(March 3rd, 2011) — This morning Greek trade unions, academics and politicians issued a call to set up a Public Commission to examine their debts. It’s the first ever call for a Debt Audit in Europe. Supported by over 200 prominent Greek and international figures, it is a concrete proposal for how Greek people might begin to retake control of their economy.
Greece has suffered the worst of the financial crisis, forced to take new loans of up-to €110 billion from the EU and International Monetary Fund (IMF) last May, the country is facing the most brutal austerity cuts in its history, while the economy is still contracting. Many economists remain convinced that Greece’s debts are not sustainable and the country will have to default on those debts in coming months or years.
Meanwhile, €36 billion (11% of GDP) of spending cuts are underway, with rumours of a firesale of Greek assets – from islands to ruins – not to mention numerous structural reforms which will weaken the power of unions. Both cuts and reforms will see inequality soar in Greece in the next 10 years.
This treatment is justified, in the eyes of Western Europe, on the basis that Greece is said to be a country of high benefits and little work. But actually Greece’s problems are structural – and mirror the problems of finance more generally.
Greece, like other peripheral European countries such as Ireland and Portugal, is unable to compete with its richer neighbours. Its integration into the Euro means it has no control over interest rates or exchange rates. To keep going – just like people across the US and Western Europe who are trying to get by in societies experiencing sharply rising inequality – the economy borrows. In borrowing, it makes Western European banks and investors a lot of money. French, German and British banks have lent the Greek public and private sectors €80 billion; one-third of Greece’s national income.
When the good times dry up and the banks find that they’ve lent a lot of money that can’t be repaid, the EU and IMF step in with new loans to ensure the banks do get repaid via a ‘bail-out’ package to the distressed country. Heaven forbid the banks or other lenders should take the pain. Sharp austerity packages mean the poorest shoulder the burden of their economy’s ‘adjustment’.
Indeed that’s exactly what Bank of England Governor Mervyn King said about the UK economy earlier this week: “The price of this financial crisis is being borne by people who absolutely did not cause it. Now is the period when the cost is being paid, I'm surprised that the degree of public anger has not been greater than it has." In Greece, the case is even stronger – and people are even more angry.
That’s why a broad range of civil society actors has now called for this debt to be looked into – so ordinary people have an opportunity to properly understand where the debt came from. The call, signed by Noam Chomsky, Tony Benn, Ken Loach and many economists, politicians and academics says “the Greek people have been kept in the dark regarding the composition and terms of public debt. The lack of information represents a fundamental failure of the democratic process. The people who are called upon to bear the costs of EU programmes have a democratic right to receive full information on public debt.”
Such an audit would throw up some interesting questions regarding the legality (banks may have been lending in contravention of public debt rules), legitimacy (debts may have been hidden off-balance-sheet) and morality (those least responsible are now paying the highest price for that lending) of European debts.
The idea of a Debt Audit is inspired by movements in highly indebted developing countries. In 2007, President Correa of Ecuador established a Debt Audit Commission claiming his most important debt was to the people of Ecuador. In 2008, the Commission reported that Ecuador’s debts had caused “incalculable damage” to the people and environment of that country.
The Audit encouraged Correa to default on some of Ecuador’s bonds which the Audit found had been contracted illegally – and ultimately resulted in a write-down that saved the country billions of dollars in repayments.
Two former Ecuadorian ministers have signed the call to support an audit in Greece, alongside Members of the European Parliament, international economists and academics and civil society representatives. Correa himself is now said to be poised to examine more of Ecuador’s debts. Audits are also on the cards in Nepal, Paraguay and Bolivia, with citizens planning their own audits in many more countries.
Even more importantly, a Debt Audit will encourage a push for wider democracy in Greece. As Greece’s debt continues to mushroom, people need to have control over the policies carried out in their name. The austerity measures now being pushed on Greece will mean more inequality across Europe – creating an even more crisis-prone economy. What happens in Greece today will surely impact on decisions made to debt-laden economies in Eastern Europe and across the developing world tomorrow.
The Greek people are in the front line, standing up against the power of a reckless and greedy financial sector – but the consequences of this fight will be felt across the world.