Debt : The Greeks and Debtocracy

18 March 2012 by Aldous

A documentary film entitled Debtocracy – Chréokratia (Chréos is the Greek word meaning “debt”) has become wildly popular in Greece since that country has been systematically drained while in the clutches of the IMF. Here is a translation of the film which explains the mechanisms for subjugating a country by what economists call “Odious Debt”.

Debtocracy International Version par BitsnBytes

This documentary is like a trip “back to the future” for most of the indebted countries in Europe because the Greek situation is a scenario that is going to be repeated over and over again in all the countries that find it impossible to reimburse sovereign debt Sovereign debt Government debts or debts guaranteed by the government. that is growing exponentially.

Its popularity has attracted many spectators throughout the world, some of whom have expressed regret that it is not available in languages other than Greek, a language of which I have an excellent command.

I considered it sufficiently edifying and worthwhile to have it translated and made available to French readers. I have therefore transcribed here the first part of the documentary film produced by Catherine Kidi and Harry Hadji-Stéphanou.

This part (which does not correspond to the beginning of the film) explains the concept 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.
, how it is used politically, and also recounts how Ecuador managed to escape this trap in 2006.

The story begins in the 1920s with Alexandre Sack, Minister of the Tsar and a law expert. After the revolution of 1917, Sac began lecturing in European and American universities. In 1927, he put forward a brilliant discovery: the notion of Odious Debt.

For a debt to qualify as Odious Debt, three conditions must be present, namely:

1) It must be incurred by leaders without the consent or approval of the citizens.
2) The funds borrowed must be invested in assets from which no benefits accrue to the citizens or the country.
3) The creditor is perfectly cognizant of these facts but nevertheless contracts the debt in total indifference.

Sack’s proposal was considered progressive, even revolutionary. In fact, at that point in time, this notion served the interests of a great power in the making: the USA. The USA had created a precedent to the theory of Odious Debt in 1898, a time when, victorious from the Spanish-American War, it took over control of Cuba. The problem was that in taking over Cuba, the USA also acquired the debt left behind by the Spanish colonisers.

Given that Spanish colonisation had lasted for 400 years after Columbus landed on the American continent, the Cuban debt represented quite a considerable sum. The USA decided that the Cuban debt met the criteria to qualify as Odious Debt and refused to pay it back. A similar situation had occurred in Mexico a few years before. When the democratic army overthrew Emperor Maximilian, the revolutionaries decided that the debt contracted by the former sovereign was Odious.

Emperor Maximilian had borrowed considerable sums to fight the opposing forces. As he owed a lot of money both to his creditors and to the Mexican people, he was brought to heel and executed.

Most of the examples of Odious Debt in the 19th and 20th centuries concern countries in South America. However, in reality, behind all these refusals to pay, we find one singular power: the USA.

It was also the USA that would introduce Odious Debt into the history of the 21st century. Let’s go back to December 2002. The White House is putting the finishing touches to plans to invade and occupy Iraq. Even before weapons begin firing, officials are already preparing for the period that would follow the fall of Saddam Hussein. The State Department knows that it must manage Iraq’s colossal sovereign debt. This is why it must be shown to be Odious Debt. The State Department therefore brings together a secret team to organize the installation of the new government which, as soon as it took power, would decree that the Iraqi people should not reimburse the national debt. Everything was now ready for the attack.

Eric Toussaint, President of CADTM (in French in the text): Remember, in 2003 the United States and their allies invaded Iraq. That was in March 2003 and, three weeks later, the US Treasury Secretary invited his G8 G8 Group composed of the most powerful countries of the planet: Canada, France, Germany, Italy, Japan, the UK and the USA, with Russia a full member since June 2002. Their heads of state meet annually, usually in June or July. colleagues to Washington and told them, “Saddam Hussein’s debt is Odious Debt. His regime is a dictatorial regime and we must relinquish the idea of recouping this Odious Debt; the new regime that is going to lead Iraq must be freed from the weight of this debt. George W. Bush will ask James Baker to convince the international community that Saddam Hussein’s debt is Odious and that the dictator was wasting the sums loaned to him on palaces and arms. Experts had ascertained that Iraq owed billions of US dollars to France and Russia, for the purchase of exocet missiles, FI mirages and Migs. In actual fact, Saddam Hussein’s behaviour was hardly different from that of other leaders. Palaces are to Arab peoples what the Olympic Games are to other nations: demonstrations of economic power and social organization. The American diplomat eventually managed to get the relevant people to accept the idea that Iraq’s debt was Odious and that the Iraqi people ought not to reimburse it. Realising, however, that this action could also open up a veritable Pandora’s Box, Washington decided to sweep the matter under the carpet.

The other countries finally agreed, saying, “Okay, we’ll write off 80% of Iraq’s debt to the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

”, and adding, “do not officially use the notion of Odious Debt” because if we use it, other countries will want to cite jurisprudence. For example, Congo will say, “We must not reimburse Mobutu’s debt”. The Philippines will say, “We do not want to reimburse the debt incurred by the dictator Marcos”; South Africa (…). Therefore, to avoid an extension of the notion of Odious Debt from 2000 onwards, we resorted to an ad hoc solution with respect to Iraq. Nonetheless, from our standpoint, this is an obvious example of a case where the doctrine of Odious Debt was applied. So, the USA would continue to help Iraq get rid of its past debts but no one in Washington would ever again hear the expression “Odious Debt”. This is how Iraq has managed to cancel a significant portion of the debt contracted during the dictatorship. Another country decided to confront 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.
and to face up to its major creditors by its own means. It succeeded in demonstrating that its debt was not only Odious, but also illegal and unconstitutional.”

Raphael Correa, President of Ecuador: “We are placing our national priorities above international interests. When the time comes, if we can, we will take care of international interests, but our first priority is life. Only after that can we take care of debt.”

Ecuador could be one of the richest countries in Latin America. But from the time that oil was discovered there, that country had been saddled with dictatorships, poverty, debt, and economic assassins.

John Perkins, Economic Assassin: “My job really consisted in getting foreign countries to subscribe loans of considerable sums, well beyond what they could possibly pay back. For instance, if 1 billion US dollars were lent to Indonesia or Ecuador; that country would have to reimburse 90% of the loan to US companies through public infrastructure contracts. The contracts would go to companies like Halliburton and Bechtel, which build electrical infrastructure of ports, or highways, which would benefit only the few richest families in the country. The poor only inherit the colossal debt that they cannot reimburse.”

In 1982, the IMF arrived in Ecuador, along with a group of experts representing the country’s creditors. Ecuador pledged to borrow more money to be able to pay off its old debts.

Hugo Arias, President of Ecuador’s Court of Auditors: “It was simply a permanent sum that Ecuador had to pay to the countries of the North. For example, from the 1980s until 2005, debt 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. payments accounted for 50% of the state budget, reaching 3 to 4 billion US dollars annually, whereas spending on health accounted for only 4%. So we had a situation where 4 billion was going towards debt interest payments, but only 400 million for health! 800 million for education! We were killing our own people.”

The people of Ecuador rebelled against this situation. The crisis seemed to be under control when Lucio Gutierres took the situation in hand and promised reforms. He even gave the impression of having socialist leanings. However, once firmly installed, he entered into new commitments with the IMF and imposed extremely stringent measures.

The citizens of Ecuador decided that Gutierres should leave in the same way that the Argentine Presidents had done, i.e. by helicopter. Vice-President Palacio, who took over from Gutierres, began with good intentions but soon submitted to Washington. At that point, the people turned to the only politician who had opposed the USA: Raphael Correa.

Correa had studied economics in Europe and the USA and knew how to stand up to the IMF and the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

when you have the political will to do so.

In 2005, when he was Finance Minister, Raphael Correa had said, “It’s not normal that the additional oil revenue that comes into the state coffers is fully paid out to reimburse debt. It is unfair to the population. 80% of the oil revenue should be set aside for increasing public spending on education, health and job creation. Only 20% ought to be used to reimburse debt.” At the time, the World Bank had said that it would not continue lending money to Ecuador if it maintained any such law. This was clearly a case of interference by the World Bank in Ecuador’s internal affairs, something which Raphael Correa refused to tolerate. He preferred to resign rather than to 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. to the dictates of the World Bank. This stance of preferring to keep his dignity instead of his position made him extremely popular in Ecuador.

Correa ended up becoming the President of Ecuador in 2006. One of his first decisions was to fire the 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.

representative and to rid the country of the IMF representatives. Among them was Bob Thra who then moved on to Greece and was particularly hated by the population. Six months later, Correa took yet another step by setting up an international audit commission.

Eric Toussaint, President of the CADTM: “I was among the persons appointed by President Correa to be a part of this Commission. It was made up of 18 members and 4 state bodies. Our task was to audit all the contracts that had caused the country to incur debts between 1976 and 2006. We worked on the audit for 14 months, during which time we analysed debt in the form of bonds, debt to the IMF, the World Bank and other international institutions, as well as debt owed to other countries such as France, Japan, and Germany. Lastly, we looked at Ecuador’s internal public debt. We found it immensely difficult to gain access to the relevant documents. At the Ministry of Finance, one of our colleagues – Alexandro Olmos – and I were declared persona non grata. Departments of the Finance Ministry sent letters to the Minister, complaining that Alexandro and I had somehow harmed the Ministry’s employees. We found this quite funny, but we understood just how difficult it would be when we were targeted as the “bad boys” in the affair.”

Despite the various difficulties, the Commission succeeded in its mission and noted that a large portion of the debt had been under-estimated. The State informed the citizens of the results.

Eric Toussaint, President of the CADTM: “What was important to Ecuador’s Financial Audit Commission was the fact that all our work was made public. In this way, the people of Ecuador were informed of the reasons why the debt that had been contracted by the previous government, during 2000 in particular, was illegitimate.”

With the Commission’s findings in its possession, the government demonstrated that the debt was baseless and blocked 70% of its reimbursement.

Hugo Arias: “Creditors began to sell off their shares of the debt at 20% of the value and the government secretly bought them back. It bought back 3 billion worth of debt at the price of 800 million US dollars. This was a significant reduction which helped change the living conditions for Ecuador’s population.”

Eric Toussaint: “We must also include in Ecuador’s savings the interest that it would have had to pay until 2012 of 2030. If we take all that into account, Ecuador made savings in excess of 7 thousand million US dollars, which was very important for the country and enabled the government to significantly increase spending on education, health, job creation, and to improve the infrastructure.”

In Greece, historians, economists and experts are daily discussing how to cope with the debt. There is a question, however, that few people have asked: Do the Greek people really owe all that they are being asked to pay back?

Eric Toussaint: “I would say that Greece’s most recent debt is both illegal and illegitimate. What are the signs that indicate this? Well, when the authorities of a country receive bribes from transnational companies – and this is the case with Siemens – which, with its subsidiary Siemens Hellas, paid money, i.e. bribes to officials, ministers and high-ranking public servants, for over ten years, to gain contracts, we can say that this is a mark of illegality and illegitimacy. From my point of view, it is patently obvious that these debts are questionable.”

The Greek Courts were rather cautious in treating the Siemens matter and very slow in other cases of transactions that were entered into unknown to the Greek people, and which increased the debt burden on their shoulders. With the swap transactions carried out in 2001, the government mortgaged the future so as to paper over the present with better artificial financial records. This enabled it to artificially reduce the country’s debt by converting a loan in Yen to Euros and basing it on a past exchange rate. Goldman Sachs provided assistance to ensure the success of the sham, pocketing millions along the way.

Mark Kirk, US Senator: “I am particularly concerned about the role played by the US financial institutions, Goldman Sachs in particular, which assumed the role of the “Crack” dealer when Greece found itself addicted to credit.”
This trick worked like a charm for several years and the Greek political elites showed that they knew how to repay their partners. They contracted Goldman Sachs as advisers, once again, leaving the citizens to pick up the bill.

Jean Quatremer, journalist with the French newspaper, Liberation: “Goldman Sachs advised the Greek government on the one hand, and then turned around and attacked the Government, on the other.”

The scandal erupted in 2010. A few days before, a former Goldman Sachs employee had been appointed to head the body responsible for managing Greek national debt.

Jean Quatremer: “Employing someone who had worked for Goldman Sachs is like hiring a criminal to look after your house…like employing a bank robber to look after your house. It’s the same thing. Naturally, he knows the operators well and knows how to prevent someone from entering your property. However, objectively speaking, you stand to lose a lot because one day he might just decide to take advantage of your absence and steal everything. What guarantee is there that the former Goldman Sachs employee will handle Greek affairs in the best way possible?”

Many countries have criticized Greece for its mistakes regarding Goldman Sachs but these are the same countries that use their relationships with the Greek government to unload their weapons and defence systems.

Zara Vangenkecht, Spokesperson for Die Linke: “When Germany became aware of Greece’s position one year ago, the instructions were not to cease arms exports to that country. Greece needed to cut back on pensions and public services but not on weaponry. This shows the focus of certain interests. The German Government acted like the protector of German arms manufacturers and the export industry. They would like their exports to continue despite the crisis.”

Daniel Cohn Bendit, Euro-Parliamentarian, Greens: “This is all gross hypocrisy! In recent months, France has sold 6 frigates to Greece for 2.5 billion euros, helicopters for more than 400 million, and Rafales at 100 million a piece. “My “insider information” does not allow me to say whether it’s 10 or 20 of 30 Rafales. That adds up to almost 3 billion euros! Germany has sold 6 submarine vessels for one billion euros over the coming years. We are really a bunch of hypocrites! We are giving the Greeks money to buy arms from us!”

In the face of European hypocrisy, guilty retreat only adds to criminal decisions. Based, as always on the pretext of being for the good of the nation, this new Big Idea (name of an aborted national project) left behind shelved property projects in ruins and a mountain of debt.

George Voulgarakis, Greek Minister of Finance: “We have spent considerable sums of money, twice what was spent in Sydney. The final cost will only be known after the Olympic Games.”

C-STAN TV: “You mentioned about 1.2 billion dollars for security. Where is this money coming from?”

George Voulgarakis: “We had this money.”

C-STAN TV: “Is this Greek money, funds from the Olympic Committee, or from the USA?”

George Voulgarakis: “We are talking about Greek money. Of course, it’s more than we could provide but it’s only for security.”

Eric Toussaint: “Colossal sums were spent; completely disproportionate amounts, paid by the Greek population, because a significant portion of the taxes paid by Greek citizens was used to reimburse the debts contracted to organize the Olympic Games. It’s quite normal that the Greek people should call for a proper analysis to explain why the budget for the Olympic Games exploded and what the money was spent on.”

The Olympic Games and the links with companies like Siemens and Goldman Sachs are only the visible part of the mountain of debt which is weighing heavily on the citizens. There are, however, many more serious cases of misappropriation of funds which do not concern only Greece, but all the countries of the periphery of Europe.

Constantin Lapavitsas, Economics professor: “Were all the rules respected in the procedures leading to the monetization of the Greek sovereign debt? Was there any conflict of interest in the role played by the banks in the sale of Greek debt, both on the first and second 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. markets? Which banks are these? How and under what conditions were they involved in these transactions?”

Zara Vangenkecht, Spokesperson for Die Linke: “A significant portion of sovereign debt in the Euro Zone is monetized. This is due to a policy that runs counter to the interests of the people. It is to finance this that the citizens are being made to pay.”

The example of Ecuador has shown that the illegal circumstances in which debt has been generated can be revealed by a commission of enquiry conducted by economists.

“Why doesn’t someone tell us clearly what the debt is made up of? What is the exact amount? And how was it generated? And who do we owe? In order to respond to these questions, it is urgent and vital to set up an audit commission to focus precisely on the nature of this debt. This is why I have said that we cannot be satisfied with lies from the banks, government or the “parrots”, who are paid to repeat the same empty rhetoric.”

But, who is going to set up this audit commission? And how can we be sure that it is not yet again an umpteenth parliamentary commission made up of the same people who are at the root of the current situation?

Constantin Lapavitsas: “This cannot be a simple commission made up of experts because if it is merely a commission of government-appointed experts, even if it includes foreign specialists, or civil society representatives, there is the risk that they could be biased.”

Hugo Arias: “It is only the people who have the legitimacy to call for an audit commission. This is why it is essential to sensitise the entire population to mobilize them to call for an audit.”

Eric Toussaint: “In the Greek situation, as the New Democracy Party (right wing) and the Pasok Party (socialist) both benefited by indebting the country for over fifteen years, it is certain that they would not appreciate having this audit done because their responsibility will be laid bare to the general public. So, what needs to happen is that the Greek general public becomes mobilized, including organizations, trade unions, the Greek magistracy, intellectuals, artistes, etc. These people must make their views known and bring pressure to bear on the political authorities.”

Since March 2011, a team of people from diverse political and professional backgrounds have launched an initiative for the creation of a commission of enquiry to audit the Greek debt.

Professors, journalists, artistes and trade unionists from the world over have supported this initiative. The commission must indicate which part of the debt is illegitimate and illegal and establish, on the basis of Greek and international law, that the Greek people are not obliged to reimburse this part of the debt.

However, the decision remains in the hands of the politicians, not the economists. Even if a debt is legitimate, no government has the right to kill off its population to serve the interests of creditors.

Constantin Lapavitsas: “Even if it were revealed that the entire 350 billion euros of the Greek sovereign debt were legitimate – which would not be the case – Greece would still be unable to honour that debt. It must therefore be written off. If the debt burden causes hospitals to close and education and roads to deteriorate, it is the social cost that will then become unbearable. In short, the government has said that it will default on its payment vis-à-vis the Greek citizens. I cannot understand how a democratically-elected socialist government could decide to default to its citizens rather than to financial institutions. There is no other choice, in the coming decades, than to default on the debt because it is based on neoliberalism. Neoliberal behaviour was a crime against humanity. No one is obliged to pay this debt because it was accumulated through the vicious workings of the market.”

Constantin Lapavitsas: “It is odious to pay an Odious Debt.”

The creation of an economic commission of enquiry is not the ultimate goal. This is merely a political weapon in a battle that is more extensive than a war in which opposing forces have been fighting each other over centuries for control of the system. Even if we were to erase this debt, debt would still reappear in future.

Constantin Lapavitsas: “This will be a weapon in an ideological and political confrontation. Debt is also a weapon.”

Eric Toussaint: “Above all, do not be afraid, as Greeks, to demand your rights within the EU, in relation to the Greek government. This is fundamental; it is by fighting that we ensure that our rights are respected, not by submitting to the diktat of creditors. Look at Tunisia, or Egypt. It is when a population is galvanized into action that it can truly change a situation.”

Translation from french: Angela Mitchell

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