Posts Tagged ‘odious debt’
by stuartbramhall in Attacks on the Working Class, The Global Economic Crisis
(This is the last of three posts about the new female head of the IMF, which the business press is promoting as a “rock star of the economic world,” and how we are being deceived about the real cause of the debt crisis in Europe.)
The free Greek documentary Debtocracy effectively dispels the media myths about lazy Greek workers and and scofflaw Greek taxpayers being responsible for the Greek debt crisis. It begins with an overview of what its filmmakers feel has been a basic goal of both globalization and the creation of a single European currency – namely “labor discipline” and the suppression of wages in heavily unionized countries. They show how sweeping deregulation in the industrialized world in the 1980s allowed manufacturers to eliminate unions by shutting plants down and reopening them as sweatshops in the third world. The subsequent creation of the Euro as a single currency allowed the central European countries (Germany and France) to use the mechanism of debt to weaken strong unions in peripheral Eurozone countries, especially Greece. Germany, with relatively weak unions following reunification, imposed a virtual ten year wage freeze. While German workers suffered, German companies and banks racked up immense profits and stacks of cash, which they loaned to “peripheral” countries to finance big corporate tax cuts.
The bulk of the film focuses on the concept of “odious” debt and whether the Greek people should be forced to suffer for fraudulent loans from which they received no direct benefit. As Debtocracy poignantly depicts, Athens and other Greek cities are experiencing a third world humanitarian crisis, with massive homelessness, hunger and untreated illness. The film quotes a recent IMF report predicting a 5-10% decrease in Greek life expectancy due to the debt crisis and austerity cuts
Odious Debt: An American Invention
Odious debt was a concept invented by the US in the early 20th century to avoid repaying Spain’s war debt after the US took possession of Cuba following the Spanish-American War. It was used again by George Bush following the US occupation of Iraq, to avoid repayment of Sadam Hussein’s debts to China, France, Germany and Russia. Since then approximately a dozen countries – most notably Argentina, Ecuador and Iceland – have repudiated so-called “illegitimate” debt incurred by deposed leaders.
The film focuses mainly Argentina’s and Ecuador’s default on their foreign debt. In 2001 the structural adjustments the IMF forced on Argentina bankrupted the country. A popular uprising forced the Argentine president to flee (in a helicopter), and the new government declared the IMF debt illegal and unconstitutional. When Ecuador experienced a similar economic crisis and uprising in 2007, they, too, sent their president packing (again in a helicopter). In 2008, their new president Rafael Correa appointed a Debt Audit Commission to study the strong arm tactics (some of which John Perkins describes in Confessions of an Economic Hit Man) that led former Ecuadorian leaders to borrow billions of dollars to purchase US-built infrastructure that only benefited Ecuador’s wealthy elite. Correa’s Debt Audit Commission ascertained that only 30% of their external debt was legitimately incurred.
CADTM’s Call for a Greek Debt Audit Commission
Iric Toussaint, a French economist who participated in the Ecuadorian Debt Audit Commission, believes a major proportion of Greek debt may have been fraudulently incurred. The following evidence supports this view:
- Nearly one billion euros of debt resulted from a risky swap (of yen and dollars for euros) Goldman Sachs persuaded Greece to make in 2001. The transaction netted Goldman Sachs $600 million in profit (see Secret Greek loan).
- Major German and French loans were issued on condition that the Greek government incur further indebtedness to purchase hundreds of millions of euros of German and French armaments.
- Billions of dollars of Green debt resulted from major cost overruns on the 2004 Greek Olympics (which cost twice as much as the Sydney Olympics in 2000). These have never been explained nor investigated.
- In 2010 a former Goldman Sachs official was hired to manage the Greek public debt authority, with the result that the entire 2010 rescue package (103 million euros) was used to bail out Greek banks.
The film also discusses the March 2011 call by the Committee for the Abolition of Third World Debt (CADTM) to create an audit commission to examine Greek public debt. It ends with the ominous sound of a helicopter, eerily foreshadowing the forced resignation of Greek prime minister George Papandreou last November, when CNN advised him to get a helicopter to save himself from angry protestors (see Fall of Papandreou).
Exchange rate: 1 Euro equals $US1.33.
by stuartbramhall in The Global Economic Crisis
(This is the second of three posts about the new female head of the IMF, which the business press is promoting as a “rock star of the economic world,” and how we are being deceived about the real cause of the debt crisis in Europe)
LaGarde isn’t without her critics. Former IMF chief economist Simon Johnson refers to her appointment as “the fox guarding the henhouse.” Johnson, like former World Bank economist Joseph Stiglitz, has been highly critical of the extreme concentration of financial power and it threat it poses to the global economy. This is the subject of Johnson’s recent book, Thirteen Bankers.
His criticism of Lagarde centers mainly around her proposal to solve the Eurozone crisis by issuing additional loans to the debt-ridden “peripheral” countries (Greece, Spain, Italy, Portugal and Belgium). He maintains all these countries are looking at a default scenario, no matter how much money she throws at them. He accuses her of allowing EU leaders to use the IMF to conceal from their voters major flaws in the Eurozone structure. As senior fellow at a Washington DC think tank (Peterson Institute for International Economics), he also complains about the unfairness of expecting US taxpayers to bail out the IMF for the sake of European politicians (and Greeks “who don’t like to pay taxes”). In Johnson’s view instead of spending other peoples’ money on struggling Eurozone economies, the EU leadership needs to make some a hard choice – either to integrate their fiscal systems in a way that allows fiscal transfers to poorer, less competitive countries or to create two tiers of Eurozone participation, in which only tier 1 members can borrow from the European Central Bank (see Fox in the Hen House and The Problem with Christine Lagarde).
Lagarde Gets the Cold Shoulder
Thus far Johnson’s arguments have resonated with most non-European IMF member countries. Despite Lagarde’s aggressive lobbying to add $500 billion to the IMF rescue fund at the recent G20 meeting in Mexico City, she came away empty handed. Most finance ministers agreed with the response U.S. Treasury Secretary Timothy Geithner gave her: the European Central Bank must make a much larger financial commitment before asking other G20 countries for money.
Fairy Tale Economics
The problem with mainstream media coverage, which continues to center around Lagarde and her “rock star” persona is that it’s a fairy tale – complete with a fairy princess – that never addresses the fundamental structural problems that caused the world economic collapse. The corporate media never tells the back story – that fossil fuel scarcity has effectively ended global economic growth, rendering our debt-based monetary system totally inoperable. Richard Heinberg convincingly makes the case that Peak Oil is responsible for the global economic collapse in his 2011 The End of Growth, as do Richard Douthwaite David Korowicz, Chris Vernon and Tom Konrad in Fleeing Vesuvius (see Will Peak Oil Spell the End of Capitalism?).
Instead the mainstream media promotes cruel myths about lazy Greek workers and a Greek middle class that refuses to pay taxes, obscuring the reality that much of the Greek debt is likely “odious; and fraudulently incurred.
To be continued.