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Debt, a boon for creditors, a tragedy for the people !
31 January 2011

Debt, a boon for creditors, a tragedy for the people !

The public debt argument is frequently used by European governments to impose austerity plans.

This debt is more than just a pretext to make paying more acceptable to the population. It is a real looting of the people.

The debt is the direct result of budgetary and tax policies favourable to the dominant classes and big business. By reducing state involvement and contributions paid by the wealthy, public deficits have swelled, while the social needs of the majority become unsatisfied.

The beneficiaries of this fiscal and social generosity have been able to accumulate unneeded savings. Thus increasing their wealth which they invest in profitable government bonds.

They win both ways: less taxes to pay and a guaranteed annuity. In other words, governments, by successive favourable fiscal reforms have permitted the financial markets and industrial powers, national and transnational, to become their creditors.

Public debt has also enormously increased as a result of the generous bailouts accorded to the financial sector by the States after the most recent crisis. Without imposing any change to the practices that led to this crisis or any counterpart. The sums involved were, however, huge amounts: at least 700 billion U.S. dollars, 500 billion pounds in the United Kingdom and 1.7 trillion euros in the Euro area. Governments have thus spent public money to rescue financial operators guilty of serious errors before the crisis and who are today speculating against State debts.

Global European Union public debt has increased from 7,300 to 8,700 billion euros between 2007 and 2009. This rapid increase in debt results in greatly increased capital and interest repayments. The states then use this pretext to impose draconian austerity plans, dismantling social security systems and public services.

The people lose all ways : they suffer the social consequences of the crisis (unemployment, job insecurity, wage freezes, postponed retirements...), they are taxed by the states to pay the bank bailouts and suffer the austerity plans.

The culprits of the crisis emerge more or less unscathed, hands free to continue their quest for profits. The victims of the crisis have to pay and see their living conditions deteriorate. This outrageous hold-up of public finances must be stopped !

These austerity plans must be rejected and the problem tackled at the root !

CADTM presents eight alternative proposals in view of establishing a common revendicative platform for the social and political movements.

1. Expropriation and transfer of the banks to the public sector and their placing under citizen’s control.

There is no sustainable control possible of private financial institutions. The States must regain their capacity to control and direct the economic and financial activities of their countries.

2. A unilateral announcement of a moratorium (without accrual of interest on over-dues) on debt reimbursements, whilst an audit of the public debt be established (with citizen participation). On the basis of the results of this audit, debt identified as illegitimate will be cancelled.

Considering its experiences concerning the debt issue in the South, CADTM warns against an insufficient revendication such as a mere suspension of debt repayment. Claims for interest on over-dues, or penalties for non payment, may not be entertained.

The moratorium will be used to conduct a review of loans to identify illegitimate debts, the different responsibilities in the debt process and demand that those responsible be held publicly accountable. Debts identified as odious or illegitimate will be canceled. Citizen participation will be an essential requirement to ensure the objectivity and the transparency of the audit.

3. Establish a true European fiscal justice and a fair redistribution of wealth. Ban legal and tax havens. Heavily tax financial transactions.

In order to stop tax dumping, we need a fundamental reform and harmonization of European taxation. The goal is increased public revenue, particularly through income tax and corporation tax, a rapid decrease in the prices of goods of basic necessity (food, water, electricity, heating, public transport ...), notably by a sharp and focused decrease of the VAT on these vital goods.
In the European Union, since 1980, the rates of direct taxation on the highest incomes and the big companies has been falling. Between 2000 to 2008 higher income tax rates and corporation tax fell by 7 and 8,5 points. Those hundreds of billions of euros of tax breaks have been largely oriented toward speculation and the accumulation of more wealth by the richest strata of the population.

All transactions passing through tax havens must be prohibited. The different G20 participating countries have refused, despite their declarations of intent, to effectively tackle the legal and tax havens. These dark chasms of financial corruption, crime and high level illicit trafficking must be banned. To the progressivism of taxes, should be added sufficient charges as to discourage speculative transactions and on the income of debt creditors.

4. Fight against the massive tax evasion of the wealthiest companies and the richest people.

Tax evasion considerable reduces public resources and deprives the community of employment possibilities. Consequent public resources must be allocated to the effective repression of this fraud. The results should be made public and the perpetrators severely punished.

5. Rein in the financial markets, particularly by the creation of a register of securities holders and the prohibition of short sales.

Worldwide speculation represents several times the wealth produced on the planet. The highly complex nature of this financial engineering makes it totally uncontrollable The mechanisms that are put into motion de-construct the productive economy. The opacity of financial transactions is the rule. To tax the creditors at the source they must be identified. The dictatorship of financial markets must cease.

6. Drastically reduce working time to create jobs and increase wages and pensions.

Spread the wealth otherwise is the best response to the crisis. The share of produced wealth going to employees has decreased significantly, while the creditors and businesses have increased their profits and levels of speculation. Increasing wages, not only increases people’s purchasing power, it also enhances the means of social protection. Reducing working time without reduction of wages and creating jobs, also enhances the quality of life of the population.

7. Resocialise the many businesses and services privatised over the past 30 years.

A feature of the past 30 years has been the privatisation of many enterprises and public services. From the banks to industry via the postal services, telecommunications, energy and transport, governments have delivered whole sections of the economy to the private sector, losing all possibility of control and regulation. These public goods, produced by collective effort, must be returned to the public domain.

8. For a constituent assembly of the peoples for another European Union.

The EU that is imposed on the European populations through the constitutional treaties is a powerful war machine serving capital and finance. It must be completely re-founded by a constituent process where the voices of the peoples are finally taken into account. This new Europe must work to democratise the harmonisation of fiscal and social justice leveled up, encourage the elevation of the quality of life of its inhabitants, withdraw its troops from Afghanistan and leave NATO, slash military spending, ban nuclear weapons and firmly commit itself to disarmament, end the ’siege mentality’ policy towards potential immigrants, become a fair and true partner in solidarity with the peoples of the southern hemisphere.

Breaking the domination of big business !

The financial institutions behind the crisis are getting richer and speculate on sovereign debts with the active complicity of the European Commission, European Central Bank and the IMF, to meet the interests of big shareholders and creditors. This private gain, helped by tax breaks and regressive social legislation, then accelerated by government austerity plans, must cease.
The reduction of public deficits should not be achieved by reducing social spending, but by increased tax revenue from higher taxing of capital (business and financial capital) and income of the fortuned and of financial transactions. This requires a breaking with capitalistic logic and the imposing of a radical change in society.

As opposed to the capitalism that we are currently bearing, the new social direction will break with productivism and include a new ecological reasoning.

Our demands are likely to respond effectively to the crisis in the interest of the people. Dropping illegitimate debt is a regain of sovereignty for states and peoples. The crisis must be overcome by taking into account the interests of the people.

We propose to unite in an anti-crisis front, not only at a European level but also locally, the energy necessary to create a balance of power favourable to the implementation of radical solutions focused on social justice.

Together, to impose a different mindset !

Cancel illegitimate debt, it is possible and it is in the interest of the people !

Throughout history there are numerous examples of debt abolition in countries in the South or in the North, sometimes unilaterally, sometimes court decisions, sometimes granted under pressure by the dominant powers.

International law is full of doctrines and jurisprudences that may allow, and in fact already have helped, to found debt cancellation or repudiation.

Emblematic example, CADTM has actively participated in the audit of the debt of Ecuador in 2007-2008. This audit has enabled the Ecuadorian government to cancel illegitimate debts to the tune of $ 300 million per year for 20 years. This money is now spent on improving public health and education and on job creations.

These measures, as insufficient as they are, mark significant advances that can be used by social movements in the South and the North to demand total and unconditional cancellation of illegitimate debt.

This cancellation is now a necessity and an urgency, so much do the sums spent in the service of debts restrict the economic, social and cultural rights of the populations.

Challenging the public debt, reclaiming a citizen’s audit, is now an inseparable part of the struggle against the austerity plans !

Translated by Mike Krolikowski in collaboration with Vicki Briault and Christine Pagnoulle

Debt, a boon for creditors