,

6-7 November 2011, p. 12

7 0 The section on Robert Rubin, Lawrence Summers, Paul

Volcker and Timothy Geithner has been written in col-

laboration with Damien Millet.

7 1 Mr. Rubin, who remained in the board of directors ofCitigroup, had received more than 118 million dollars (80million Euros) in salary, bonus and base compensationsince he joined the U.S. financial corporation in 1999 asexecutive committee chairman. Financial Times, August

26, 2008.

7 2 The Treasury gave 45 billion to Citigroup in 2008. This

is compounded by a government guarantee of their assets

141

amounting to 306,000 million dollars. An unprecedented

bailout to a private financial institution.

S e e : h t t p : / / w w w . n y t i m e s . c o m / 2 0 0 9 / 0 1 / 0 4 / o p i n i o n /

04lewiseinhornb.html?pagewanted=print

As a consequence of this “rescue” the American govern-

ment is a shareholder of Citigroup (34%).

7 3 Extracts have been published in The Economist, (8 Febru-

ary 1992) and in Financial Times (10 February, 1992)

with the title Preserve the planet from the economists.

7 4 Financial Times, 26-27 February 2005.

7 5 The controversy was also fueled by the disapproval of

Summers remarks against Cornel West, a black and

progressive university professor of Religion and African

American Studies at Princeton University. Summers, pro-

Zionist, denounced West as an anti-Semitic because of his

support to the students’ action demanding a boycott of

Israel while the Israeli government continues to refuse to

acknowledge the rights of the Palestinians. See Financial

Times, 26-27 February 2005. Currently Cornel West,

who has enthusiastically supported Obama, was surprised

that the president is surrounded by Summers and Rubin.

S e e : w w w . d e m o c r a c y n o w . o r g / 2 0 0 8 / 1 1 / 1 9 /

cornel_west_on_the_election_of

7 6 In the case of the debt crisis of developing countries that

erupted in 1982, we must add a second trigger: the sharp

fall in commodity prices which resulted in a drastic

reduction in export earnings which governments use to

pay public debt.

7 7 See http://www.npr.org/templates/story/

story.php?storyId=99319593 and http://www.npr.org/

documents/2009/jan/geithner.pdf

7 8 In sub-Saharan Africa, there were student’s mobiliastions

in Burkina Faso in March-April 2011, in Togo in May-

June 2011, and a movement called Y’en a marre (Fed up)

against the authoritarian rule of President A. Wade in

Senegal in June 2011. They made explicit reference to

the Arab spring. In Senegal, the World Social Forum,

which convened in February 2011, ten years after its

first meeting, was greatly successful particularly because

End Notes


of the uprisings taking place in Tunisia and Egypt at that

time (see Olivier Bonfond http://www.cadtm.org/Dakar-

2011-WSF-Political-and).

7 9 See Franck Gaudichaud, ‘When triumphant liberalism

begins to crack. Reflexions on the awakening of social

movements and the Chilian May’ http://www.Europe-

solidaire.org/spip.php?article23403

8 0 See Jean Ziegler, Destruction massive: géopolitique de la

faim (Massive Destruction: the Geopolitics of Hunger), Le

Seuil, 2011, and Eric Toussaint, A Diagnosis of emerging

global crisis and alternatives, VAK, Mumbai-India, 2010,

chapter 6. See also : Eric Toussaint, “Getting to the root

causes of the food crisis”

h t t p : / / w w w . i n t e r n a t i o n a l v i e w p o i n t . o r g /

spip.php?article2120

8 1 See Damien Millet and Eric Toussaint (editors), La dette

ou la vie (Debt or life), Aden-CADTM, 2011 http://

www.cadtm.org/La-Dette-ou-la-Vie

8 2 At the G20 held in Cannes in November 2011, the BRICs

(Brazil, Russia, India, and China) did not agree to provide

more funds unless they were given much more power in

the international governing bodies.

8 3 See http://www.cadtm.org/The-citizens-of-Puerta-del-Sol-

a n d

8 4 See http://www.ekathimerini.com/4dcgi/

_w_articles_wsite1_23909_08/05/2012_441181

8 5 Jean-Marie Harribey, http://www.cadtm.org/De-la-

creation-monetaire-et-des; Attac, « Le mystère de la

chambre forte », Le Piège de la dette publique, Com-

ment s’en sortir ?, Les Liens qui libèrent, 2011, p.

1 6 1 - 1 8 8 .

8 6 Christiane Marty, « Impact de la crise et de l’austérité sur les

femmes : des raisons de s’indigner et se mobiliser »,

www.cadtm.org/Impact-de-la-crise-et-de-l

8 7 See http://www.cadtm.org/The-CADTM-condemns-the

8 8 See Reuters, http://www.reuters.com/article/2012/03/13/

us-Eurozone-greece-debt-idUSBRE82C0FM20120313

8 9 See http://www.cadtm.org/Suspending-public-debt-repayments

143

9 0 See Éric Toussaint, The World Bank : the never-ending

coup d’État, Mumbai: Vikas Adhyayan Kendra; (2007),

chapter 4.

9 1 For instance, Ireland, which taxes corporate profits at a 12.5%

rate. In France, the actual tax rate on CAC 40 corporations is

only 8%.

9 2 A 90% rate was imposed on the rich as of Franklin Roosevelt’s

presidency in the United States in the 1930s.

9 3 Damien Millet and Éric Toussaint, La Crise, quelles crises ?,

Aden-CADTM, 2010, chapter 6.

9 4 Short selling: selling a value that you do not own in the hope

of buying it before the end of the account at a lower price.

The German authorities have prohibited this activity

whereas the French among others are against prohibiting it.

End Notes

The Debt Crisis : From Europe to Where?

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