Committee for the Abolition of Illegitimate Debt

After the release of the new Fiscal Treaty, Angela Merkel said “The debt brakes will be binding forever. Never will you be able to change them through a parliamentary majority”. She has elsewhere spoken of the new fiscal rules as having “eternal validity”. This language calls to mind the creation of a vampire, which is an apt metaphor because the Treaty is a would-be immortal creature that aims to suck the lifeblood out of European societies in perpetuity.

Article 3(1) of the Treaty – which says that the ‘structural deficit’ has to be cut to 0.5% 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. in every country – exemplifies this striving for immortality in its reference to “provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes”. The wording here, as we know courtesy of the German government, was deliberately designed to try and avoid a referendum in Ireland. But that attempt has failed and the people will get their chance to have their say.

They will do so because the Irish constitution is very clear that no organ of the state (including the Oireachtas/parliament) can circumscribe or restrict the powers conferred upon it by the Constitution. As Trinity College Professor of Law Gerry Whyte has argued: “Legislative provisions do not have a ‘permanent character’ inasmuch as it is always open to the Oireachtas to amend legislation and, in my opinion, it is not constitutionally open to the Oireachtas to put any Act beyond amendment”, as the Treaty’s fiscal rules seek to do.

There is an irony here. When Ireland ratified the Maastricht Treaty it introduced a provision that treaties of the European Union could constrain national economic policy, but this provision could not be invoked to legitimise the Fiscal Treaty because it is not a treaty of the EU – it has been agreed to by the governments of only 25 of the 27 member states (with Britain and the Czech republic standing outside it). David Cameron’s grandstanding defence of the City of London financial sector has ended up serving the cause of democracy in Ireland.

The ‘yes’ side will fight this referendum campaign by scaremongering. Already the Minister for Finance has claimed this will be a referendum on Irish membership of the Eurozone. This of course is a lie. What is not a lie is that adoption of the Treaty would deepen and lengthen austerity. Consider the current situation where Ireland is trying to reduce its budget deficit to 3% of GDP by 2015 (itself an arbitrary target). Now, as economist Tom McDonnell has pointed out, an optimistic forecast is that the ‘structural deficit’ (a concept that is notoriously difficult to measure) might be 3.7% of GDP in 2015 – that then has to be cut back to 0.5%. This is like hillwalking – a long, arduous trek to what we think is the summit only reveals another, even higher peak to be scaled. In 2015, we would face into having to cut another 3.2% of GDP out of an already shrunken economy.

Some on the ‘yes’ side may say that this is indeed unfortunate but that there is no alternative because if we do not sign the Treaty then we will not be eligible for emergency assistance from the European Stability Mechanism ESM
European Stability Mechanism The European Stability Mechanism is a European entity for managing the financial crisis in the Eurozone. In 2012, it replaced the European Financial Stability Facility and the European Financial Stabilisation Mechanism, which had been implemented in response to the public-debt crisis in the Eurozone. It concerns only EU member States that are part of the Eurozone. If there is a threat to the stability of the Eurozone, this European financial institution is supposed to grant financial ‘assistance’ (loans) to a country or countries in difficulty. There are strict conditions to this assistance.

http://www.esm.europa.eu/ (ESM) should we need a second so-called ‘bail out’. And that is indeed true – that particular gun is being held to our heads and has even prompted some commentators who are highly critical of the Treaty to urge a ‘yes’ vote. The ‘no’ side has to honestly address this issue, which can best be done by showing how and why we will not need ESM financing. Increased progressive taxation is one obvious answer. Another is to suspend repayments of the debts arising from two now defunct financial institutions – Anglo Irish Bank and Irish Nationwide Building Society – whose private creditors have been guaranteed and bailed out by the Irish state. On 31^st March the Irish government proposes to make a payment instalment of €3.1 billion on this debt, and to continue to make such payments until 2031. The total bill when borrowing charges are factored in may amount to €85 billion. Suspending the payment of this illegitimate debt and entering into negotiations to write it down, as a new campaign group in Ireland is calling for, would not only free up resources in its own right, it would greatly boost Ireland’s creditworthiness and render access (or the lack of it) to the ESM wholly moot.

So the campaign is about dropping both the Treaty and odious debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts. . And that is a good thing because it makes it a campaign for economic justice, broadly defined. It is also of course a campaign for democracy. And it is one we have to win – let us drive a stake through the heart of this vampire.

Andy Storey is a lecturer in political economy at the University College Dublin.

Source : Transnational Institute