Posts tagged ‘greece’

November 7, 2011

mystery debt and political foreclosure

by Melissa

Okay, of course, there’s more to the current crisis than US housing markets.  The European Debt Crisis (Greece of course being the current flavour) is a sovereign debt crisis like the debt crisis of the 80’s. Debt activists are pointing to some important continuities between then and now, including the mystery of debt burden and the related narrowing of what is politically viable.

This CADTM’s statement of solidarity aptly captures the (deliberate?) amnesia regarding the source of sovereign debt among European nations like Greece, Ireland, Italy and Iceland.  Like the US bank bailout, European countries too rescued big financial institutions in the wake of the toxic debt crisis that swept the financial sector following the housing crisis in the US.  For 30 years, debt activists have called for Debt Audits in order to democratically determine the source and legitimacy of the debt burden facing debtor nations.  This has yet to be done in the Philippines, for example, and the political space around national debt was foreclosed in the wake of Cory Aquino’s pledge to honour all debts incurred under Marcos (with the help of loan pushers, see my Nov 5 post).  And thus the Philippines kept the Martial Law period law ( Automatic Appropriation Act) that puts all debt service as priority in national expenditure.  Odious debt has many definitions, but importantly, all of them underscore the negotiability of debt.  Graeber has noted that debt can create conditions of servitude precisely because of a moral narrative of debt repayment.  Challenging this debt narrative is crucial.  Mainstream news coverage of the political crisis in the European Union (and Greece itself) has effectively forgotten about the debt owed by bankers to the public who bailed them out.  Challenging the debt narrative (through debt audit) can raise the important question:  Who owes who?  What does the investor class owe the public in light of the crisis they created?  Would a debt audit bring to light odious sovereign debts-  debts unrelated to government spending on social welfare and legitimate national investment-  debts that are in the form of toxic financial assets,  Credit Default Swaps or other strange and speculative intruments that create debt for investor profit….?

Similar to the creditor protection afforded by the IMF (through more loans with conditionalities) in the 80’s and 90’s, creditor protection in the European debt crisis has taken the form of loan extensions to Greece (notably by the EU) on conditions of austerity.  This effectively shifts the crisis burden from the investor class to the working class.  The narrative of austerity measures functions on the myth (real or imagined?) that national debt is the result of “overspending” given the national revenue stream.  Austerity measures (as the only solution to crisis) foreclose the possibility that debt was incurred through large-scale (unregulated and “legal”) fraud in the first place:  corporate tax breaks, new forms of sovereign lending (derivatives and creative accounting),  investments in crock-pot paper with high-grade ratings, and other anti-people practices.  Like in Argentina, Brazil and Ecuador, Greek people are right to challenge the mainstream debt narrative through street-level tactics.  Worldwide debt audits (and other ways of opening political spaces within economic narratives) should be on the table- for new and old debtor countries.

Moreover, the current Eurozone crisis ought to underscore the extent that sovereign nations are tied to odious terms of agreement.  The whole reason Greece needs bailouts from Europe and the IMF is due to perceived investor risk of sovereign default (and the consequent exhorbitant cost of further borrowing).  Is this risk in fact a product of  financial sector profit instruments in the Sovereign Derivatives Market rather than simply “Greece living beyond its means”?  Maybe the blueprint from the 80’s debt crisis still serves us well:

I  Frontier markets in  sovereign lending      (SO KEY!)

II Widespread inability to pay (or the perception of such due to risk ratings since payment is reliant on further borrowing)

III  Creditor protection like the backdoor bailout (so Greek won’t default on its loans to private investors) that is currently being negotiated.

What remains to be seen is whether the Greek people submit to debtor management at the cost of  national sovereignty and working class solidarity or effectively push back against the mainstream debt narrative.

The sovereign debt crisis is perhaps more a crisis of sovereignty than of debt proper.