We need Eurobonds and a new charter for Europe
Susan George interviewed by Nick Buxton of the Trans National Institute
You became well-known for your work on the debt crisis in the 1980s and 1990s. Then it was a crisis for developing countries; now it seems to be mainly afflicting developed countries? How do you explain this?
The causes of the debt crisis in third world countries were not the same as now. In the 1970s, much borrowed money went into armaments, middle and upper class luxury spending on imports, rising oil prices, and white elephant development projects—in other words unproductive spending. Also the US suddenly increased interest rates unilaterally in 1981 by a huge percentage. John Perkins in Confessions of an Economic Hit Man argues there was a deliberate policy to indebt and control developing economies. His personal testimony needs further corroboration, but we know for sure that the richest nations used debts to do exactly that - to enforce terms imposed by the US and other creditor countries which required developing countries to enter the world economy on very unfavourable terms.
The big reason for the current European debt crisis is that the governments have taken on private bank debts that exploded with the financial crisis. The clearest case is Ireland which took responsibility for all that its banks owed, but it is true for all countries that are now in trouble. The idea of a balanced budget or zero debt is a total fantasy
Even so most countries in Europe have modest debts. Earlier this year, Spain only owed 55 % of GDP. Even the stringent Maastricht Treaty says 60% of GDP is OK. Italy and Belgium for instance are well above 100% but many countries where austerity is preached, like France, have no problem. People tend to believe—and are told to believe by their media--that the debt of a household is the same as the debt of a country. This isn’t so. A family can’t live for long beyond its means but countries, especially in modern time have always done so. The US has not been free of debt since the 19th century. The idea of zero national debt is a total fantasy. Obviously, you’re better off borrowing in order to invest productively. And if you have too much debt you end up paying far too much in interest to bondholders; but “sovereign debt” as it’s called needn’t be a problem.
What do you think the consequences of these policies will be?
European policies so far are disastrous! They are the same so-called “remedies” that were forced on developing countries in the 1980s, now better known as the “lost decade for development”. The austerity programmes being imposed on Greece, Ireland or Portugal come straight from the neoliberal handbook of Structural Adjustment Programmes (SAPs), from A to Z.
The result is savage contraction of those economies to an unheard-of degree. When radical privatisation, salary cuts, social spending wipe-outs and so on were imposed in really poor countries like Niger, they actually led to famine and mass deaths. In Europe, we have more leeway, some cushions, but Greece's economy has already shrunk by more than 5% this year, unemployment has soared with no compensation, small businesses are failing in droves and everything in sight is being privatised.
It’s a criminal policy designed to push workers back into 19th century, to get rid of the social benefits people fought for over many generations. As usual, the rich will escape and international capital will have a heyday with the privatisation possibilities. Ordinary people are paying twice for the financial crisis—first to bail out the banks and now to sacrifice and bring about the ruin of their own countries and livelihoods.
What is your response to those who say fault lies with Greece and its failure to control public finances?
People say “the Greeks don't pay taxes” and that’s true for the rich who have a lot of money in Cyprus, a convenient tax haven. A Swiss financial house reports that only 1% of Greek money in Swiss banks is declared in Greece—and only 3% for France—the Greeks aren’t alone in this game. Greece has also maintained a proportionally huge military budget. Even when the Turks—supposedly the enemy—proposed joint military expenditure reductions, the Greeks didn’t accept.
The Greek orthodox church, the country's biggest property and landowner pays zero taxes, which makes no sense. There’s also a large black economy. And when the PASOK took over, they discovered that their predecessors had cooked the books and radically understated what the country owed.
Despite all this, we should remember that Greece represents a mere 2% of the European economy. It is just not worth this huge polarising crisis or incredible psychodrama. The Germans and the European Central Bank are treating this not as a straightforward economic issue of indebtedness and default but as a morality play in which the Greeks must be punished.
Even if we include Portugal and Ireland, we’re talking about a small part of the Euro zone economy. With Spain, things start getting serious; it’s about 11% of the Euro-economy and Italy—well, no one wants to contemplate that.
Obviously, austerity will only worsen economic woes—less tax revenue, more unemployment, low investment, a larger underground economy and so on. Plus enormous human suffering and possible breakup of the Euro. There has not been a single case where a country came out better off because of IMF austerity policies.
The neoliberal economists have succeeded in erasing all memory of the 1930s when Keynesian policies were used to good advantage against the Great Depression. Instead we are faced with a festering debt problem, an economy being throttled by austerity and no hope of recovery.
Do you think Greece should have defaulted? What alternatives should Greece have followed?
The Greeks can’t pay and they will default. They already have but no one is calling it that. After all this cliff-hanging, some makeshift solution will be used to paper over the reality.
If I had been [Prime Minister] Papandreou, I would have said “Can’t pay, won't pay.” I would have then worked out what percentage of the debt was “odious”, a legal concept meaning illegitimate, and what Greece could reasonably handle over time.
Then I would have declared that Greece would not pay X %, say half, of its debt and offered to negotiate with all the private banks to determine under what conditions Greece would pay back the rest—at longer maturities, lower interest rates and so on. The banks would have to choose between receiving zero or 50% of something. And remember they have no troops—they’re not going to invade Greece! And Greece wouldn’t even have to leave the Euro zone because the Treaties make no provisions for forcing a country to leave. That would have concentrated minds considerably.
It’s obvious all the stopgap measures won’t work in Ireland or Greece. I’m not even sure they are meant to. In the developing countries and now in Europe, debt allows creditors to exercise a kind of colonialism without an army or an imperial administration. It’s no accident that the Latin Americans prioritised paying back the IMF as soon as they could afford to. It was the only way they could start running their own economies again.
We should remember what Keynes wrote in the 1920s in The Economic Consequences of the Peace. He warned that Germany would not be able to pay its post-war debts and there would be hell to pay for this. And there was, but Germany got a completely different debt deal post World War II – which limited debt service and interest payments radically - terms they are now unwilling to offer Greece.
Who do you think is responsible for the crisis?
It’s the financial sector plus local politicians plus European politicians plus of course the Lisbon Treaty and European Central Bank structures that keep the Euro zone in an economic straight-jacket.
Nobody forced the French and German banks to buy so much Greek debt. The financial markets just assumed that Greek bonds were the same as German bonds: now they’ve figured out that Greek bonds are Greek and they’re determined to get back as much money as possible at the highest interest rates possible regardless of social costs.
And plenty of European governments clearly govern on behalf of their financial sector. But they are playing with fire and can yet blast open the Euro zone, at which point all bets are off.
What are the structural problems with the Euro that have contributed to the crisis?
I am a fervent European, so I want the Euro to last, but we don't currently have the economic and social machinery to go with it. We have a common currency but don't have a common fiscal, economic or social policies. Instead of increasing taxes, governments are competing to reduce them as in Ireland with its 12.5% corporate tax rate.
We have a ridiculous European budget, no Europe-wide taxes, no tax on financial transactions. World-wide transactions just on currencies markets are now at an astronomical $4.000.000.000.000 a day. Even if you taxed that at only 1/10.000 it would bring in $400 million a day. You could solve a lot of problems with that kind of money!
The European Central Bank is the obstacle to success, not the Euro per se. The ECB doesn’t lend to governments but to banks, at 1% or less, and then banks lend to governments—short term Greek and Irish debt has “junk” status and is now priced at 20%.
The ECB unlike every other central bank doesn’t issue Eurobonds. So we have government by the banks and the ratings agencies. We need Eurobonds not just to discourage rampant speculation against individual countries but also so that Europe can invest in large ecological and infrastructure projects no country can manage by itself.
Are there other issues in EU’s economic governance that have contributed to the crisis?
One of the reasons we fought so hard in France against the Lisbon Treaty was that it enshrined neoliberal economic policy at the heart of Europe, and set us up for the kind of crises we now face. Now the European Commission wants to examine all individual country budgets before their parliaments vote on them to make sure they meet certain standards. This is a blatant attack on democracy.
Everything under the European Commission is now judged in terms of “competitivity” which includes suicidal competition between European countries themselves. Not everyone can be Germany. In the Euro zone, government spending is still around 50% of GDP but corporations and capital want to get control over as much of that as they can. Once again, we’re being slowly dragged back into the 19th century.
How should social movements respond to the crisis? What alternatives can we put on the table?
Get the financial sector under control, tax financial transactions, force European, especially Euro zone governments to act in solidarity with each other. Carry out debt audits to determine how much is “odious”. Develop a debt workout mechanism that isn't skewed entirely in favour of creditors. We need Eurobonds and a new charter for Europe with an ECB that’s much closer to the US Federal Reserve. Use Keynes’ bancor as the currency for trade. We’ll need another interview to talk about that!
Meanwhile, I’d be more than happy with public, non-profit ratings agencies and governments that govern for citizens rather than for banks.
Susan George is a fellow of the Trans National Institute, President of the Board of TNI and honorary president of ATTAC-France [Association for Taxation of Financial Transaction to Aid Citizens]. This interview first appeared on the TNI website. The photo, by ludwig van standard lamp, shows Susan George addressing the New Internationalist’s Clean Start conference in 2008.
It seems to me that ATTAC is calling for a very modest kind of monetary reform, and incidentally for more power for the ECB, and more integration in Europe, (which is the same direction we are being thrust in already). So when she says:
RispondiElimina"The idea of zero national debt is a total fantasy"
without explanation, twice, I get suspicious. Debt money can work perfectly well with proper governance, but it is wrong to dismiss other forms.
Yes, true. They are not so smart as they would like we think of them.
RispondiElimina