[MGSA-L] How to Resolve the Greek Crisis

[June Samaras]

How to Resolve the Greek Crisis
Posted: 07/18/2012 9:24 am

This post originally appeared on Opera Mundi.

http://www.huffingtonpost.com/salim-lamrani/how-to-resolve-the-greek-_b_1675481.html

Greece is emblematic of today's general crisis of national
indebtedness. Since 2010, the country has been subjected to nine
different austerity plans, each one of an extreme severity. The Greek
people have responded by calling fourteen general strikes. Yet, a
solution exists.

The Greek debt crisis is a textbook case and illustrates the utter
failure of neoliberal policies. Indeed, despite the intervention of
the European Union, the International Monetary Fund and the European
Central Bank (ECB), despite the imposition of nine extreme austerity
plans that include massive increases in taxes, including the VAT,
price rises, a reduction of salaries (for example, a 32 percent
cutback of the minimum wage!), retirement benefits and raising the
legal retirement age, the destruction of essential public services
such as education and health, the elimination of welfare and the
privatization of strategic sectors of the economy (ports, airports,
railways, natural gas, water, gasoline), the population has been
brought to its knees. Yet, in spite of all of this, the debt is
greater today than it was before the intervention of the international
financial institutions in 2010.

Still, the Greek crisis could have been avoided. Indeed, all that was
necessary would simply have been for the European Central Bank to
grant the necessary loans directly to Athens at the same rate of
interest it charges when lending to private banks, that is to say,
between 0 percent and 1 percent. This is something that would have
prevented any speculation on the part of the private banks. However,
the Lisbon Treaty, drawn up by Valéry Giscard d'Estaing, prohibits
this possibility for reasons that are difficult to understand if one
starts with the assumption that the BCE is working in the interest of
citizens.

Yet, Article 123 of the Lisbon Treaty states:

"Overdraft facilities or any other type of credit facility with the
European Central Bank or with the central banks of Member States
(hereinafter referred to as 'national central banks') in favor of
Union institutions, bodies, offices or agencies, central governments,
regional, local or other public authorities, other bodies governed by
public law, or public undertakings of Member States shall be
prohibited, as shall the purchase directly from them by the European
Central Bank or national central banks of debt instruments."

In fact, the ECB directly serves the interests of the financial
market. Thus, private banks borrow from the ECB at rates as low as 0
percent to 1 percent. They then speculate on this debt by loaning the
same money to Greece at rates ranging from 6 percent to 18 percent,
thereby worsening a debt crisis that becomes mathematically unpayable.
Further, Athens now finds itself in the position of having to borrow
simply to pay the interest on the debt. Worse still, the ECB sells its
debt securities back to Greece at a high price, that is to say 100
percent of their value, even though the ECB had acquired them at 50
percent. Thus, they speculate on the fate of a nation.

For these reasons, it is essential that the European Treaty be
significantly revised in order to allow the ECB to lend directly to
individual states, thereby avoiding speculative attacks by the
financial markets on sovereign debt, such as was the case in Greece,
Ireland, Spain, Portugal and Italy, to name but a few.

Lessons to be learned from the new Latin America

Europe has much to learn from the new Latin America represented by
Brazil's Dilma Roussf, Venezuela's Hugo Chávez, Bolivia's Evo Morales,
Cristina Kirchner of Argentina and Ecuador's Rafael Correa, both in
terms of the struggle against international finance and the recovery
of sovereignty and control of national destiny. All of these nations
have chosen to put human beings at the center of social development
and to rid themselves of the burden of debt by putting an end to the
influence of such international financial institutions as the
International Monetary Fund and the World Bank.

Ecuador's President Correa has shown the way. Indeed, without applying
austerity measures he has succeeded in lowering Ecuador's national
debt from 24 percent to 11 percent of GDP. Contracted in the 1970s by
dictatorial regimes, this debt is essentially illegitimate and falls
into a category known as "odious debt."

The concept of "odious debt," that is to say debt illegitimately
imposed, can be dated back to 1898 when the United States, following
its military intervention in Cuba, unilaterally cancelled Havana's
debt to Madrid because it had been contracted under an illegitimate
colonial regime.

Between 1970 and 2007, Ecuador paid 172 times the amount of debt it
had accrued by 1970. Because of the exorbitant interest rate imposed
upon the nation, however, the total amount due had been multiplied by
53. Similarly, between 1990 and 2007, the World Bank lent 1.44 billion
dollars to Ecuador for which the country repaid the sum of 2.51
billion dollars. The interest alone on this debt represented, between
1980 and 2005, 50 percent of the national budget, clearly to the
detriment of all social programs.

Upon coming to power in 2007, Correa reduced interest on the debt to
25 percent of the national budget and established a Commission for the
Integral Audit of Public Debt, charged with assessing the debt's
legitimacy. In its published report, the Commission concluded that the
Ecuadorian commercial debt was illegitimate. In November 2008,
President Correa ordered a suspension of payment for 70 percent of the
public debt.

As a logical consequence, Ecuador's debt lost 80 percent of its value
on the secondary market. Quito took the opportunity to buy back three
billion dollars of its own debt for 800 million dollars, thereby
realizing a saving of seven billion dollars in interest that the
country would otherwise have paid through 2030.

Thus, by a single international audit and at no cost, Ecuador reduced
its debt by nearly 10 billion dollars. Public debt fell from 25
percent of GDP in 2006 to 15 percent of GDP in 2010. At the same time,
social spending (education, health, culture, etc...) rose from 12
percent to 25 percent.

Europe would be wise to follow the path traced out by the new Latin
America. It has become clear that the problem of public debt can never
be solved by the application of austerity measures. Inevitably, these
are politically disastrous, socially unjust and economically
inefficient. The waves of privatization in key sectors of national
economies and the undermining of hard-won social rights will not
resolve the problem of a mathematically unpayable debt. The solution
is nonetheless simple: the European Central Bank must lend directly to
the states at the same rate of interest it charges private banks and
the power of money creation must be made the exclusive right of the
central banks. Public interest must prevail over the narrow interest
of private banks. Who in Europe will dare to emulate the new Latin
American and have the political courage to challenge the world of
international finance?

Translated from the French by Larry R. Oberg


-- 
June Samaras
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E-mail : june.samaras at gmail.com