Wrong answer to Europe’s debt crisis

THE EUROPEAN summit meeting agreement, arrived at in the early morning hours of October 27, brings no solution to the eurozone crisis--neither the crisis of the banking system, the sovereign debt crisis nor the crisis of the euro currency. The summit's decisions don't solve any of the problems in an acceptable way--but only postpone them. The CADTM considers this agreement unacceptable.

Heads of states and governments, the leaders of the European Commission (EC), private banksters and the managing director of the International Monetary Fund met in Brussels to find a solution to the risk of serial bankruptcies among Europe's biggest banks, particularly those in France, Spain, Greece, Italy, Germany, Portugal and Belgium.

These are the very banks that, both before and after the crisis struck in 2007 and 2008, multiplied their risk-taking behavior to make short-term profits for their shareholders and hand out marvelous bonuses to their directors and traders.

The massive support that these banks have received from governments, the European Central Bank (ECB) or the U.S. Federal Reserve Bank have not been used to stimulate the productive economy, but diverted to more highly speculative activities. Private banks are being financed for the short term at the same time as they take on medium- and long-term obligations--public or private bond issues, commodity futures contracts, currency swaps and positions on derivatives--that aren't under any public control.

The bankruptcy of the Franco-Belgian bank Dexia at the beginning of the month is the direct result of these policies. The fear of a domino effect in Europe and North America therefore weighed heavily on the summit meeting held on October 26-27.

The summit meeting decided on a 50 percent "haircut" on Greek bonds--that is, promising banks holding these bonds that they will be able to redeem them, but at only half their value--as opposed to the 21 percent haircut agreed in July. This had become inevitable by August when the prices for bonds dropped by 65 percent to 80 percent in the secondary debt market.

Although state leaders announced they had imposed important sacrifices on the banks, as usual, financial firms are coming out well. This explains why for the time being, bank stocks in particular and the financial markets in general have shown upward movements.

THE OCTOBER 27 agreement isn't a solution for the Greek people, who are suffering the brunt of the crisis as a result of austerity measures that their government has inflicted on them. This austerity drive is entirely directed by the creditors and conforms with their interests, not the interests of the people.

This debt reduction plan is a European version of the "Brady plans" that had such devastating effects on developing countries during the 1980s and 1990s. These plans, named after then-U.S. Treasury Secretary Nicholas Brady, involved debt restructuring by exchanging existing bonds for new ones denominated in dollars for countries that were most deeply in debt to international lenders. The countries included Argentina, Brazil, Bulgaria, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Panama, Peru, Philippines, Poland, Russia, Uruguay, Venezuela and Vietnam.

At the time, Brady said the volume of these country's debts would be reduced by 30 percent. In fact, the reductions, when they did happen, were much less--and in some cases, debts even increased. The new bonds, known as Brady bonds, guaranteed a fixed interest rate of around 6 percent, which was very favorable to the creditors.

The Brady plans also assured the imposition of austerity measures dictated by the IMF and the World Bank. Today, though in a different part of the globe, the same logic is causing the same disasters. The "troika"--consisting of the ECB, EC and IMF--is imposing endless austerity measures on the Greek, Irish and Portuguese people. And if there is not a strong protest from their people, other countries will suffer the same measures, including Spain, Belgium, France and more.

The October 27 agreement doesn't resolve Greece's debt problems for two reasons: first, the debt reduction is totally insufficient; and second, the economic and social policies implemented in accordance with the troika's demands will weaken the country's economy even more.

Greece must make a choice between two options: One, surrender and be subjected to the authority of the troika; or two, refuse the dictatorship of the markets and the troika by suspending payments and carrying out an audit of the debt so the illegitimate part of it may be repudiated.

Other countries are confronting the same choices, or soon will be: Spain, Ireland, Italy, Portugal, and this list is far from exhaustive. In any case, these same policies are being applied in differing degrees all over the EU. Austerity plans must everywhere be rejected--and citizen-controlled audits of public debt carried out.

The financial crisis of 2007-08 didn't lead governments to impose stricter financial rules. Measures must be taken to prevent financial institutions, banks, insurance companies, and pension and hedge funds from causing further damage. The various public authorities and private firms, whether directly responsible for or complicit in the crises of the financial markets and the banks, must be brought to justice.

It is important to expropriate the banks and put them in the service of the common good, by nationalizing them under workers' and citizens' control. Not only must all forms of protections for shareholders be refused, but they should have their own wealth used to cover the cost of repairing the financial system.

It is also necessary to repudiate the illegitimate claims that private banks hold on public authorities. A series of complementary measures must also be adopted--control on the movements of capital, prohibitions on speculation and transactions that send funds to tax havens, the imposition of taxes aimed at establishing social justice. In the European Union, treaties such as Maastricht and Lisbon must be repealed. It is also necessary to radically transform the statutes of the ECB.

Before the crisis gets worse, it is high time to radically change direction. The CADTM supports, along with other organizations, the initiatives that have been taken in countries in favor of public debt audits under citizens' control. The Occupy Wall Street movement has set a creative and emancipative ball into motion. It must be reinforced.

Translated by Mike Krolikowski