Committee for the Abolition of Illegitimate Debt

European leaders feared a contagion effect if Syriza proved that austerity is not inevitable, whereas social movements wanted to show that another Europe is possible

“The Greek Truth Committee on Public Debt, which was set up by the Syriza-led government in 2015, (…) was constructed as a coalition of long-standing experts in contentious debt politics, but importantly shaped by the larger network created by CADTM beyond its formal member organizations. In the following lines I will thus present a case study of the Committee’s work to illustrate the forms of contentious debt politics emerging out of the networks and discourses established by CADTM.”

In June 2010, Moisis Litsis, Sonia and Giorgos Mitralias launched the “Greek Committee against Debt” (CGD) as a member of the CADTM international network (CADTM International 2010; Toussaint & Lemoine 2017, 32 ff). Giorgos Mitralias translated CADTM’s manual for citizen debt audits into Greek, and Sonia Mitralias later contributed to the Truth Committee’s preliminary report (Truth Committee 2015b; Toussaint & Lemoine 2017, 32).

In September 2010, CADTM tried to launch a “European coordination of struggle against the debt and austerity plans” via a large meeting, in which Giorgos Mitralias also participated (CADTM 2010). Greek economist and later MP for Syriza Costas Lapavitsas managed to put together a large international call for an “Audit Commission on Greek Public Debt” with the help of CADTM, a process that produced the launch of the Greek Debt Audit Committee (ELE) in March 2011 (Acosta et al. 2011; Toussaint & Lemoine 2017, 33). The letter was signed by numerous well-known activists and intellectuals, from Noam Chomsky to Jean Ziegler and Slavoj Žižek. The Greek debt audit campaign ELE quickly published a very successful documentary called Debtocracy and held an international conference in support of the audit in Athens in May 2011, with 3000 attendants according to Toussaint (Toussaint & Lemoine 2017, 33). A coalition of the new initiative and long-term debt politics organizations including among others Eurodad, CADTM, the Observatory on Debt in Globalization (ODG) and Jubilee Debt Campaign UK published a joint declaration at the end of the three-day conference and called for a debt audits inspired by the resistance in Ecuador and Iceland (Initiative for a Greek Debt Audit Commission et al. 2011).

ELE largely profited from reignited anti-austerity struggles in summer 2011 all across Greece, as well as the rise of Syriza, which had become the main opposition party by June 2012. While the leader of Syriza Alex Tsipras included a debt audit committee in his preconditions to negotiate with other parties after the election, observers remarked a successive departure from the debt audit since then (Kouvelakis 2016; Toussaint & Lemoine 2017).

Between 2013 and 2015, ELE, No Debt No Euro and CADTM tried to keep the debt audit on Syriza’s agenda, but the different positions foreshadowed the eventual conflict. The people in favor of a debt audit argued that the EU and its hegemonic states would not re-negotiate Greek debt without being pressured by the Greek administration having a Plan B for unilateral debtor action: a debt audit, freezing debt payments, and – if need be – exit from the Eurozone featuring socialization of the banks to avoid capital flight. Varoufakis and others felt that such a course would be morally justified, but argued that Greece lacked the productive capacity and monetary sovereignty to pursue transgressive trajectories like Argentina, Ecuador, or Iceland (e.g. Varoufakis 2011), which Toussaint disagrees with (Toussaint 2017).

In January 2015, Syriza won the election and established a coalition with the Independent Greeks ANEL. The government featured several individuals who supported a debt audit, among them Georgios Katrougalos, who was an active member of ELE (Toussaint & Lemoine 2017, 42). Toussaint asked Katrougalos to establish contact with the new Speaker of the Hellenic Parliament Zoe Konstantopoulou, who had committed herself to the process in her inaugural speech (CADTM & ZinTV 2018).

Toussaint proposed to establish an international team for the debt audit and Konstantopoulou managed to convince Tsipras to sanction the initiative. On April 4, 2015, the Truth Committee on Public Debt was finally established under the supervision of Konstantopoulou, who delegated the scientific coordination to Toussaint and the cooperation of the Committee with other parliaments and international organizations to former PASOK vigilante and MEP Sofia Sakorafa (Truth Committee 2015b).

The committee brought together 15 Greek and 15 international experts from ten different countries. Many of the Greek as well as international participants had been involved in the citizens debt audit networks over the years and had established previous contact with CADTM. The list included among others the coordinator of the former Ecuadorian Minister of Finance Diego Borja, Brazilian debt audit coordinator Maria Lucia Fattorelli, former UN independent expert on foreign debt and human rights Cephas Lumina, ODG member Sergi Cutillas, Attac Greece member Thanos Contargyris, ELE foundational member Sonia Mitralias, Greek journalist and economist Leonidas Vattikiotis as well as several long-time CADTM supporters such as Olivier Bonfond and Patrick Saurin. CADTM and its allies had managed to mobilize considerable technical expertise, as Toussaint remembers:

We did all we could to gather together personalities capable of taking on the heavy task of the committee on a voluntary basis. A variety of skills and experience from several important fields were brought together: international law; constitutional law; human rights; public auditing; banking and finance; economic relations; central banks; statistics and others. Over half the members combined specialised knowledge in these fields with experience in social movements. Working meetings were held over a period of two and a half months. The first tasks were to define the terms of reference and to allocate the alleys of research. We defined the criteria – based on national and international law – to be used to identify illegitimate, illegal, odious and unsustainable debt. In view of the diversity of areas of competence in the committee, particular care was taken in elaborating the methods used and selecting definitions, so that consensus could be reached. Then we separated into groups to examine the different debts that Greece was called on to pay and to produce the chapters of the report that we aimed

to publish in mid-June 2015. (Toussaint & Lemoine 2017, 44 f)

In addition to working meetings (Goncalves Alves 2015), the committee held press conferences (Fattorelli et al. 2015), public hearings and approached the Ministry of Defense and Bank of Greece, although the latter refused to submit documents requested by the audit, arguing that these fell under banking secrecy (CADTM & ZinTV 2018). Among others, the committee summoned Philippe Legrain, previously advisor to former European Commission president Barroso and former Greek representative at the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

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

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

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

http://imf.org Panagiotis Roumeliotis.

Legrain had already spoken out against the Troika Troika Troika: IMF, European Commission and European Central Bank, which together impose austerity measures through the conditions tied to loans to countries in difficulty.

IMF : https://www.ecb.europa.eu/home/html/index.en.html (Schumann 2015) and argued that the previous Memoranda of Understanding (MoU) constituted deliberate bailouts of large European banks (Truth Committee 2015c). According to CADTM, Roumeliotis was put under pressure from the IMF before the hearing, but attended it nonetheless (CADTM & ZinTV 2018). He confirmed the general narrative advanced by Legrain and added: There were secret negotiations in hotels rooms between IMF representatives and French and German representatives to discuss the part the banks would have in eventual restructuring programmes. These discussions took place before the First Memorandum decision and it was decided not to restructure. (Paumard 2015; Toussaint & Lemoine 2017, 48) In a non-public interview, CADTM states that he also said:
The Germans and even more adamantly, the French, refused to hear any mention of debt cancellation, because it would have had bad consequences for their banks that had bought a lot of Greek bonds. (CADTM & ZinTV 2018).

Other debt politics groups such as PACD (“Plataforma Auditoria Ciudadana de la Deuda”) and Jubilee Debt Campaign UK vocally supported the committee’s activities. PACD launched a “monographic blog” to monitor the audit process and translate many of its information into Spanish (PACD 2015). Jubilee Debt Campaign UK published a “message of support” written by its co-chair Roger Chisnall (2015), in which he stressed the overlapping goals of the Truth Commission, a European debt conference, and UN-based rules for sovereign debt Sovereign debt Government debts or debts guaranteed by the government. crises.

The Truth Committee’s Preliminary Report and the Ensuing Greek Tragedy

The loans incorporated conditionalities in the form of fiscal and wage austerity
and privatizations, which entailed an economic and “humanitarian” crisis

On June 17, 2015, the committee finally presented a preliminary report. The text heavily benefits from previous knowledge production within contentious debt politics, but translates the different frames into a more technical human rights language, since it is directed at another audience. Echoing CADTM’s conception of the “debt system,” the central aim of the report is to center on public debt practices, which rendered invisible mechanisms channeling public resources into private finance; and then to declare parts of the debt as illegitimate, illegal, odious, and unsustainable as a consequence on this basis. Additionally, the report again studies the deregulation of private banking, taxation, capital flows, international inequality, predatory lending,
and corruption. Along these lines, the audit deconstructs the fetishism of Greek sovereign debt and the hegemonic discourses, which hypervisibilize the supposed irresponsibility of Greek public spending. Instead, it turns the gaze on predatory lending practices of European (including Greek) private banks and their collusion with political elites.

Due to the preliminary nature of the report and related to this its limited time frame, the text does not cover the whole period between 1980 and 2015, but instead mostly focuses May 2010 until January 2015 (Truth Committee 2015b, 9). For the period until 2010, the report finds that Greek public spending remained below Eurozone average for most of the period. Instead, the deficit derived mainly from a tremendous growth of 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. ; excessive military spending which the report suggests should be further investigated; a “poor performance in income tax collection and employers’ contributions to social security collection” much below Eurozone average due to illicit capital outflow and “benefiting only a minority of the population”; and finally contradictions inherent to the Eurozone (Truth Committee 2015b, 11 ff). The adoption of the Euro precipitated a drastic increase of Greek private debt, while public debt remained relatively stable. Greek but also other European (and especially German and French) banks were heavily exposed to this debt. This private banking bubble burst in 2009, but was presented as a public debt crisis, as the government bailed out Greek and international banks.

The report goes on to argue that the first MoU of €110 billion in 2010 was supposed to bail out banks with exposure to Greek public debt, thereby “transferring the risk to multilateral and bilateral creditors” (Truth Committee 2015b, 17 ff). At the same time, budget cuts exacerbated the debt to GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. ratio. The report charges the Papandreou administration with falsifying the public budget via dubious statistical methods, such as
inflating public hospital liabilities Liabilities The part of the balance-sheet that comprises the resources available to a company (equity provided by the partners, provisions for risks and charges, debts). or transferring non-financial corporate liabilities to the public budget. The committee claims that the public deficit as a 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 GDP was thereby artificially increased from 11.9% to 15.8% in order to retroactively present the private debt crisis as a sovereign debt crisis:

We consider the falsification of statistical data as directly related to the dramatization of the budget and public debt situation. This was done in order to convince public opinion in Greece and Europe to support the bail-out of the Greek economy in 2010 with all its catastrophic conditionalities for the Greek population. The European parliaments voted on the “rescue” of Greece based on falsified statistical data. The banking crisis was underestimated by an overestimation of the public sector economic problems. (Truth Committee 2015b, 18)

In 2012, a second MoU provided an additional €130 billion as well as a haircut of Greek bonds by 53.5%. Since the composition of debt had changed in the meantime, public entities and small bondholders were now heavily affected, while €48 billion went towards bank recapitalization Recapitalization Reconstituting or increasing a company’s share capital to reinforce its equity after losses. When the banks were bailed out by the European States, they were most often recapitalized with no conditions attached and without the States having the decision-making power their participation in the banks’ capital should have given them. . The report argues that public pensions schemes suffered heavy losses, and an estimated 15,000 families lost their life savings as small bondholders (Truth Committee 2015b, 20).

Regarding the new loans, the report finds that a majority of the funds were channeled towards financial institutions, not public institutions, in the form of bilateral loans (Truth Committee 2015b, 29 ff). At the same time, the loans incorporated conditionalities in the form of fiscal and wage austerity and privatizations, which entailed an economic and “humanitarian” crisis (Truth Committee 2015b, 33 ff). GDP declined by 22% between 2009-2014, investments and wages fell drastically, cheaper labor unit costs did not translate into competitiveness, and unemployment soared. The report dedicates one chapter to elaborate in detail the drastic degradation of living standards, access to health, education, social security, housing, freedom of expression and assembly, protection against discrimination, and thus an increase of identity-based violence:

The burden of adjustment is shared unfairly, its impact being particularly

severe for the most vulnerable: the poor, pensioners, women, children,

people with disabilities, and immigrants. (Truth Committee 2015b, 38)

As a consequence, Greek society suffered a severe crisis, while the debt to GDP ratio even increased. Additionally, the MoUs and loan agreements breached human rights obligations and violated the Greek constitution and Greek sovereignty (Truth Committee 2015b, 45 ff).

The report relates these practices to similar developments in the Latin American debt crisis and its Brady Bonds, and stresses that the agreements “mandated the use of Cleary, Gottlieb Steen & Hamilton as a private legal advisor,” a firm “known in Latin America for its advice on the transformation of odious and lapsed external debt into new bonds under the ‘Brady Plan,’” as indicated by the Ecuadorian debt audit and a Parliamentarian Investigation Commission in Brazil (Truth Committee 2015b, 31).

As a consequence of all these points, the committee concludes that it finds large parts of the debt to be illegitimate, odious, illegal, and unsustainable (Truth Committee 2015b, 51 ff). The debt is considered unsustainable, since further debt service Debt service The sum of the interests and the amortization of the capital borrowed. tremendously impairs the state’s capacity to “fulfill its basic human rights obligations.” The report then in turn argues that debt to IMF, European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx (ECB ECB
European Central Bank The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.

https://www.ecb.europa.eu/ecb/html/index.en.html ), European Financial Stability Facility (EFSF), as well as bilateral and private creditors is respectively illegal, illegitimate, and odious.

Parts of the debts are illegal, because they breached the IMF’s statutes, the Greek constitution, international customary law, and “international treaties to which Greece is a party.” Additionally, the ECB imposed macroeconomic adjustments programs and thereby “over-stepped its mandate.”

The committee finds that private creditors acted irresponsible, and some of them even in bad faith. Furthermore, the EFSF’s cash-less loans violate Article 122 (2) of the Treaty on the Functioning of the European Union (TFEU), which only allows the financing of another member state under “severe difficulties caused by natural disasters or exceptional occurrences beyond its control,” while the report had argued in the beginning that Greece’s situation was not exceptional until the first MoU.

The committee also considers the debt illegitimate, since the MoUs violated the Greek state’s basic human rights obligations and mainly benefited private Greek and foreign financial institutions, who were allowed to rid themselves of exposure to Greek bonds. Moreover, vast sums from bailout funds were not only used to bail out private creditors, but also to recapitalize private Greek banks.

Finally, the debt should be considered odious, according to the committee, as the different treaties and imposed conditionalities breached democratic principles, key actors knew of potential violations from the very beginning, and the debt was largely “not incurred in the best 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 population” but for private 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. .

In the final chapter, the report develops legal arguments which the committee argues constitute a foundation for unilateral debt cancellation.

These include:

The bad faith of the creditors that pushed Greece to violate national law

and international obligations related to human rights; preeminence of

human rights over agreements such as those signed by previous governments

with creditors or the Troika; coercion; unfair terms flagrantly

violating Greek sovereignty and violating the Constitution; and finally, the

right recognized in international law for a State to take countermeasures

against illegal acts by its creditors, which purposefully damage its fiscal

sovereignty, oblige it to assume odious, illegal and illegitimate debt, violate

economic self-determination and fundamental human rights. As far as

unsustainable debt is concerned, every state is legally entitled to invoke

necessity in exceptional situations in order to safeguard those essential

interests threatened by a grave and imminent peril. In such a situation,

the State may be dispensed from the fulfilment of those international

obligations that augment the peril, as is the case with outstanding loan

contracts. Finally, states have the right to declare themselves unilaterally

insolvent where the servicing of their debt is unsustainable, in which

case they commit no wrongful act and hence bear no liability. (Truth

Committee 2015b, 5)

The preliminary report was presented at a public meeting in the Hellenic Parliament on June 17-18, 2015, with opening statements by Zoe Konstantopoulou, Sofia Sakorafa, and Eric Toussaint, and in the presence of prime minister Tsipras (Truth Committee 2015d). Shortly afterwards, the Greek crisis exacerbated, as the Troika rejected two proposals by the Syriza-led government, and prime minister Tsipras announced a public referendum to approve or reject a new Troika proposal.

Eric Toussaint interpreted the relationship between the Truth Committee and prime minister Tsipras as complicated. He felt that the prime minister was not convinced of a debt audit, and perceived the relationship towards the Ecuadorian government during its audit as much closer (CADTM & ZinTV 2018). The relationship between the committee and Tsipras broke when the latter accepted the third MoU. While Konstantopoulou (2015) and others denounced the coercive methods, the Troika had adopted to pressure the prime minister; they also wanted him to pursue a different path, as elaborated above. Toussaint felt that Tsipras had “trapped himself in his logic of negotiating at all cost and refused to avail himself of a weapon that might have weighed negotiations in favour of Greece, namely suspension of payment” (CADTM & ZinTV 2018).

In response to the Syriza-led government agreeing to the 3^rd MoU, the committee published an additional analysis of the new agreement and arrived at the same conclusion as before (Truth Committee 2015a). After the committee’s mandate was formally discontinued, the GUE/NGL coalition hosted its members to present their report in the European Parliament in March 2016. Right after the presentation, the committee held an internal meeting in the EP and decided to continue its work as an extra-parliamentary association, signed statues and elected a board (Truth Committee 2015e). Both sides of this debt struggle realized that the Greek crisis was about much more than Greek debt. European leaders feared a contagion effect if Syriza proved that austerity is not inevitable, whereas social movements wanted to show that another Europe is possible. Eric Toussaint draws two lessons for himself from the process and its outcome:

1. the need for all popular governments (or any movement of the left that claims to be part of a government) to resist the creditors, to disobey the institutions and the European treaties, to take strength from popular movements and to respect the will of the people;
2. the need for grass roots movements to keep popular governments under maximum pressure not to capitulate, and to really implement an authentic alternative programme. (Toussaint & Lemoine 2017, 51)