Committee for the Abolition of Illegitimate Debt

Until 2008, countries in the North seemed untouched by debt problems. [1] The crisis has completely changed this situation. Now, in particular Ireland, Greece, Portugal, and Eastern and Central European countries are feeling the devastating effects of the austerity policies applied since the 1980s.

5.1. Debt in Europe

5.1.1. Trends in public and private debt

Table 5.1 – Trends in public and private debt (% of GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. ), from 2009 to 2013: ‘euro zone’ [2]

Contrary to the declarations made by European leaders and the mainstream press, which contend that States’ debts are too high because of insufficient control of social spending, the increase in European public debt occurred after private organisations (principally businesses and banks) had become overly indebted. The causes of this excessive debt include:

• insufficient tax revenues, particularly those paid by the wealthiest, on capital gains and company profits. This shortage is not an accident, it is the result of a series of tax breaks made to rich individuals and big corporations to the detriment of the general public. With the crisis came over-indebtedness, another cause of lower tax revenues and increased public debt;
• policies that favour the funding of public deficits by the financial markets. Since the Maastricht Treaty in 1992 (subsequently confirmed by article 123 of the Lisbon Treaty) public administrations are not allowed to borrow from their central banks or the European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.
  
  ECB : http://www.bankofengland.co.uk/Pages/home.aspx (ECB ECB
  European Central Bank The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.
  
  https://www.ecb.europa.eu/ecb/html/index.en.html ). States have become totally dependant on private funding by financial companies (such as the big banks), resulting in considerable extra costs to taxpayers; [3]
• austerity policies implemented, especially since 2010, that degrade public finances and hinder economic activity and increase unemployment. So, the excessive accumulation of business and bank debt chokes the economy. Austerity plans make the governments reduce spending rather than increase it to stimulate the economy and redistribute wealth: tax revenues collapse along with the economic activity, and public debt grows.
• finally, there are the bank bail-outs, which add to the debt.

5.1.2. The cost of bailing out the banks

Table 5.2 gives the total volume of bail-outs, assistance, and guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). to banks made by government authorities between 2008 and 2012. The sums in the guarantees column are not expenditures, they are State guarantees. Should the concerned assets lose their value, the State will cover the losses. They are not immediate costs, but potential future losses.

Table 5.2 – Direct public assistance to banks (from 2008 to 2012, in % of GDP) and State guarantees (in 2013, € billion): European Union [4]

Financial time bombs on those states’ accounts, not only the losses are socialised but also the risks

The UK is at the top of the list for public aid to banks (€80 billion), followed by Germany (€65.7 billion). However, the country that has the heaviest burden compared to the size of its economy is Ireland with 40% of GDP. Ireland is followed by Greece at 19%, Cyprus 10%, and Belgium [5] and Spain at around 6%.

Figures from 2013, the latest available, point to Spain as the country that has granted the highest total of guarantees (€95.1 billion), followed by Italy (€81.1 billion) and France (€65 billion). Nevertheless, Ireland and Greece remain the most heavily burdened by guarantees compared to the size of their economies (respectively 40% and 28%). These are financial time bombs on those states’ accounts, not only the losses are socialised but also the risks (in this case, banking risks).

5.1.3. Profits and losses of European banks

To balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. their budget deficits, European countries apply austerity programmes that bleed the population dry. At the same time as budget deficits are widening because of the large sums used to save the banks, the same banks are making big profits.

5.1.4. Financial systems and national economies

The deregulation of the financial system has enabled it to grow excessively over the last ten years. This expansion is a significant risk for European economies.

Table 5.3 – Profits of banks in the European Union (€ billion) [6]

5.1.5. Debt repayments and national budgets: the case of Spain

This table compares the total burden of debt servicing (repayments of interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. and the capital borrowed) in terms of GDP, to the percentage of public spending devoted to paying the interest on the debt. Both are compared to public education and health budgets for the same year.

Table 5.4 – Burden of public debt on Spanish GDP and the State budget from 2008 to 2012 [7]

We see that in 2008, debt servicing, as a percentage of GDP, was already higher than spending on health and education. Debt servicing continued to be higher than health spending in 2010. Since 2009 and the crisis, the Spanish health and education budgets have been cut each year. Between 2009 and 2011, spending on health dropped by 11% and on education by 13%. At the same time, the share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of the budget allocated to the repayment of interest on debt continued to rise, doubling between 2008 and 2012. Even before the 2011 [8] constitutional amendment that established debt repayment as the top priority, taking precedence over all others, that priority was already the standard practice.

5.1.6. Illegitimate debt

The sense of injustice caused by the public bail-out of the banks has led to the formation of various social movements calling for public and democratic audits of public debt. [9] These audits under popular control seek to identify the part of public debt that is illegitimate, with a view to cancelling it. According to the CADTM, it is up to the authorities to take sovereign measures concerning illegitimate or illegal debts: there must be a firm, unilateral refusal to pay.

Certain debts, although legal from a judicial point of view can nevertheless be considered as illegitimate. The debt imposed on Greece, Ireland and Portugal by the ‘Troika Troika Troika: IMF, European Commission and European Central Bank, which together impose austerity measures through the conditions tied to loans to countries in difficulty.

IMF : https://www.ecb.europa.eu/home/html/index.en.html ’ (European Commission, ECB and IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org ) through bail-outs fall into this category. Several factors point to the illegitimate nature of these debts incurred by governments under orders from the Troika: the measures have seriously damaged and attacked social and fundamental human rights; the people were not consulted about the policy changes that were made; finally, although at lower than market rates, they are still beyond the financial capacities of the people. For the CADTM, they are illegitimate debts and should be abolished.

The outcome of the structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/ policies applied to Greece are dramatic. [10] The following table compares the country’s principal macro-economic variables between the first quarters of the years 2008 and 2014.

Table 5.6 – Principal Greek economic indicators compared by first quarter 2008 and 2014 [11]

In addition, in 2009 there were well over 950,000 people working in different public sectors. In December 2013, this number had dropped to 675,500, and in May 2014 it was no more than 590,900. Total wages dropped from €24.5 billion to €15.8 billion between 2009 and 2013. The brunt of this loss was taken by non-permanent employees, which fell from 148,600 in 2009 to only 12,200 in 2013. [12]

This huge drop, justified by accusations that civil servants were paid for doing nothing, was caused by the non-replacement of employees who retired, as well as by increased unemployment; again, for non-permanent ex-employees. Many public services are paralysed and those that continue to function, such as education, lack resources, and are doing no more than ticking over.

Another example of what could be considered illegitimate debt is the indebtedness caused by prohibiting central banks from lending directly to public authorities. As they cannot be financed by central banks, States have to seek funds on the financial markets where they issue sovereign bonds that are principally purchased by private banks. [13] This private monopoly de-legitimises a large proportion of public debt.

Likewise, Olivier Bonfond, economist at CADTM and CEPAG, has calculated the surcharge paid by the Belgian State in order to find funds on the financial markets. His graph below plots different curves: the dark blue line shows the debt trend as it actually happened. Between 1992 and 2012, Belgian debt was reduced to 100% of GDP from 135% of GDP. The other lines show that public debt would have been much lower if Belgium had been able to borrow from its central bank. The light blue line shows that if Belgium had borrowed at 1% from the Central bank, its debt would have been at 34% of GDP in 2012. In this case, Belgium would have saved €248 billion during this period. The orange line shows the same scenario, but at 0% interest rate. Belgian debt would have dropped from 135% of GDP in 1992 to 18% of GDP in 2012, and Belgium would have saved €306 billion. This graph clearly shows that a considerable proportion of Belgian public debt is illegitimate.

Chart 5.2 – Belgian debt trend as a % of GDP in function of lending rates from 1992 to 2012 [14]

Belgian national debt is very largely illegitimate

What is more, if tax breaks to the richest 1% and to big business are taken into account, together with the costs of bank bail-outs, it is clear that Belgian national debt is very largely illegitimate.

In France, the Citizens’ Audit Collective (CAC) published a report in May showing that 59% of France’s public debt, €1.097 trillion in 2014, is illegitimate. The report is based on two major factors: the continuing payment of past debt (snowball effect), 59% of France’s public debt, €1.097 trillion in 2014, is illegitimategiven that the interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. are excessive, and the tax breaks to the wealthiest and to big business. The following chart, taken from this report, shows the amount of debt generated by these two factors.

Chart 5.3: Proportion of French debt caused by the snowball effect and tax breaks (as a % of GDP, 1985-2013) [15]

5.2. US debt

Although the US is at the centre of the world economy, or perhaps for this reason, it has not been spared from uncontrolled growth in public and private debt. Households and individuals have been severely affected.

5.2.1. Trends in public and private US debt

Table 5.6 – Evolution of public and private US debt by sector (as a % of GDP), from 1980 to 2012: United States [16]

5.2.2. The cost of bank bail-outs

Table 5.7 – The cost of bank bail-outs between 2008 and 2013 ($ billion): United States [17]

This table shows the various bank bail-out programmes in the US between 2008 and 2013, the first being the Troubled Asset Relief Programme (TARP) approved by G. W. Bush in October 2008.

Net assistance is the difference between the public funds injected into the programmes and the funds returned from the programmes. The positive figures are the funds injected that have not been returned. The guarantees are public guarantees of bank assets.

5.2.3. US bank balance sheets

We might have imagined that following the 2008 crisis, US financial institutions would suffer severe losses... not at all! Thanks to public funds they were rapidly back on their feet and once again enjoying high profits.

Table 5.4  [18]

5.2.4. The property crisis

Where is the bail-out plan for these people to satisfy their basic right to housing?

While the banks were ‘still getting away with it’ thanks to public and central bank assistance, the plights of millions of US families, like hundreds of thousands in Spain, have been ignored by their government. Since 2005, an estimated 14 million US families have been evicted, and over 260,000 families in Spain suffered the same fate between 2008 and 2012. Where is the bail-out plan for these people that would enable them to satisfy their basic right to housing?

Table 5.8 – Number of evictions after repossessions of homes in the US and Spain from 2005 to 2012 [19]

*The 2012 figure includes evictions by court rulings