Greece’s tragedy must usher in a new way of dealing with debt
We urgently need a 'Debt Court' to remove power from the hands of the lenders, and to judge the fairness of both debts and the loans on which they were based. By Nick Dearden.
Every day the same news - Greece lurches nearer to a default, the financial markets panic, and governments come up with a few more euros or some soothing words to calm them for a few hours. The meltdown has been put off for another day.
Almost every commentator accepts Greece will default. The question is when, on what terms and who will pay the highest price.
What is certain is that every day that goes by the highest price is not being paid by Angela Merkel or the other European leaders, who all seem to have all the foresight of Oedipus. Instead it is the Greek people who are paying - and indeed the populations of other countries affected by the crisis.
The Greek economy is shrinking for the third successive year. Unemployment has doubled in three years. Even the head of the International Monetary Fund, Christine Lagarde, has warned that the political system itself is unravelling over Greece, saying “Weak growth and weak balance sheets… [are] feeding negatively on each other, fuelling a crisis of confidence and holding back demand, investment and job creation. This vicious cycle is gaining momentum." Yet in the same breath, Lagarde threatens to withhold bailout funds unless the Greek government continues to follow the ‘structural adjustment’ programme being imposed by her organisation and the EU.
These measures will not reverse the crisis, but the more money Greece can repay, the better things are for the banks. France’s own banks are now under attack owing to their massive exposure to Greek debt. In essence, the European bailout means public money is being thrown into the largely unreformed banks, via Greece, so they can go on acting in their own narrow self-interests rather than the interests of wider society. The privatisations and other structural reforms being imposed on Greece will further empower the financial system that created the financial crisis.
One indication of the nonsense of the Greek situation was exposed last week. At long last it has been accepted that there will need to be some form of ‘haircut’ on Greece’s private debt - that is to say private lenders will have to reduce the amount they can expect back. But in order to get enough creditors to accept the haircut, nationalised Greek banks are having to take the haircut too, meaning their losses will balloon. For a tiny haircut, the Greek government will have to use more public money bailing out those banks so they so they can be privatised under the IMF/ EU programme.
No-one seriously seems to believe that austerity will help a country like Greece to climb out of a recession. Jeffrey Sachs, himself a proponent of structural adjustment in Eastern Europe, has said “we must now understand Greece is at the precipice of social instability. Further cuts will push it over the edge,” not to mention spill over to “Italy, Spain, Portugal, Ireland, and even France”.
UN body UNCTAD released a report earlier this month examining post-crisis policy challenges in the world economy. The report’s authors point out that “Austerity measures, as the main means of tackling the euro crisis without regard for regional demand growth, may badly backfire.” It also points out the absurdity of devising economic ‘solutions’ to please those institutions that got us into the financial crisis - rather than ensuring they cannot do so again.
Instead of austerity, we should be standing up to financial institutions to prevent them from dictating terms to indebted countries. After all, the European banks bear far more responsibility for the reckless lending that has consumed Europe than do the people of Greece who are bearing the pain for it. Neither do banks or governments who have lent recklessly have any imperative to question whether their lending was really just, fair or accountable. Every system of justice in the world would point to the need for a neutral body which could also adjudicate on the liability of the lender.
But even in the fantasy world of European politicians in which the poor of Greece really were responsible for the financial crisis, their ongoing punishment is utterly futile. In 1982 the world stood at a financial precipice as many governments told western banks they could not repay their loans. In a cycle that would often be repeated, the IMF stepped in to bail out the banks by buying the debt for themselves. Two long decades of austerity and debt followed. The world only became more unequal, more unstable and more prone to crisis. The debt crisis went from bad to worse.
In contrast, compare what happened after the Second World War. In 1953, under the London Accord, half of Germany’s war debt was cancelled by, amongst others, Greece. As German campaigner Jurgen Kaiser puts it “Nothing collapsed or deteriorated because of this debt relief. To the contrary…the accord [was] one of the cornerstones of the subsequent German ‘economic miracle’.” Moreover, “Debt relief for Germany was not conditional upon the implementation of any austerity or structural adjustment program.”
The current debt system ignores this example, instead reinforcing the power of the lender. This noxious relationship between international lenders and borrowers allows European governments to get away with pursuing policies which benefit only the profit margins of their banks. It urgently needs changing, which is why campaigners are calling for a ‘Debt Court’ which would remove power from the hands of the lenders, and judge the fairness of both debts and the loans on which they were based.
Until that time the people of Europe must take power into their own hands. This week Irish campaigners completed phase one of their debt audit. The purpose of a debt audit is to allow the citizens of a country to examine that country’s lending history and to hold their politicians to account. Conducted with official backing, it would form an essential element in the adjudication of a Debt Court.
The Irish audit found that up to 82% of long-term government bonds are in overseas ownership, with identities shrouded by the opacity of the deeply unaccountable financial system. It prompted the union Unite to declare “Ireland is acting as a roulette wheel for the world’s largest financial gamblers as a result of a massive increase in secondary trading on its sovereign debt.”
The Greek and Irish people are suffering - like many around the world before them - because of the power of an unaccountable and self-interested financial system. A Debt Court, if set up properly, would remove power from the hands of the financial markets and protect the rights of those living in ‘debtor’ states. Without a just debt system, the only way for people to preserve their rights is to struggle for them. European leaders will keep bleeding Greece until its people can take it no more. If we do not want the tragedy that has befallen Greece to recur, we must support the Greek people.
Nick Dearden is Director of the Jubilee Debt Campaign.