Why Europe Needs A Debt Conference

30 June by Ozlem Onaran

After yet another summit on the Greek debt on 22 June, there are signs of an “extend and pretend” deal until winter. There is vague talk of a “debt relief” in the future, although it is unclear how much of the debt the Eurozone governments are willing to write off. Most importantly what are the conditions they impose in return?

According to the current proposals of the Greek government, even if there are elements of a left austerity with redistributive concerns, the primary budget surpluses imposed on them are too high to secure economic and social recovery; further privatizations are expected; the demands regarding minimum wages and collective bargaining are postponed, and the type of cuts in the pension system continues to be the sticking point.

But even if a deal is reached, there are other inconvenient facts about the increase in the public debt in Greece since 2010. The Truth Committee on Public Debt – an independent committee of experts from 11 countries set up by the President of the Hellenic Parliament, Zoe Konstantopoulou – has published its preliminary reporton 18 June 2015. The report provides evidence that the Greek debt is largely illegal, illegitimate, and odious.

The programmes were based on clearly wrong assumptions; however this was not a mistake, their unsustainability was predictable and the main goal was the rescue of banks and private creditors. Particularly revealing is the testimony of Panagiotis Roumeliotis, the former representative of Greece at the IMF, on 15 June 2015 at a public hearing answering the questions of the Truth Committee. The IMF knew that the Greek debt was unsustainable and according to its own rules should not have agreed to a loan agreement without a debt restructuring in 2010, but the European governments and banks influenced the decision. Papandreou’s government helped to present the elements of a banking crisis as a sovereign debt crisis in 2009. In 2013 theIMFadmits that “a delayed debt restructuring also provided a window for private creditors to reduce exposures and shift debt into official hands”.

Since the first Memorandum in 2010, private creditors managed to offload their risky bonds issued by the Greek state. In 2015, 80% of Greece’s public debt is held by public creditors: fourteen Member States of the Eurozone, the EFSF, the IMF, and the ECB. Only less than 10% of the funds have been destined to the government’s current expenditure. The conditionalities imposed further neoliberal reforms, which was not only an aim in itself, but also helped to create the illusion that they were designed to secure the future debt repayment.

However, the wage and pension cuts and fiscal consolidation led to lower GDP, tax losses, and higher public debt. Our estimatesshow that the fall in the wage share alone has led to a loss in GDP by 4.5%, and a 7.80% point increasein the public debt/GDP ratio. The fall in wages alone explains more than a quarter (27%) of the rise in the public debt/GDP ratio in this period. The conditionalities of the memoranda have not only been counterproductive in terms of its aims regarding debt sustainability, but also engineered a humanitarian crisis.

Philippe Legrain, advisor to the President of the European Commission Barroso in 2010, who spoke at a public hearing at the Greek Parliament on 11 June 2015, writes

Why would Eurozone authorities be so cruel and foolish? Because they don’t really care about the welfare of ordinary Greeks. They aren’t even that bothered about whether the Greek government pays back the money that they forced European taxpayers to lend to it, ostensibly out of solidarity, but actually to bail out French and German banks and investors. German Chancellor Angela Merkel and other Eurozone policymakers just don’t want to admit that they made a terrible mistake in 2010 and have lied about it since.

The report of the Truth Committee demonstrates that the debt claimed today from Greece can be considered illegitimate, in the sense that it has not benefited the population but a small minority of private creditors, especially the large Greek, German and French banks. This debt is unsustainable not only from an economic, but also a human rights perspective, as Greece is currently unable to service its debt without seriously impairing its capacity to fulfill its basic human rights obligations regarding the right to work, a life with dignity, social security, health, education, and housing. Loans have been contracted in violation of the Greek Constitution and the EU law, and can therefore be classified as illegal. The debt may also be classified as odious, since lenders knew that the conditionalities attached to their loans violated fundamental human rights.

The report also confronts the myth of excessive public spending before the crisis. The increase in debt since the 1980s was not due to excessive public spending, which in fact remained lower than the public spending of other Eurozone countries, apart from excessive and unjustified military spending, marked by widespread fraud with contracts benefiting the armament industry of the creditor countries. The other reasons of the rise in public debt were the extremely high interest rates, loss of tax revenues due to tax evasion and illicit capital outflows, and finally the recapitalization of private banks.

On 21 June 49 SYRIZA MPs requested a plenary of the Parliament to discuss the report of the Truth Committee on Public Debt. Whether there is a deal or not, there will be people in Greece who will not forget these inconvenient facts and seek justice. Who owes whom after years of destruction? This concerns not just the people of Greece but also Europe. Europe needs a debt conference. In 1953, as a result of the London Debt Agreement, half of German debt was written-off. The winners of the financial crisis do not have interest in a debt conference, but the people of Europe have the right to learn that their taxes were used to bail out banks. The people in Ireland, Portugal, Spain, and Latvia need to see the truth that their governments imposed on them the similarly wrong austerity measures.

The bill must eventually be sent to the private banks. Until then the people of Greece have the right to refuse to pay the debt. It is time that the Greek people have a clear discussion about what the debt means, and what are the options outside this straightjacket. Greece needs policies to achieve decent jobs with decent wages for both women and men, structural change, sustainable development and a caring society for both the young and the elderly. Solutions to these problems are incompatible with payment of the debt and austerity policies likely to be attached to further agreements.

A unilateral debt default surely requires capital controls, but despite the scaremongering, the Greek people need to be reminded that most countries had capital controls until the massive financial deregulation of the late 1970s and 1980s. To counterbalance the blackmail of the ECB, the Greek government can introduce IOUs for internal payments. Will this lead to an exit from the Eurozone? Staying in or exiting the Euro cannot be a taboo, and exit is a possible outcome of confrontation, but it is not the only outcome.

After default, the ECB would cut the supply of liquidity, since the government bonds held by the Greek banks would cease to serve as collateral, but according to Willem Buiter of Citi, European authorities could recapitalize the Greek banks, and the ECB could continue funding the banks until a political decision is reached to avoid being the institution to pull the plug. But this approach sees the transition period from the perspective of the bankers; from the perspective of the Greek government, the more important issue is to take control of their banks rather than leaving it to the ECB.

The degree of financial contagion to the rest of Europe after a Greek default is yet to be seen, as the calm in the government bond markets seem to be more fragile than the ECB and the European governments hope for. But the political contagion of a Greek default, as people choose dignity over blackmail, is what the people of Europe can hope and prepare for. The political and financial contagion will mutually reinforce each other in the medium run as more questions are asked by the people of Europe about the legitimacy of the so called bail out programmes.

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Should Greece Pay Back Its Debt?

24 April by Ozlem Onaran

Financial speculators are nervously asking whether Greece will pay its debt or default. Political leaders from Europe to the US and the IMF are telling the Greek government to leave aside its democratic mandate and accept further austerity as a condition for getting credit to continue to pay back its debt. But the right question politically is: should Greece pay this debt.?

On 4 April the President of the Hellenic Parliament, Zoe Konstantopoulou, set up the Debt Truth Committee – a special committee of the Parliament to investigate the truth about the increase in Greece’s public debt. Eric Toussaint of the Committee for the Abolition of Third World Debt is the team’s scientific coordinator. The Debt Truth Committee in law, economics, accounting, banking from Europe as well as Zambia, Ecuador, and Brazil.

There are well-established concepts in international law that question the legality, legitimacy, sustainability or odiousness of a loan agreement if and when it deters a state from meeting its obligations to its citizens to ensure adequate access to health and education, a life with dignity, and the right to organise. There is a long history of states making use of these legal concepts to enter into dispute with their creditors over their sovereign debt starting with Cuba in 1898, the US in Iraq in 2003 and Ecuador in 2007.

These legal concepts are the guiding references for the Debt Truth Committee: Is any part of Greek public debt before or after the Memoranda of Understanding (MoU) with the Troika illegitimate? Was it contracted by a government without considering whether the public or general interest would be safeguarded? Was any part of it contracted in violation of the current legal or constitutional system? Has any part of the debt been granted on conditions that violate the social, economic, cultural, civic, and political rights of the people concerned? Were the loans intended not to save Greece but French and German banks?

The creditor institutions as well as the debtor governments have an obligation to audit these aspects before any loan agreement is made. Did EU governments consider whether any of these loan agreements violated the EU Charter of Fundamental Rights?

In the case of Greece, the ILO’s supervisory bodyalong with other supervisory bodies of the European Code of Social Security, the United Nations and European human rights bodies have repeatedly expressed concern that maintaining the course of fiscal consolidation foreseen by the MoU undermined the national social security system’s “capacity to maintain the population ‘in health and decency’ above the poverty threshold.” As a result of these policies and the dismantling of the collective bargaining system, real hourly wages in Greece fell by 25% by 2014. The minimum wage has fallen to its level of the 1970s. The minimum pension fell below the poverty threshold. As many as 35.7% of the population and 44.1% of children aged 11 to 15 are at risk of poverty or social exclusion. The economic depression became a fully-fledged reproductive crisis, with the population decreasing at the same time as rising emigration and decreasing fertility.

The conditionalities of the loan agreements since 2010 have not only destabilized the economy and society, but they also made public debt even more unsustainable. Research by Gechert and Rannenberg of the Hans Böckler Foundation in Germany show that without austerity the Greek economy would only have stagnated rather than lose 25% of its GDP. Implementing tax increases alone and no spending cuts would have been much more effective in lowering the debt to GDP ratio. The Troika did not adequately take into account the higher than average multiplier effects of cuts during recessions when designing the Greek programme.

Our work at Greenwich for the Foundation for European Progressive Studies shows that the fall in wages alone explains 4.5 percentage points of the decline in Greek GDP. Contrary to the assumptions of the European Commission (EC) and the IMF, falling wages do not stimulate net exports significantly either.

Dealing with the depression and humanitarian crisis in Greece requires measures to reverse both inequality and austerity, increase the minimum wage, re-establish collective bargaining institutions and the welfare state, and promote public investment in the social and physical infrastructure via a healthy and progressive tax system. This is, unfortunately, not how the creditor institutions understand structural change.

Mario Draghi, the ECB President, has recently warned; “we are certainly entering into uncharted waters if the crisis were to precipitate.” To avoid the next potential Lehman moment, the sane response to the crisis would be to analyse the origins of the debt in Europe to shed light on adequate policies to generate sustainable development and social cohesion in Europe. The German export-led growth model also requires debt, but in another country, in Greece or Spain, hence it is as unsustainable as debt-led growth. However the EC, ECB, and the IMF are not guided by rational long-term economic and social concerns, but by erroneous economic concepts that serve the interests of the financial world. Therefore, the initiative of the Greek Parliament is of historical importance, not just for Greece but also for Europe as a whole.

Source: http://www.socialeurope.eu/2015/04/…