Committee for the Abolition of Illegitimate Debt

So far, I have published three long commentaries on the book:

Two centuries of sovereign debt conflicts

A Book that brings odious debt back into the limelight

Why the Elites in the Global South Favour Indebtedness, How Creditors Have Eroded National Sovereignty, and How States are Beginning to Fight Back

Two other CADTM authors have also commented on chapters of the book:

Anaïs Carton on Chapter 9 in her article A sovereign State can refuse the transfer of debts that were contracted in times of subjection

and Maxime Perriot in La CNUCED, de l’activisme technocratique à l’assistance technique (“UNCTAD UNCTAD
United Nations Conference on Trade and Development This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

: from Technocratic Activism to Technical Assistance” – in French only), covering Chapter 10.

This fourth instalment continues my review of this interesting and important book.

  Critique of Chapter 3 entitled “Foreign Debt and Colonization in Egypt and Tunisia (1862–82)” by Ali Coşkun Tunçer

Ali Coşkun Tunçer, the author of Chapter 3, analyses the role of the mechanisms put in place by the European creditor powers for managing the debts of Egypt, Tunisia and the Ottoman Empire, putting the accent, as he says, on “their function of restoring creditworthiness of debtor governments, and their contribution to the modernization of state finances.”  [1] (p. 74). He points out that his support of that assertion runs counter to the explanation that focuses on the use of debt and the mechanisms for managing it to serve the interests of the imperialist powers (see note 4, p. 74). The end of the last sentence of the chapter is clear: “(…,)in the case of Egypt and Tunisia, international financial control organizations became obstacles to the ongoing colonization process by Britain and France, rather than instruments.” [2] In fact, the opposite is what really happened, because the international financial-control organizations of the two countries facilitated and prepared for their colonization.

A major difference between Egypt and Tunisia during the first half of the 19 th century

Muhammad Ali by Auguste Couder

Ali Coşkun Tunçer, the author, makes a serious error in seeing the policies conducted in Tunisia and Egypt as similar. He writes on page 76 “Ambitious modernization projects in Egypt and Tunisia in the first half of the nineteenth century increased the pressure over their budgets.” He adds: “(...) both Egypt and Tunisia had ambitious and costly Western-style reform programmes in the first half of the nineteenth century which increased their demand for foreign funding and European influence” (p. 79). Such erroneous statements are not merely small errors; their purpose is to rewrite history. I shall explain why below.

There was a major difference between Egypt and Tunisia in the first half of the 19^th century. In Egypt, Muhammad Ali wanted to succeed in developing the country independently of the European powers, without resorting to foreign debt. The policy produced good results during his reign.

In Tunisia’s case, The Bey of Tunis never sought to develop independently of the European powers without contracting external debt, and he was never successful.

The case of Tunisia in the first half of the 19 th century:

Through the end of the reign of Bey Mustapha in 1837, there was no public debt. Agricultural production was sufficient to ensure food sovereignty for the country. But Mustapha’s successor made a major change for the worse. Ahmed Bey, who reigned from 1837 to 1855, undertook a programme of public expenditures financed by costly internal bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. issues. This programme gave priority to forming a standing army, purchasing military materiel abroad, building sumptuous residences and creating factories (such as the clothing factory in Tebourba) on the European model. These accomplishments left much to be desired compared to what Muhammad Ali, the Egyptian monarch, had undertaken with a success to which the European powers responded with aggression. Nevertheless, the two approaches had one point in common – an absence of foreign loans during the first half of the 19^th century. Investments were made with the country’s internal resources. Tunisia’s programme of public investments was a fiasco because it was not based on promoting and strengthening local producers. The standing army was disbanded in 1853, the largest of the palaces was never completed and the factories were abandoned. The Bey of Tunis made use of internal bond issues at usurious rates that increased the debt. The Beylical State contracted debts by selling teskérés or short-term treasury bonds to wealthy Tunisians and foreign residents (Livornese, Genoese, French, etc.)

Egypt between 1805 and 1849:

Ali Coşkun Tunçer’s account of the policies of Egypt’s head of State during the first half of the 19^th century is woefully incomplete. He fails to mention the fact that those policies were radically different from those of his successor Sa’id Pasha, who burdened Egypt with unsustainable debt. A correct analysis of what actually happened in the first half of the 19^th century contradicts the overview given by Ali Coşkun Tunçer. I present that analysis in ’Debt as an instrument of the colonial conquest of Egypt’.

But to summarize Egypt’s history during the first half of the 19^th century very succinctly: During the reign of Muhammad Ali from 1805 to 1849, Egypt, although still under Ottoman rule, initiated a major project for industrialization and modernization. [3] Georges Corm summarizes the issue as follows: “Muhammad Ali achieved his most illustrious feat in Egypt when he installed state-run factories, thus laying the foundation of a state capitalism reminiscent of Japan’s Meiji era.” [4] Egypt carried out this industrialization venture throughout the first half of the 19^th century by mobilizing internal resources, without recourse to external debt or burdensome internal bond issues.

Egypt’s industrialization venture throughout the first half of the 19^th century mobilized internal resources, without recourse to external debt or internal bond issues

Muhammad Ali, khedive [5] of Egypt, wanted to win independence from the Ottoman Empire, and did not hesitate to go into battle against it. His exercise of sovereignty and his ambition to achieve development while maintaining financial, military and political autonomy from the Ottoman Empire and the European powers resulted in extremely aggressive reactions on the part of those European powers. In 1839–1840, a joint military intervention by Britain and France, followed a little later by a second attack (this time, by Britain and Austria), compelled Muhammad Ali to give up control of Syria and Palestine, regarded as home turf by these powers. (See map of Egypt’s expansion under Muhammad Ali below).

Egypt made a radical turn beginning in the second half of the century. Free-trade policies were adopted and massive external debt was contracted. This was the beginning of the end.

The second half of the century witnessed a radical turn. Muhammad Ali’s successors caved in to British pressure and adopted free trade, dismantling state monopolies and relying heavily on external debt. This was the beginning of the end. Egypt’s era ofdebthad beenset in motion: Egypt would soon concede its infrastructure to the Western powers, European bankers and unscrupulous entrepreneurs.

This memorable experiment reminds one of the one Paraguay conducted between 1811 and 1870, untilit was crushed by a military alliance controlled by London in a proxy war that used troops from Brazil, Uruguay and Argentina (the “Triple Alliance”). Paraguay had attained a high level of industrialization whilst at the same time refusing to go into debt and sign free-trade treaties. [6]

What actually took place in Egyptis veryfar removed from the description given by Ali Coşkun Tunçer. Following renowned authors such as Georges Corm and Paul Bairoch, the historian Jean Batou explains: “During the first half of the 19^th century, Egypt underwent a process of industrialization that has certain analogies with what took place in certain regions of Western Europe during the same period. For mechanical spinning of cotton, Egypt was probably in fifth place worldwide (in terms of spindles per inhabitant), behind England, Switzerland, the USA and France. It also boasted diversified production of consumer goods and heavy industry, for which machine tools and equipment were manufactured locally. Overall, its modern factories employed 50,000 to 70,000 workers, or a fifth of the total industrial labour force. That rate was less than 10% on average for all the future developed countries. Egypt, then, seemed to be well on the path towards industrialisation, even ifthe political and social mechanisms of its economic development were in strong contrast with Europe’s, and in particular Britain’s.” [7]

Muhammad Ali refused the offers of the bankersin Britain, France and other countries in order to avoid accumulating external debt. He also refused to enter into free-trade agreements with the major European powers and to apply in Egypt the free-trade agreementsthatthe Sultan in powerin Istanbul had entered into with Britain in 1838 (Batou, p. 89).

Around 1835–1840, Egypt had a population of five million. If the other territories administered by the Egyptian head of State – Syria, Lebanon, Sudan, Yemen, the Hejazand Crete – are included, that population reaches nearly 9.5 million, more than the rest of the Ottoman Empire. According to Batou, the new modern industrial sector was not focused mainly on military production – at least 80% of the cotton fabrics were intended for civilian consumption, as was a large 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 production of indigo, sugar, paper and glass, not to mention machines and various other equipment: “Spinning and weaving of cotton were at the core of the system, with a total of some thirty units. The average factory was large in scale: 15,000 spindles, 70 spinning mules and some fifty carding machines, to which should be added some 200 looms in Lower Egypt; it employed 500 to 1,000 workers. In addition,there were bleaching, dyeing and printing units. Overall, the cotton industry had 400,000 spindles, 330,000 operating on a regular basis, and 2,100 looms, of which 200 to 400 were steam looms. It consumed 3,000 to 4,000 tonnes of cleaned fibres per year and produced 2,000 to 3,000 tonnes of spun fibre, allowing for heavy losses. Annual fabric production was probably some 10 million square metres. Overall, the industry employed nearly 20,000 workers.” (…) Still according to Batou, “Muhammad Ali made enormous sacrifices to provide his industrial facilities with modern resources. Evidence is the special effort made towards producing equipment locally. With the exception of a few machines imported from Europe as models, the looms were built locally by local workers, often under the direction of Frenchand Italian craftsmen. (…) Muhammad Ali also insisted on the manufacture of rails (for the mines in Syria) and steam engines in Cairo, at a price three times higher than that of imported equipment. At the arsenal in Alexandria, precision instruments for navigation and equipment for construction, earth-moving and agriculture were still being manufactured – a high-capacity pump was developed for irrigation.

The civil and military industrial effort focused on products that Egypt was determined not to import, thus creating the foundations of a chemical industry. It manufactured the acids usedfor processing metals, as well as the lye needed for bleaching, dyeing and printing of textiles. An Italian chemist set up a unit with 130 workers in the Libyan desert which processed 1,750 tonnes of soda ash per year. More than twenty indigo plants (including in Sudan) produced 35 tonnes of dye per year. Glassmaking, a subproduct of the construction industry, underwent significant progress, using European techniques,in three distinct units–in Alexandria and on the Mahmoudia canal. The country also produced ink for its bureaucracies and printing plants, made from coal and gum arabic, as well as saltpetre for making gunpowder. In Cairo, a company recycled rags and waste from spinning plants to be used in making paper.” (Batou,op. cit.)

Agriculture with food self-sufficiency

Around 1800, as a result of especially high cereal-grain yields, Egypt undoubtedly had a higher revenue per inhabitant than did Western Europe. Muhammad Ali controlled the country’s agricultural surplus by eliminating the tax-farming of land that had been the traditional privilege of the Mamluk aristocracy.

But the reform was first and foremost a political act rather than an economic measure: first of all, the fellah (peasant) was encouraged to express his grievances and the heads of villages were entitled to tax relief. From 1809, the Khedive confiscated half of all the revenues of the tax-farmers (multazims) as punishment for their exploitation of the peasants; then, from 1811 to 1814, agricultural lands were concentrated in the hands of the State, registered and made subject to a direct tax.

“In 1815, Egypt had become one ‘vast governmental farm,’ unified and managed by functionaries. Without the elimination of the multiple intermediaries between the direct producer and the State, it would have been inconceivable to set up the public agricultural and trade monopolies. And it was this nationalisation of private trade networks that made it possible to increase and to siphon off an essential part of the economic surplus to the public coffers, opening the way to rapid accumulation in the modern sectors of the economy. ‘I took control of everything,’ the Pasha admitted, ‘but it was in order to make everything productive: who but me could have done it?’ ” (Batou,op. cit.)

“The State, which was effective owner of all land, decided on what crops were to be planted, postulated a yield Yield The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. proportional to the quality of the land and determined an in-kind tax, for which each village was collectively responsible. In order to increase revenues, he developed the irrigation necessary for export crops: Jumel cotton especially, beginning in 1821–1822, but also flax, oil seeds, opium, sugar cane, rice, wheat, etc. From 1813 to 1852, the country gained 400,000 hectares of newland, for a relative gain greater than the land needed for the Aswan Dam, 100 years later. Accordingly, even though it covered only a tenth of the planted acreage, irrigated agriculture accounted for nearly a quarterof agricultural production, half the budget of the State and nearly all revenue from exports.” (Batou)

If we compare the situation in Egypt in 2022 to that of the beginning of the 19^th century, we realize that the country’s opening to free trade beginning in 1850 and reinforced by the 40 years of neoliberal policies conducted since the 1980s have greatly deteriorated the country’s capacity to feed its population. Egypt is heavily dependent on its imports of cereal grains, in particular fromRussia and Ukraine.

The use of foreign technicians combined with training of local technicians and managers

“Egypt had a large number of foreign technicians (1,200 in 1821; 5,000 in 1835), of which the majority were French, exiled by the monarchist Restoration. Imbued with the spirit of the Enlightenment, many of them saw the reforms of Egypt’s head of State as a sign of the progress of the universal spirit. The contribution of foreign technicians is not specific to Egypt. Wherever the Industrial Revolution triumphed in the 19^th century, ‘imported’ specialists well versed in the new techniques served as guides. And yet Muhammad Ali was very attached to his industrial autonomy. That is why he made a point of providing technical training to young Egyptians.

Around 1835–1840, his academies and professional schools (in agronomy, engineering, navigation, medicine, etc.) had a total of 6,300 to 8,600 students. In parallel, he saw to it that students were sent abroad, in particular to France, for a total of some five hundredyoung men.” (Batou)

Conclusion: Based on what has been said, it is clear that Tunçer’s version of events is completely biased. Remember his statement cited above, to the effect that: “(...) both Egypt and Tunisia had ambitious and costly Western-style reform programmes in the first half of the nineteenth century which increased their demand for foreign funding and European influence.”

Beginning in 1837 the Tunisian authorities financed their investments by making massive use of highly burdensome internal debt, whereas Egypt financed its investments via taxes and revenue derived from productionTunçer’s message is clear: 1. Egypt and Tunisia copied Europe, which was extremely costly, and it is only logical that both countries had increasing recourse to external debt and that European influence increased. 2. There is no difference between the path taken by Tunisia and that followed by Egypt. And yet there are major differences between the economic and financial policies of Tunisia and Egypt: the Tunisian authorities financed their investments by making massive use of highly burdensome internal debt, whereas Egypt financed its investments via taxes and revenue derived from production. Tunçer completely conceals the original approach taken by Egypt between 1805 and 1849 and gives the impression that the country was already indebting itself to the Europeans.

  The turning point of the beginning of the second half of the 19^th century followed by outright colonization

After 1850, Egypt’s policies were subservient to the European powers and resembled Tunisia’sAfter 1850, due to the turn taken towards indebtedness by Egypt’s new head of State Sa’id Pasha, Muhammad Ali’s successor, the country’s governance was subjected to the European powers, and from that time on there were indeed similarities between the paths taken by Tunisia and Egypt.

A debt that was unsustainable and odious

The author does not conceal the burden some nature of the credit conditions imposed by Europe, but does not state clearly that it made repayment impossible – a fact clearly demonstrated by numerous authors including Georges Corm and Rosa Luxemburg when discussing Egypt. I summarized that demonstration in the two chapters I devoted to Egypt and Tunisia in my book The Debt System. A History of Sovereign Debts and their Repudiation. In an annexe to this article, I have selected large excerpts from those chapters in order to show the odious nature of the foreign debts contracted by Tunisia and Egypt during the second half of the 19^th century and underline the fact that the international commissions who controlled the finances of these countries in fact prepared the way for their colonization.

Both for Egypt and Tunisia, the extremely onerous conditions place on credits coming from Europe made it impossible to reduce the debtTunçer does not analyse the nature of the projects or expenditures financed by debt. What he is interested in is the ability of the two countries in question to repay the debts. For him, what is fundamental is to gauge the effectiveness of the mechanisms put in place by the creditors and the countries’ leaders to ensure repayment. However, the goal of these mechanisms was not simply to succeed in ensuring repayment of the debts – which is reprehensible in itself given the nature of those debts. The goal was also to put an end to the countries’ exercise of their own sovereignty, and in certain cases to occupy or simply to conquer the country outright if that was in the 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. of the imperialist European powers. The imposition of an international financial commission a majority of whose members were representatives of the European creditor powers and whose function was to take complete control of the country’s finances had various financial, political and geostrategic goals.

In Tunisia and in Egypt, the imposition of an international financial commission controlled by the European creditors facilitated colonizationYou will recall that an international financial commission was imposed on Tunisia in 1869, and its equivalent was imposed on Egypt in 1876 under the name Caisse de la Dette Publique (Public Debt Commission), and on the Ottoman Empire in 1881 under the name Ottoman Public Debt Administration (but a financial institution dominated by Europeans – the Banque Impériale Ottomane or Ottoman Bank – was already in place in Istanbul since 1863).

Neither does the author analyse the role of the local dominant social classes, who profited greatly from their country’s indebtedness, both internal and external. I demonstrated this in detail in my study of Tunisia.

The global economic context and its consequences for Egypt and the Ottoman Empire

The author does not take the global context into account. Yet the financial flows in the form of loans and investments of the dominant economies of the international capitalist system (in the second half of the 19^th century, these were mainly those of Britain, France, Belgium and the German Empire), are largely conditioned by the economic situation of the North.There came a succession of periods of strong growth ending in crisis, and periods of slow growth or stagnation. During the periods of strong growth in the North, there were large capital flows from the economies of the Centre (=North) to the Periphery, which in the second half of the 19^th century meant mainly Latin America, the Middle East, Eastern Europe – including Russia –, and China. When a financial crisis erupted in the Centre due to economic (the overaccumulation of capital) and speculative euphoria, as happened in 1825 and in 1873, the flows would dry up. Companies and banks of the North would radically reduce investments and loans going out to the Periphery, or Global South. Now countries like Tunisia, Egypt or the Ottoman Empire had become heavily indebted under the encouragement of European bankers and their governments throughout the years 1850–1860–1870. The conditions of their indebtedness became extremely difficult, indeed unsustainable, if they were unable to refinance the payment of former debts with new loans. While the economy was doing well in Europe and European bankers were keen to place their capital by helping to finance Tunisian, Egyptian and Ottoman loans, those three countries would get indebted but were able to pay off their loans as they could issue fresh loans to repay the previous ones. On the other hand, when a crisis erupted in Europe as happened in 1873 and the economy of the old continent entered a long period of weak growth or even stagnation, financial flows would dry up and the various indebted countries of the Periphery would gradually have to suspend payments.

Tunçer does not take this into account.

As for me, however, I examine this in great detail in my book The Debt System. A History of Sovereign Debts and their Repudiation, particularly in Chapter 1.

In the 19^th century, starting in 1826, the first great debt crisis hit the countries of the Periphery very hard, countries that had got indebted towards banks of London mainly from 1822 to 1825. [8] That debt crisis was the result of a banking crisis and an economic crisis that erupted in London in December 1825.Tunisia and Egypt were not concerned as those two countries had not yet begun to take out foreign loans. The London crisis brought in its wake a string of suspensions of payment by countries that had borrowed money in 1824–1825, all under far too onerous terms that favoured the bankers of the North. Greece, Mexico and the independent States of South America were obliged to suspend their payments since they were no longer able longer to borrow. The London bankers had turned off the tap.

The second big debt crisis for the Periphery erupted in the wake of the European banking crisis of 1873, followed by a great slump. There follows an account of these events, with particular focus on the cases of Egypt and the Ottoman Empire.

During 1850-1876, the bankers of London, Paris and other financial centers were looking forward to investing significant sums in Egypt as well as in the Ottoman Empire and other continents (Europe with the Russian Empire, Asia, especially China, Latin America).

The second big debt crisis for the Periphery in the wake of the European banking crisis of 1873, followed by a great slump.Several banks were founded in Europe to organize financial flows between Egypt and the European financial centers: the Anglo-Egyptian Bank (founded in 1864), the Franco-Egyptian Bank (founded in 1870 and directed by the brother of Jules Ferry, a significant official of the French government) and the Austro-Egyptian Bank (founded in 1869). The latter had been founded under the auspices of the Creditanstalt-Bankverein where the Rothschilds of Vienna had stakes. The major London banks were also particularly active. London bankers and French bankers specialized in long-term and short-term loans respectively. The latter were the most lucrative.

In May 1873, in the middle of the Universal Exhibition (see “The Panic of 1873”) a banking crisis erupted in Vienna. The Credit anstalt-Bankverein, mentioned above, was directly hit. The banks of Frankfurt and Berlin were also affected and in the end all London bankers were impacted. Consequently, there was a significant drop in the desire to lend to peripheral countries; yet those countries needed to be able to borrow constantly, in order to repay their previous debts. Moreover, since the economic situation in the countries of the North had deteriorated, exports from the South fell, as well as the export revenues that also helped to make debt payments.This global economic crisis originating in the North was the main cause of the wave of suspensions of payments.

French bankers, less badly affected than the others by the 1873 crisis, had carried on lending to Egypt, taking advantage of the circumstances to raise their 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. considerably and usually only conceding short-term loans. In 1876, they put extra pressure on Egypt and by tightening access to credit, caused a suspension of payments which forced Egypt to accept the creation of the Caisse de la Dette Publique (Public Debt Commission) under the control of Great Britain and France.

It should be noted that in the course of that same year, 1876, other States declared that they were suspending payments. These were the Ottoman Empire, Peru (one of the major economies of Latin America at the time), Guatemala and Uruguay. Other countries already in suspension of payments since 1873 were Colombia and Honduras, 1874 (Paraguay) and 1875 (Bolivia). [9]

Another example of how developments in the global situation directly impinged on Egypt

As explained above, contrary to what Tunçer suggests, Egypt only began borrowing from Europe after the end of Muhammad Ali’s reign, that is from the second half of the 19^th century. It was only then that the country accepted the free-trade agreement imposed by Britain and other Western powers.

Initially, the new model based on debt and free trade seemed to work very well. However, in reality, this apparent success stemmed from external factors of which the Egyptian authorities had no inkling. In fact, Egypt temporarily benefited from the conflict between the southern and northern United States. Cotton exports from the southern states plummeted as a result of the Civil War (1861–1865) on the other side of the Atlantic. This boosted global cotton prices. Egypt, a cotton producer, reaped massive profits from its cotton exports. Consequently, Ismail Pasha’s government borrowed more from the banks (mainly British and French). When the Civil War ended, the southern states resumed their cotton exports and cotton prices plummeted. Egypt depended on the revenues from its global cotton sales (mainly to the British textile industry) for repaying its debt to the European bankers. The decrease in export revenues led to the onset of Egypt’s troubles with repayments.

This did not prevent bankers, especially British ones, from disbursing long-term loans (20-30 years) to Egypt, or French bankers from granting new, mainly short-term, loans because these fetched towering interest rates. The historian Jean Bouvier described this enthusiasm as follows:

Credit institutions, such as the Bank of Paris and the Netherlands, Credit Lyonnais, Societe Generale, Comptoir d’escompte de Paris, Credit Foncier – who had previously participated in rather slapdash business deals regarding Egypt’s “advances” and “loans”, began to systematically hunt for such investments and explore government operations in underdeveloped countries. In April 1872, as the Credit Lyonnais was waiting alongside Oppenheim to issue an “advance” of £5 million to Egypt for 18 months, at 14% per annum, its director Mazerat confided in a letter: “By way of this big advance we hope to ensure next year’s loan.”  [10]

To conclude, the explanations given by Ali Coşkun Tunçer fail toshed light on what actually occurred, as he does not take into account developments in the global capitalist context.

Inter-imperialist challenges

The author does not adequately present the inter-imperialist challenges. He limits them to the distribution of influence between France and Great Britain in the Mediterranean. He does not say a word about the role of the German Empire which was a rising power and had had a military victory over France in 1870 by occupying the country, annexing part of its territory and obtaining a damagingly high war tribute from the French Treasury.

In my opinion, the geo-strategic challenges faced by the major European powers can be summarized as follows. The futures Futures A futures contract is a standardized advance commitment, negotiated on an organized futures market, to deliver a specified quantity of a precisely defined underlying asset at a specified time – the ‘delivery date’ – and place. Futures contracts are the most widely traded financial instruments in the world. of Tunisia and Egypt were not only settled between France and Great Britain. Germany, recently unified and the main rising European power after Britain, was also involved. Otto von Bismarck, the German chancellor, was clear: he repeatedly declared in secret diplomatic talks that Germany would not be averse to London taking over Egypt and France, Tunisia. In exchange, Germany wanted a free hand in other parts of the world. France’s political leaders were well aware of Bismarck’s motives. Germany had imposed a humiliating military defeat on France in 1870–71 and had seized Alsace and Lorraine. Bismarck, by offering Tunisia to France, hoped to distract Paris from Alsace and Lorraine with a consolation prize. The subject is very well documented.

The conquests of Tunisia and Egypt were negotiated between London, Paris and BerlinFor its part, Great Britain, which was far and away the greatest European and world power, considered that it should control and dominate the entire Eastern Mediterranean. The region had grown more important with the existence of the Suez Canal which gave direct access to the sea-route to India (part of the British Empire) and the rest of Asia. London wished to marginalize France, which enjoyed a certain influence over Egypt due to the banks and the Suez Canal, whose construction had been financed by the Paris stock-market Stock-exchange
Stock-market The market place where securities (stocks, bonds and shares), previously issued on the primary financial market, are bought and sold. The stock-market, thus composed of dealers in second-hand transferable securities, is also known as the secondary market. . If London wanted France to allow Britain to benefit from the entire area, it had firstly to satisfy the interests of the French banks (closely linked to the French government) and secondly, offer something in another part of the Mediterranean by way of compensation. It was then that a tacit agreement between London and Paris came into play: Egypt would return to the British fold while Tunisia would fall entirely into the hands of France. In 1876–1878, the precise calendar had not been settled but the perspective was clear. Note too that in 1878, Great Britain bought the island of Cyprus from the Ottoman Empire. Cyprus was another pawn in British domination of the Eastern Mediterranean. At the Congress of Nations held in Berlin in 1878, both Germany and Britain let France know that Tunisia was hers to dispose of as she wished. Lord Salisbury, representing Britain, declared to his French opposite number: “Take Tunis, if you like, Britain will not oppose you and will respect your decisions. Furthermore, you cannot leave Carthage in the hands of barbarians.”  [11] For his part, the French Home Secretary wrote: “Mr Bismarck allowed us to understand that he would see nothing amiss in our taking over Tunisia.”  [12]

In exchange for their concessions to London and Paris, the leaders of the German Empire wished to be given a free rein to conquer a large part of Sub-Saharan Africa. These were long drawn-out negotiations, culminating with the agreement of the 1885 Berlin Conference during which the European powers shared out Africa amongst themselves.

The conquests of Tunisia and Egypt

These inter-imperialist dealings and the use of foreign debt as a weapon led to the military conquest of Tunisia and Egypt; the former by France in 1881 and the latter by Great Britain in 1882. Ali Coşkun Tunçer glosses over the military conquests by France and Britain to impose their rule, writing cryptically: “[…]both countries transferred their political sovereignty to France and to Britain[…]”(p. 73) as though they had actually relinquished their sovereignty voluntarily. In fact, France et Great Britain did not stop at merely landing troops; they had to fight for the territory as there was resistance.

Inter-imperialist dealings and the use of foreign debt as a weapon led to the military conquest of Tunisia and EgyptFirst France sent an expeditionary corps of 24,000 troops. Encountering resistance to the invasion, the French government had to increase the number of soldiers to 50,000. In Egypt peasants, land-owners, many state functionaries, soldiers and clerics rebelled against British attempts to take over the country. Finally, the Egyptian army rose up and resisted the British troops before being defeated. The local authorities who had transferred their country’s sovereignty to France and Great Britain had no legitimacy to do so. In fact, they had been paid to do so by the two colonial powers. Furthermore Tunçer, contradicting what he had claimed on page 73, that there had been a transfer of sovereignty, writes on page 89: “The new government formed by the Khedive (i.e. the Head of State – note by Eric Toussaint) in 1878 refused any kind of arrangement involving foreign intervention, and the negotiations came to a dead end. To overcome the crisis, the six Great Powers pressed the Porte [13] to replace the Khedive, who was forced to abdicate in favour of his son, Prince Tewfik (Tunçer, 2015).”  [14] Further on he adds, “French and British governments were in agreement to keep Khedive Tewfik in power against the nationalist movement to protect the interests of the bondholders.”  [15] Indeed, Tunçer describes in detail the strong resistance against the policies of the European imperial powers, especially those of Great Britain. “However, because of the political implications of the Law of Liquidation (i.e. the law rescheduling Egypt’s debt to suit the creditors – note by Eric Toussaint), there were signs of nationalist opposition to European control. This movement consisted of a coalition of different interest groups. Landowners were concerned about the increases of taxes and the amount of land which was being seized for non-payment of debt following the Mortgage Mortgage A loan made against property collateral. There are two sorts of mortgages:
1) the most common form where the property that the loan is used to purchase is used as the collateral;
2) a broader use of property to guarantee any loan: it is sufficient that the borrower possesses and engages the property as collateral. Law of 1876. The bureaucrats were concerned with the extensive employment of Europeans in the civil service. Military officers were laid off because of attempts of the financial control to reduce military expenditure. Finally, religious notables, or ulama, were concerned by the Christian rule and consequent changes in the law. These groups turned into an effective force only in 1881 when they allied with the nationalist army officers led by Colonel Arabi […]” [16] He goes on,“[…]once the violent attacks on Europeans in Alexandria started taking place, this led to the fear that the bondholders’ agreement could be suspended once again. As a result, in 1882 English forces launched a military campaign — in which France, the Ottoman Empire and other powers did not participate. Following the military intervention, the Great Powers assembled a conference in Istanbul in June 1882 and a few months later, in September 1882, British forces defeated the Egyptian army.” [17]

To conclude on this point, Tunçer’s assertion that there had been a transfer of sovereignty is contradicted by his own account of the events of 1879–1882.

The author of the chapter on Tunisia and Egypt takes a favourable stance towards the creditors

The author of the chapter on Tunisia and Egypt clearly demonstrates a favourable stance towards foreign creditors in the conclusion (p90-91 of the chapter), no mention is made of the nature of the debt demanded of the two countries. The author considers that the intervention of the major European imperialist powers was a success in the Ottoman Empire while engendering complications in Tunisia and Egypt. Here again, by making this judgement, the author shows that he sees success in terms of the creditors’ ability to discipline indebted countries and extort the maximum of financial resources from them.

The way in which the debts of the Ottoman empire were accumulated and managed by the government in Istanbul and the major European powers had disastrous consequences for the Ottoman State and its people. One can only deem positive the management of the Ottoman debt, as Ali Coşkun Tunçer does, if – like him — one sees it from the perspective of the major creditor powers and European share-holders.

Moreover, Tunçer wrongly considers that the internal take-over of Tunisia’s and Egypt’s finances did not constitute an instrument that then served to pave the way to their subsequent colonization. Various testimonies and documents of the time clearly indicate that the financial guardianship of those two countries was the prelude to their conquest.The only reason that the same did not happen to Ottoman Turkey was that it was too big, and there were too many inter-imperialist contradictions, too much greed, between Great Britain, France, the German Empire, Tsarist Russia and Italy, to allow a single European power to take it.

“Traditional historiography on the late-nineteenth-century international financial control organizations approaches them in the context of the imperialism debate since one of the consequences of this kind of European intervention was the loss of fiscal and/or political sovereignty of debtor states. More recent views, however, emphasize their function of restoring creditworthiness of debtor governments, and their contribution to the modernization of state finances.” [18] Tunçer himself indicates that he takes this revisionist stance when he writes, “The revisionist views expressed in Suter (1992), Esteves (2013), Mitchener and Weidenmier (2010), and Tunçer (2015) put more emphasis on their credit worthiness restoring function.” [19]

This also explains why Tunçer sees the establishment of international financial control commissions for Tunisia and Egypt as failures, whereas he considers that the same mechanism gave good results for the rest of the Ottoman Empire with the commission that was based in Istanbul. The criterion for failure or success is therefore that the creditors should be able to get their payments and that the country concerned should be able to refinance its debt.

Tunçer, even though he assumes his revisionism, concedes that the other point of view should not be completely ignored. “Given that in two cases, Tunisia and Egypt, the process of foreign borrowing, default, and European intervention eventually gave way to the colonization of these countries, it is not possible to completely disregard the traditional conceptualization of international financial control as instruments of imperialism.”  [20] Here again, we see Tunçer taking a contradictory stance, asserting on the one hand that France’s and Great Britain’s main objective was to restore the creditworthiness of Tunisia and Egypt; while on the other, claiming that the hypothesis that international financial control was an instrument of imperialism and resulted in the colonization of these two countries cannot be ignored.

At no point does Tunçer allude to the odious nature of the debts of Egypt and Tunisia, a question which cannot be left unacknowledged and unanswered.

Conclusions: Tunçer, like other authors who participated in this collective work, shows the creditors in a favourable light. Yet any analysis taking into account human rights and the rights of peoples would have to arrive at a judgement more in keeping with some very interesting elements to be found in the general introduction to the collection, written by the two co-editors (see especially what they write on pages 4 and 18). This raises the question of why the two co-editors, Pénet et Zendejas, have favoured the revisionist perspective in seeking out collaborators to contribute to this work.

The author would like to thank Anaïs Carton, Maxime Perriot, Brigitte Ponet and Claude Quemar for reading through this article.

Translated by Vicki Briault and Snake Arbusto(CADTM)

 Annexe 1 on Egypt’s loans and the creation of the Public Debt Commission in the second half of the 19^th century

In 1876, the Egyptian debt was £ 68.5 million (against 3 million in 1863). In less than 15 years, external debts had increased 23 times, while revenues increased 5 times only. The debt service Debt service The sum of the interests and the amortization of the capital borrowed. absorbed two-thirds of state revenues and half of export earnings.

The loans actually reaching Egypt were insignificant as the major part was paid to bankers.

Let us examine the loan of 1862: the European bankers issued Egyptian bonds with a nominal value of £ 3.3 million, but they sold them at 83% of the nominal value, which means that Egypt received only £ 2.5 million before deducting fees charged by the bankers. The amount repayable by Egypt in 30 years soared to nearly £ 8 million considering the depreciation of principal and interest payments. Another example is the 1873 loan: the European bankers issued Egyptian shares for a nominal value of £ 32 million and they sold them at 30% discount. Consequently, Egypt received less than £20 million. The amount to be repaid in 30 years was £77 million (11% real interest + principal depreciation).

Obviously, this increase in debt and the interest charged was untenable. The financial conditions imposed by the bankers made repayment unsustainable. Egypt was forced to borrow constantly to service its outstanding debt.

From 1870, the bankers coerced Egypt’s Khedive Ismail Pasha into selling the countries’ infrastructures and granting various concessions in order to get cash for debt repayment. Similarly, he had to hike taxes on a regular basis.

After some fifteen years of external debt (1862-1875) Egypt’s sovereignty was compromised. Hounded by its creditors, the Egyptian government gave up its shares in the Suez Canal Company (inaugurated in 1869) to the UK in 1875[7]. Egypt sold its holding of 176,602 Suez shares - nearly half of the Universal Suez Ship Canal Company’s capital – to the British government at the end of November 1875, in order to meet the deadlines of December 1875 and January 1876 for paying hefty instalments of debt. Thus, the British government became a direct creditor of Egypt, since the purchased securities were not meant to generate any profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. before 1894. During this period the Egyptian government pledged to pay the buyer an interest of 5% p.a. on the purchase price, i.e. about one hundred million francs.

Historian Jean Bouvier writes:According to a Crédit Lyonnais official “the Khedive still owned the railways, valued at 300 million”. He also had the right to 15% of the Suez Company’s annual net profits. Once he could clear the year-end deadlines, thanks to the 100 million earned from the sale of shares, the Khedive renewed the ’advances’ from the Anglo-Egyptian Bank and the Crédit Foncier in January 1876 and early February at 14% p.a. for a term of 3 months. As guarantee he offered his 15% share in the Suez fees and the revenues from the city of Alexandria and his port rights. The Société Générale was involved in this deal of 25 million francs. (Trans: CADTM).

The creation of the Public Debt Commission under British and French control

Despite its frantic efforts to pay off its debt, Egypt finally suspended its debt servicing in 1876.

The British and French governments, rivals as they were, agreed to bring Egypt under their dual control through the Public Debt Commission.

The Public Debt Commission had full control over a host of state revenues and represented the UK and France who ran it. Its establishment was followed by the restructuring of Egyptian debt, which met the expectations of all the bankers concerned because reduction of stocks was not allowed. The rate of interest was increased to 7% and repayments were scheduled over 65 years. This factor, along with Egypt’s state revenues (which the Commission could bleed dry), ensured a comfortable income for both France and the UK.

A letter from Alphonse Mallet (a private banker and regent of the Bank of France) to William Waddington (the French Minister of Foreign Affairs and future President of the Council of Ministers) makes it evident that the priority task during the resolution of the 1876 Egyptian debt crisis was to satisfy the bankers’ interests. What follows is a translated extract from the banker’s letter to the minister, written on the eve of the 1878 Berlin Congress, scheduled to discuss the fate of the Ottoman Empire (particularly, its assets in the Balkans and the Mediterranean): ’My dear friend ... If the Congress convenes as expected, all we’ll have to do is to devise an international mechanism ... which can exercise an effective control over the administrative agents of the government, the courts, the collection of revenue and expenses.What has been done in Egypt under pressure from private interests without any consideration for the European public order both for the courts and the debt service ... can serve as the cornerstone.’(Letter of May 31, 1878.Mémoires et documents, Turkey, No.119. Archives of the Ministry of Foreign Affairs.) [21]

The military occupation of Egypt began in 1882 and the country was made into a protectorate

In the case of Egypt and Tunisia, the European powers used Debt as their most powerful weapon for ensuring domination, leading to the total submission of previously independent states.

Following the establishment of the Public Debt Commission, the French banks went all out to collect more payments and reap profits while they granted fewer loans. From 1881, French banks stopped disbursing new loans to Egypt. They simply collected repayments against restructured outstanding debts. When a stock market crisis broke out in Paris in January 1882, the French banks had other concerns than Egypt.

The Public Debt Commission imposed extremely unpopular austerity measures on Egypt. These led to a rebellion; including a military one (General Ahmed Urabi defended nationalist positions and resisted the dictates of the European powers). Britain and France used the rebellion as a pretext and sent a task force to Alexandria in 1882. Finally, Britain went to war against Egypt, staged a military occupation and turned the country into a protectorate. Egypt’s development was greatly throttled by the British rule and it was subjected to the interests of London.

The Public Debt Commission was abolished in July 1940 (See illustration below). The British Agreement, forced upon Egypt in 1940, ensured financial and colonial domination since the UK could now pursue its collections against perpetual debt. Egypt’s 15 year-long pursuit for partially autonomous development came to fruition when progressive young soldiers led by Gamel Abdel Nasser overthrew the Egyptian monarchy in 1952 and the Suez Canal was nationalized on July 26, 1956. [22]

Convention relative à l’abolition de la Caisse de la Dette Publique Egyptienne

  Annexe 2 on Tunisia’s loans and the role of the International Financial Commission in the second half of the 19^th century.

The first external loan in 1863: a clear-cut swindle

Tunisia’s first overseas loan arrived in 1863. It was a thorough deceit that would lead to the French conquest of Tunisia 18 years later.

At that time, the financial centres of Paris and London were in active competition, the latter being the global forerunner. The Parisian bankers, like their counterparts in London, boasted of ampleliquiditiesand were seeking investment opportunities abroad. Loans to Latin America, Asia, the Ottoman Empire, Egypt, Russia and North America were aplenty.

In early 1863, when the Bey announced that he wanted to borrow 25 million francs from abroad, many bankers and brokers in London (including Baron James de Rothschild and various London firms) and Paris (the Crédit mobilier and Emile Erlanger, a banker from Frankfurt based in the French capital) offered their services.

Émile Erlanger

Along with others, Erlanger got permission from the French government to sell Tunisian bondsat the ParisStock Exchange. A report in 1872-1873 by Victor Villet, a French Treasury Inspector, described this loan as a real swindle.

According to Erlanger, 78,692 Tunisian bonds were issued at a nominal value of 500 francs each. They were sold at 480 francs each and entitled the buyer to an annual interest of 35 francs for a period of 15 years. This implied a notional interest rate of 7%, but since the bonds were sold at 480 francs the real interest was 7.3%. For the buyer it meant that by laying out 480 francs he could get 525 francs (15 years x 35 francs) as interest plus 500 francs at the maturity of the bond.

Thus, the borrower, the Tunisian government, actually received 415 francs (i.e. 480 francs minus 65 francs as the subscription fee and other bank charges) while being required to repay 1025 francs.

In all, the borrower (Tunisia) received about 37.7 million francs (78,692 bonds sold at 480 francs or 37.77 million) and in exchange it had to repay 65.1 million.

Victor Villet, the French Treasury Inspector found in his surveys that Erlanger collected a little over 5 million in commission (approximately 13% of the amount raised). A sum of 2.7 million francs-clearly appropriated by the Prime Minister and Erlanger -must also be deducted from the amount that should have been received.

Therefore, for about 30 million francs receivable, the Tunisian government committed to repay 65.1 million francs.

Speaking of an indisputable scam or fraud, we must mull over the exasperating conduct of Emile Erlanger and the Tunisian Prime Minister. Erlanger said that he had sold just over 38,000 bonds in Paris and 40,000 in Tunis (remember that the number of total bonds issued amounted to 78,692). Apparently, the sale on the Paris stock exchange was much lower thanErlanger’s claims. In fact, over 30,000 bonds remained unsold and in Erlanger’s possession. Erlanger would have earned a commission of over 5 million francs had he sold all the bonds. It seems that he had borrowed from other bankers the sum he had committed to transfer to the Tunisian Treasury (around 30 million francs) in four instalments. He probably pledged as collateral Collateral Transferable assets or a guarantee serving as security against the repayment of a loan, should the borrower default. the 30,000 shares that he had not managed to sell. The editor of the Moniteur des Fonds Publics put forth a similar argument in an article published on August 19, 1869: ’We believe that it would be absolutely truthful to say that holders living in France acquired 5,000 bonds, at the best... Therefore, Mr. Erlanger was left with about 30,000 bonds. In this situation, he felt embarrassed to face up to his commitments to the Bey. So what did he do? We believe he deposited his unsold bonds with the Comptoir d’escompte (bank) and obtained an advance with which he could remit some money to His Highness”. (Trans: CADTM).

This hypothesis is strengthened by Erlanger’s claims that he redeemed 20,962 securities in January 1864 and 8,000 more in 1865, on the secondary debt market. However, the redemptions did not boost the price of those securities. This is unlikely. Redemption of 20,000 securities, with 38,000 officially in circulation, should automatically have raised the price. Yet the price of Tunisian bonds did not increase. This implies that the securities were not in circulation on the market. Erlanger had pretended to redeem securities, which, in reality, he had hoarded.

Moreover, and this must be noted, the 30,000 shares paid out interest every year. Since Emile Erlanger possessed them, it was he who cashed in the interest.

The immediate outcome of the 1863 loan

This external borrowing was meant to restructure the domestic debt; equivalent to 30 million French Francs (it rose by 60% between 1859 and 1862 because of the expenditures of Bey Muhammad as-Sadiq who had been increasingly purchasing foreign goods). The outstanding debt was supposed to be liquidated with money borrowed from abroad. In reality, while the old debt was repaid, the authorities issued newteskérés(or treasury bonds) for an equivalent amount. This is what Victor Villet, the French Treasury Inspector, had to say: ’While old securities were reimbursed simultaneously on the stock exchange and by the representatives of the Erlanger household in Tunis... a local government broker (Mr. Guttierez) resumed accepting public money, in exchange for new teskérés issued at 91%. By dint of this farcical repayment, the debt simply ... increased by approximately 15 million”. (Trans: CADTM). The revenue from the sale of the new teskérés was largely diverted to the pockets of the Prime Minister, other dignitaries and wealthy European residents.

The same Treasury Inspector also wrote: ’The funds from the 1863 loan [which] were paid in cash in Bardo(seat of the Bey and the Prime Minister) ...were deposited in a special account, but were not entered in the official government books; the state funds did not have any record of them and there is nothing to prove that they were used for public expenditure.” (Trans: CADTM).

The sum borrowed in 1863 was squandered in less than a year. At the same time, for the first time in Tunisian history the State was indebted to overseas agencies and that by an immense sum. Annual repayments to foreign countries were unsustainable. The internal debt, which should have been repaid by external borrowing, increased twofold. Hounded by the creditors,the Beylik decided to pass the burden to the people by increasing themejba(tax per capita) by 100%.

The revolt of 1864: outcome of the decision to increase a given tax by 100% in order to repay the 1863 debt

The tax increase in 1864 caused a general rebellion in the country. The protesters mainly demanded the discontinuation of the increase in themejbaor per capita tax [23]. As soon as the Bey’s officials started visiting the different corners of the country to collect the mejba, now increased to 72 piastres, the revolt broke out. On March 10, 1864 the French vice-consul Jean-Henri Mattei telegraphed from Sfax: ’All the tribes have agreed that they will not pay the new tax of 72 piastres. (...) A network of all the tribes will be the first signal that it’s time for the advocates of this tax to leave Tunis.’ [24] (Trans: CADTM). A few weeks later, another consular dispatch read: ’The insurrection is widespread and is within an hour from Tunis.’ [25] (Trans: CADTM). According to various witnesses, the insurgents accused the government, mostly the Prime Minister Mustapha Khaznadar, of selling the country to the French. They cited the 1863 loan granted by Erlanger, the banker from Paris, as proof.

France, Britain, Italy and the Ottoman Empire sent warships into Tunisian territorial waters to threaten the people and to supply necessary aid to the authorities in case the situation got out of hand. The Bey stepped back amidst protests and announced on April 21, 1864 that the mejba would no longer be twofold [26]. In July 1864, he reprised the concessions to clinch a deal with Ali Ben Ghedhahem, the main rebel leader [27]. Then, with the support of foreign powers, he unleashed repression. The Sultan, monarch of the Ottoman Empire, gave financial support to the Bey so that he could form new troops and have recourse to repression. The Sultan took this initiative to prevent France, Britain and Italy from outflanking him. [28]

Massive repression

Once the revolt was calmed, the Bey launched a massive crackdown to extract the maximum of taxes and fines from the population. The French consul wrote on December 4, 1864 to the Minister of Foreign Affairs in Paris: ’The beylical government has refrained from granting clemency, a measure that it seemed keen on introducing ...It has reprised severe methods, namely fetters and torture, in order to wrest exorbitant war-time taxes from the coastal provinces’. (Trans: CADTM). A French vice-consul wrote the following to the French consul: ’It is my duty to inform you of General Zarrouk’s barbaric methods for executing the Bey’s orders: thoroughly bleeding the indigenous people dry and torturing the elderly and the women who had nothing to do with the rebellion’(letter dated February 16, 1865). (Trans: CADTM). Another French official wrote: “Imprisonment, chaining, caning and other draconian methods which were absolutely illegal, given our prevailing public law, were the only ways adopted to extract the fines. Among these stringent measures, I wish to highlight the confiscation of property, torture leading to wounds and death, home invasion ... and, finally, the attempted or accomplished rape of women under the very eyes of fathers or husbands in chains’(March 1, 1865). (Trans: CADTM). Jean Ganiage adds: ’In March 1865, Espina, the vice-consul, estimated that the government had extorted 23 million piastres from the Sahel from October 1864 to January 1865. In addition, his employees pocketed some 5 million piastres’. [29] (Trans: CADTM).

The second external borrowing was worked out in Paris in 1865

Since the 1863 loan had failed to improve the country’s economic condition, the Bey and his Prime Minister took a headlong rush into a deal with Erlanger for a new loan in March 1865. Tunisia took on a further 36.78 million francs of debt. The conditions he imposed were even worse and more outrageous than in 1863. In fact, while securities worth 500 francs were sold for 480 francs in 1863, the new securities were now sold for 380 francs, i.e. at 76% of their nominal value.

A buyer of a security worth 500 francs paid the discounted price of 380 francs, expecting to earn an annual interest of 35 francs for 15 years (525 francs). On its maturity in 1880, 500 francs were added to the security. An investment of 380 francs fetching 1025 francs, i.e. a profit of 645 francs, was extremely alluring. The notional interest rate was 7% but as the annual interest amounted to 35 francs the actual yield was 9.21% (= 35/380).

The Tunisian State took on a new debt of 36.78 million francs; however, the country received a little less than 20 million francs, since brokerage fees and commissions charged by Erlanger and Morpurgo-Oppenheim, his associates, amounted to 18%. What is more, almost 3 million was diverted directly, half for the bankers, half for the Prime Minister and his associates. The result was threefold:

• The new debt contracted in 1865 amounted to 36.78 million francs.

• The actual amount received was less than 20 million. [30]

• The amount to be repaid over 15 years was 75.4 million.

The bankers had struck gold: without investing anything, they earned approximately 6.5 million francs in the form of commissions, brokerage and outright theft at the time of issuance. All the securities were sold in a matter of days. Paris went euphoric over these securities from Muslim countries (Tunisia, Ottoman Empire, Egypt) and these were termed ’turban securities.’The bankers paid newspaper editors to publish cheerful reports. As the Tunisian economy slumped,Semaine financière, a weekly Parisian journal, wrote the following about the 1865 loan:’Today, the Bey of Tunis is under the moral protection of France, which takes interest in the Tunisian people’s prosperity, since this prosperity also implies Algeria’s safety’. [31] (Trans: CADTM).

The swindles of bankers such as Erlanger and Morpurgo-Oppenheim did not end there. Not content with embroiling Tunisia in an unfair debt they actively intervened in such a way that the loan would be used to finance their personal profit. Two examples: they convinced the Bey to buy two useless ships from a certain Audibert, a Marseilles merchant, for the price of new ships (250,000 francs). According to Victor Villet, the French Treasury Inspector, E. Erlanger, who had undertaken to supply 100 rifled cannons of the latest model for 1 million francs, did in fact deliver ’ancient guns with their breeches knotted in a kind of sleeve. The trick was too crude; in seconds we realised that those guns could not have cost the supplier more than 200,000 francs.’ [32] (Trans: CADTM). The list of commercial supplies, reeking of obvious fraud, is long. Moreover, Erlanger persuaded the Bey to grant him a concession for manufacturing Tebourba linen, as security for the loan.

The debts accumulated during the period 1863-1865 led to Tunisia’s transformation into a Protectorate

The new debts accumulated during 1863 - 1865 left Tunisia at the mercy of its external creditors and France. It was simply impossible for Tunisia to successfully repay the dueamount. The public treasury received a significant amount (30 million piastres, a sum much higher than an ordinary year’s revenues) in terms of the colossal revenues from tax following the repression of late 1864-early 1865. However, debt payment and extravagant spending against public interest depleted it quickly.

The year 1867 fared dismally in terms of agricultural production. In addition, the Bey exported agricultural goods to generate income. This resulted in a famine in many parts of the country and also a cholera epidemic since the state’s policies fostered a sickly population (devastated by taxes and affected by the rising price of basic food) and public expenditure in health was scanty. We’retalking about5,000 deaths in the capital, mainly due to famine, and 20,000 throughout Tunisia. [33]

At the international level, the bankers had suddenly become cautious and they were demanding even higher returns than in the past. In 1866, Mexico had quashed the French expeditionary force and subsequently suspended the debt payment, considered odious, to French bankers and holders of Mexican bonds (especially the ones sold in Paris by Erlanger the banker during 1864 and 1865). Consequently, the Bey and his Prime Minister failed to grab new big loans from Paris or elsewhere. Their pipe dream for a loan of 100 million nosedived. Indeed, in February 1867 they signed a new contract with Erlanger the banker. Although Erlanger planned to sell 200,000 Tunisian securities in Paris, he managed to sell only 11, 033 after a few weeks. The enthusiasm for the Tunisian Turban securities had already died down. Consequently, the Bey resorted to ’small’ loans at usurious rates from other Parisian bankers, such as Alphonse Pinard [34], director of the Comptoir d’escompte de Paris bank, who sanctioned a loan of 9 million francs in Paris in January 1867. Rothschild was contacted but he refused to lend to Tunisia. Oppenheim and others demanded approximately 15% interest rates.

The Bey partially suspended the servicing of both internal and external debt with effect from 1867. This prompted A. Pinard, the director of Comptoir d’escompte de Paris, to take Tunisia to the civil court of the Seine for contravening the clauses of the January 1867 loan, worth 9,000,000 francs. Pinard demanded ownership of the revenues from Tunisian customs and olive harvest. The court ruled in August 1867 and A. Pinard lost the case: the Regency of Tunis was a foreign territory and not subject to the court’s jurisdiction.

Then Alphonse Pinard and the other bankers adopted another strategy. They formed a union [35] of the holders of Tunisian securities. Bankers such as Bischoffsheim, Bamberger, Levy-Crémieu and Edmond Adam joined. So did Joseph Hollander, director of the Banque des Pays-Bas and Pinard’s future father-in-law. The union took upon itself to ‘help’ the beylical government with interest payment. Later, in 1869-1870, Pinard managed to become a direct member of the International Finance Commission which took control of Tunisian finances and triumphed (see below).

The debts resulting from the loans of 1863-1867 were odious and should have been repudiated

The debt contracted between 1863 and 1867 was clearly odious for the Tunisian people. Alexander Nahum Sack, a law professor in Paris and proponent of the doctrine of 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. , wrote in 1927: “When a despotic regime contracts a debt, not for the needs or in the interests of the state, but rather to strengthen itself, to suppress a popular insurrection, etc, this debt is odious for the people of the entire state. This debt does not bind the nation; it is a debt of theregime, a personal debt contracted by the ruler, and consequently it falls with the demise of the regime.” [36] This debt fits that definition to a T.

Furthermore, he added: “One could also include in this category of debts the loans incurred by members of the government or by persons or groups associated with the government to serve interests manifestly personal — interests that are unrelated to the interests of the State.” This is a perfect description of the conduct of Prime Minister Mustapha Khaznadar and other dignitaries of the beylical regime. [37]

Sack also insisted that the creditors of such debts, once they have loaned with full awareness of the consequences, “have committed a hostile act with regard to the people; they can’t therefore expect that a nation freed from a despotic power assume the “odious” debts, which are personal debts of that power.” The bankers Emile Erlanger, Alphonse Pinard and their associates knew very well that the loans were against people’s interest. Also,they were, as we have shown, directly party to the scam.

Regarding Erlanger the banker’s policy of issuing high-risk securities at the financial level and at an odious level concerning legal matters, we must also remember that he simultaneously issued Mexican securities in 1864 and 1865 on behalf of the Mexican puppet government set up by the French army. This government was led by Maximilian I of Austria, who would be executed in June 1867. Erlanger disbursed a loan of $ 15 million to the Southern slave states (the Confederacy) in 1863 in Paris and London. It was pledged on cotton and he immediately stood to gain about $ 4 million [38].

The dismantling of the Ottoman Empire

France was on the lookout for an opportune moment to take complete control of Tunisia

Ever since they colonised Algeria in the 1830s, the French leaders considered that France had the right to expand its colonial reach to Tunisia. It was only a matter of the right pretext and time. They also had other priorities, both internally and on the levels of Continental Europe, even the world. In the Arab region, Egypt demanded priority for geostrategic reasons: the possibility of direct access to Asia through the newly-opened Suez Canal between the Mediterranean and the Red Sea; access to dark Africa by the Nile; the proximity of the East by land routes; Egypt’s agricultural prospects; competition between Great Britain and France (whichever of these two powers would control Egypt, would also have a strategic advantage over the other). Napoléon realised this and put theory into practice with his Egyptian campaign in 1798.

The conquest of Tunisia was not a priority; particularly because the efforts to stabilize France’s reign over Algeria had cost dearly, given the counter resistance. In France, no one could count on public support for a new colonial venture. In the 1860s, the project for seizing Mexico failed miserably. As mentioned above, Louis-Napoléon Bonaparte had to withdraw his French troops from the Mexican soil in 1866 vis-à-vis the successful counter-offensive from the Mexican progressive forces and he had to deal with the claims of French bankers against Mexican debts (about 60 million). [39]At the end of 1867 Napoleon III was also worried about the advance of Garibaldi’s Republican red shirts who threatened to capture Rome, France’s protégé.

However, transforming Tunisia into a Protectorate, or an outright conquest of the country, was a priority, even an obsession for the French consul in Tunisia, France’s plenipotentiary representative to the Bey. The actions or conducts of various successive consuls bear testimony to this fact. As the rebellion raged in 1864, Charles Beauval, the French Consul,had a double game to play: while France officially supported the Bey, he negotiated with Ali Ben Ghedhahem, the main rebel leader, in case he decided to overthrow the Bey. He wrote on May 30, 1864, ’it will be worthy of the Emperor to assemble all the tribes of Tunisia in a small Arab confederation’. (Trans: CADTM). According to the historian Jean Ganiage, in September 1865 “The Tunisian issues were discussed in a cabinet meeting presided over by the Emperor. Marshal MacMahon, Algeria’s governor, proposed to send an expeditionary army to Tunis and had a detailed plan on how to organize and run these troops. However, this plan far exceeded the government’s intentions.” [40](Trans: CADTM). Two years later, according to J. Ganiage, ’For the Botiliau consul, there was no other solution than a direct French occupation of Tunisia; it’s annexation to Algeria or a temporary occupation against collateral.’(Trans: CADTM).

Moreover, the correspondence of the French officials in Tunisia reeked of racism, as evidenced by the Botiliau consul’s letter dated December 2, 1867 in which he denounced ’the customs of the Arab people, their incompetence, their deceitfulness, lies, corruption ...’ [41](Trans: CADTM).

Formation of the International Finance Commission in 1869

In January 1868, Marquis de Moustier, the French Minister for Foreign Affairs, broadly outlined the proposal to establish an International Commission for taking control of Tunisia’s finances: ’I think that our efforts should primarily focus on ensuring a proper management of the revenues pledged by the beylical Government. If we manage to exert genuine control over the fiscal products - left in the hands of incapable hands or infidels today - we could take a giant leap towards our desired target. If there is an agreement for applying this principle, we could entrust the work to a Commission with its headquarters in Tunis.” (Trans: CADTM).

In April, 1868, the Bey planned to issue a decree establishing the International Financial Commission as instructed by the French representatives. 15 months later, when France had received the green signal from Britain and Italy, the Bey issued the decree. The text of the Decree dated July 5, 1869 demonstrated Tunisia’s outright capitulation to its creditors. Article 9 was particularly important because it stipulated very clearly that the Commission would lay claim to all State revenues without exception. It additionally stated that no loan would be granted without its permission. Article 3 specified, even though diplomatically, that the most important figure in this Commission was the representative of France who would be appointed by the French Emperor. In fact, the Bey ratified that. The Commission was the one to ascertain the exact amount of the debt (Art. 5). That the Commission would restructure Tunisia’s debt and decide whether or not to reduce it, was a fundamental issue for the creditor banks. Article 10 was also of paramount importance for the French bankers because it stipulated that two direct representatives would be chosen from them and included in the Commission. Consequently, when the Commission was set up in November 1869, the union of the bondholders led by the Parisian banker Alphonse Pinard had got Erlanger as their representative [42]. British and Italian creditors holding domestic debt securities were also represented.

The articles above were written at the Palace of La Goulette on the 26 of Rabi’ al-awwal, 1286 (July 5, 1869).

Tunisian debt restructuring in 1870

One of the principal tasks of the Commission, in fact the most urgent, was to restructure the debt. Victor Villet, the inspector of finances designated by France and, as we have seen, the principal person of the Commission, proposed in December 1869 that the sum of Tunisian debt, evaluated at 121 million francs be reduced to less than 56 million francs and rescheduled. [43]

The bankers’ representatives rejected the proposition and gained the support of their respective governments, particularly the government of Louis-Napoleon Bonaparte who was very close to the French high finance sector. Not only was there no reduction of Tunisian debt, the bankers managed to have it increased to 125 million francs. This was a complete victory for the bankers’ representatives nominated to defend the interests of Alphonse Pinard and Emile Erlanger. These bankers held the 1863 and 1863 Tunisian bonds purchased on the open market (bonds they had themselves emitted for the Tunisian treasury) for 135 or 150 francs, speculating that they would lose value. Thanks to the restructuring of 1870 they gained replacement bonds at a value of almost 500 francs. So, the bonds with a face value of 500 francs that they had previously purchased for 150 francs were now exchanged for new bonds at 500 francs. A windfall that produced a new odious debt!

As the historian Nicolas Stoskopf wrote, the idea was to tighten some more the rope that the Bey had put around his own neck. N. Stoskopf wrote the following in his analysis of the enterprises of A. Pinard, director of the bondholders’ union “After 1867, the Tunisian state of bankruptcy allowed the engagement of the next phase. In the difficult negotiations and sly manoeuvring that followed, Pinard cynically continued to make windfall profits despising French savers as much as the condition of the Tunisians, but with the striking efficiency of an unequalled financier, as a result of the Tunisian debt unification of 1870 the five million francs held by the bondholders’ union increased in value to thirteen million francs.” [44] (Trans: CADTM)

The Tunisian authorities acted in complete complicity with this plundering of public resources. The Prime Minister Mustapha Khaznadar, other dignitaries of the regime and not forgetting the class of wealthy Tunisians who also held a very large quantity of Tunisian internal bonds realised enormous profits from this restructuring. As in most other countries, the local dominant classes are in total cahoots with the international creditors because they draw a large part of their own revenues from debt repayments. It was true in the 19thcentury and it remains true in the 21^st century.

The enrichment of the bankers at the expense of the Tunisian people.

Alphonse Pinard and Emile Erlanger decided to withdraw from Tunisia, they were largely rewarded and largely satisfied. His Tunisian operation allowed Erlanger to build a financial empire. He took over the Parisian bank Crédit Mobilierand a few years later grabbed Havas, the international press agency. [45] Alphonse Pinard continued his activities in France and elsewhere in the world with his contribution to the creation of{}Société Générale(today amongFrance’s top three banks) as well as another bank that eventually became BNP Paribas (currently France’s biggest bank).

This extract from Marx’s Capital, published in 1867 well describes the role played by public debt: “The system of public credit, i.e., of national debts, whose origin we discover in Genoa and Venice as early as the Middle Ages, took possession of Europe generally during the manufacturing period.(...) National debts, i.e., the alienation of the state – whether despotic, constitutional or republican – marked with its stamp the capitalistic era(...) The public debt becomes one of the most powerful levers of primitive accumulation. (...) With the national debt arose an international credit system, which often conceals one of the sources of primitive accumulation in this or that people.” [46]

He adds: “At their birth the great banks, decorated with national titles, were only associations of private speculators, who placed themselves by the side of governments, and, thanks to the privileges theyreceived, were in a position to advance money to the State. (…) the national debt has given rise to joint-stock companies, to dealings in negotiable effects of all kinds, and to agiotage, in a word to stock-exchange gambling and the modern bankocracy.” [47]

The failure of the International Finance Commission

In accord with article 9 of the decree that created the International Finance Commission of July 1869, its members control the State’s revenues. Nevertheless, the economic policies imposed by the repayment of the debt caused the economy to stagnate because the State had no productive investment, did not spend on stimulating the economy and burdened the small local producers, rural or urban, with heavy taxes. Consequently, tax revenues were insufficient to repay the 125 million francs of debt.

The Commission members representing the bankers withdrew in 1871, since they were satisfied and had no further advantages to reap from the work of the Commission, which faced failure of its own policies, imposed since 1869. The failure was such that the Prime Minister Mustapha Khaznadar, who had occupied government posts for 36 years, was sacked in 1873 and put under house arrest, his fraud and corruption having caught up with him under pressure from France.

Khérédine, Mustapha Khaznadar’s replacement tried unsuccessfully to introduce some reforms and was in his turn dismissed in 1876, especially as he did not sufficiently favour French business interests. Khérédine also sought a reduction of the interest to be paid on the debt. That was too much.

The Tunisian artisans were in a disastrous situation, since the introduction of free trade agreements they were unable to compete with European goods. The smallholders floundered. The manufacturing industry was non-existent. The railway network was no more than a few dozen kilometres (Tunis – La Marsa and Tunis – La Goulette). Tunis’ streets were unpaved and the city was without drainage and sanitation.

The big powers gave France the go ahead to take possession of Tunisia

At the Berlin Congress in June 1878 both Germany and England advised France that she had a free field to do with Tunisia as she wanted.

Finally, the action took place in 1881 when a majority favourable to conquest formed in the French government: the pretext being the ’exactions’ by the Kroumir tribe.

The bankers were informed of the French government’s intentions and purchased massive quantities of Tunisian bonds, priced at 330 francs, on the Parisian market in January 1881. On the eve of the military intervention their price had increased to 487 francs (for a nominal value of 500 francs), a price hitherto not attained. The idea was simple: once France had control of Tunisia the debt would be restructured again and all the creditors would be paid. They made no mistake; the debt was restructured in 1884, during the second term of President of the council, Jules Ferry. Public finances were also made to contribute to the satisfaction of the bankers.

The Havas agency, owned by Erlanger since 1879, took part in the public opinion campaign favourable to military intervention.

The 1881 invasion

France was ready to jump, on the first opportunity, to use the agreements made at the Berlin Congress. The difficulty for Jules Ferry was that a military intervention needed the agreement of the Chamber of Deputies.

As already said, the French diplomats sought all the possible means to provoke an incident that would justify a French military intervention. Theodore Roustan, the French Consul was ready to pounce. In May 1880 he wrote to Baron de Courcel, a very influential French diplomat (who would become the French Ambassador to Berlin in 1885 and take part in the 1884-85 conference which ’regulated’ the European colonial takeover of Africa) [48]:“We should wait and prepare our motifs to act before preparing the means. The foolishness of the Tunisian administration will help.”The conflict between the Algerian Ouled Nahd tribe and the Tunisian Kroumir tribe provided the opportunity to launch a large-scale operation. At the end of February,1881,a difference between the two tribes provoked an attack by the Ouled Nahd on the Kroumirs with fatalitieson both sides.

The French Consul was exalted. “We could not hope for a better occasion to act, and to act alone because the other powers are not concerned.” To avenge their dead, 400-500 Kroumir tribesmen attacked the Ouled Nahd twice on March 30-31 in Algerian territory but were repulsed by French troops; six French soldiers died in the fighting. [49]

Jules Ferry obtained funds from parliament to “re-establish order”. The way he requested the funds on April 11, 1881 was absolutely deceitful and hypocritical: “We are going to Tunisia to punish these crimes. At the same time,we shall take all the measures necessary to make sure this kind of event does not happen again. The Government of the Republic does not seek conquests; it does not need them (loud applause from the left and the centre); but it has received in heritage, from previous Governments a magnificent Algerian possession that has been glorified by French blood and made fertile by France’s treasures. It will go so far, in the military repression under{}way, as is necessary to safeguard, in a permanent and serious manner, the security and future of France’s Africa(Trans: CADTM).” [50]

Twenty-four thousand troops were sent to fight the Kroumirs.

The Bardo treaty, creating a French protectorate, was signed on May 12, 1881 then validated at the Chamber of Deputies by an overwhelming majority. Only one member voted against it, the courageous socialist Alfred Talandier. [51]The Bey of Tunis was coerced into accepting for fear of losing his position, knowing that his brother would willingly take over with the help ofthe French. He ceded to the French Resident-General all his powers in foreign affairs, territorial defence and administrative reform. 

Several months later, France, still ruled by Jules Ferry, reinforced its military actions in Indochina in order to expand its colonial presence. During the summer of 1881, Ferry, having found another pretext for colonial manœuvres, was voted funds by the Chamber of Deputies for a military offensive in Tonkin. [52]

The French army occupied Tunis in October 1881 and the holy city of Kairouan at the end of the same month. [53]

The Bardo treaty

Faced with the people’s resistance, particularly the rebellion of the Tunisian tribes, [54] the French military action reinforced and the expeditionary corps was increased to 50,000. Through the La Marsa convention of 1883 the Bey was shed of his remaining authority and Tunisia came under direct French administration.

It is to be pointed out that the Bardo treaty, as much as the convention of La Marsa contains precise dispositions that imply the use of debt as a tool of submission and spoliation. Article 7 of the Bardo treaty says: “The government of the French Republic and the government of His Highness the Bey of Tunis reserve the right, of a common accord, to fix the bases of a financial organisation of the regency that will be likely to ensure the service of the public debt and to guarantee the rights of the creditors ofTunisia”(Trans: CADTM).Article 2 of the La Marsa convention stipulated“The French Government will guarantee, at a moment and under the conditions that it deems best, loans to His Highness the Bey destined to the conversion or repayment of the consolidated debt, to a sum of 125 million francs, and the floating debt to a maximum of 17,550,000 francs. His Highness the Bey accepts not to take on any further debt in the name of the Regency without authorisation from the French government.”(Trans:CADTM).