From Geneva to Belgrade: The Great Question of Public Debt

23 October 2017 by Nathan Legrand

The CADTM was invited to speak at the “Debt Conference” held in Geneva on 5 October, and also participated in activities in Belgrade on 6 and 7 October. Our programme was highly charged and proved most valuable.

Geneva, 5 October : « Debt Conference »

The second “Interdisciplinary Sovereign Debt Sovereign debt Government debts or debts guaranteed by the government. Research and Management Conference” called by a panel of university researchers (notably economists, jurists and sociologists) was held in Geneva on 5 October 2017-; this event gave great importance to the presence of a number of experts in finance and advisers to leading political figures. These emissaries of the dominant classes unsurprisingly assumed their support for the creditors. Among them were representatives from: credit rating agencies Rating agency
Rating agencies
Rating agencies, or credit-rating agencies, evaluate creditworthiness. This includes the creditworthiness of corporations, nonprofit organizations and governments, as well as ‘securitized assets’ – which are assets that are bundled together and sold, to investors, as security. Rating agencies assign a letter grade to each bond, which represents an opinion as to the likelihood that the organization will be able to repay both the principal and interest as they become due. Ratings are made on a descending scale: AAA is the highest, then AA, A, BBB, BB, B, etc. A rating of BB or below is considered a ‘junk bond’ because it is likely to default. Many factors go into the assignment of ratings, including the profitability of the organization and its total indebtedness. The three largest credit rating agencies are Moody’s, Standard & Poor’s and Fitch Ratings (FT).

Moody’s :
Standard and Poor’s – sponsors of the event- and Moody’s; lawyers Cleary Gottlieb; BNP Paribas – their speaker was Jacques de Larosiere, former Chairman of the International Monetary Fund 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.
(IMF) from 1978 to 1987 who therefore carries a large responsibility for granting loans to dictators such as Pinochet in Chile and Videla in Argentina, as well as in the first structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

programmes in the 1980s; the 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.

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.
); the European Stability Mechanism ESM
European Stability Mechanism
The European Stability Mechanism is a European entity for managing the financial crisis in the Eurozone. In 2012, it replaced the European Financial Stability Facility and the European Financial Stabilisation Mechanism, which had been implemented in response to the public-debt crisis in the Eurozone. It concerns only EU member States that are part of the Eurozone. If there is a threat to the stability of the Eurozone, this European financial institution is supposed to grant financial ‘assistance’ (loans) to a country or countries in difficulty. There are strict conditions to this assistance.
(ESM); the Bank for International settlements Bank for International Settlements
The BIS is an international organization founded in 1930 charged with fostering international monetary and financial cooperation. It also acts as a bank for central banks. At present, 60 national central banks and the ECB are members.
(BIS); the IMF; the US Federal Reserve FED
Federal Reserve
Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank :
Bank (the Fed).

During the plenary session Eric Toussaint challenged the director of the ECB legal department over the odious nature of the bank’s treatment of Greece. On this subject, see this article. The responsibility of the private banks in causing financial crises was the subject of another challenge. Also present was Jerome Zettelmeyer, who until recently was an advisor to the German Government on economic policies. In order to contradict mainstream preaching holding that it is the risks in State finances that cause banking crises, Eric Toussaint listed a score of banks whose difficulties or failure had been the cause of crises or serious difficulties for States over the last twenty years. [1] Those mentioned were: Lehman Brothers, Merril Lynch and AIG (USA), RBS and Northern Rock (UK), Hypo Real (Germany), UBS (Switzerland), Natixis (France), Dexia and Fortis (Belgium), Anglo Irish Bank and Allied Irish Bank (Ireland), Bankia and Banco Popular (Spain), Espirito Santo and Banif (Portugal), Monte dei Paschi, Banca delle Marche, Banca Popolare dell’Etruria e del Lazio and Carife (Italy), NKBM (Slovenia), SNS Real (Netherlands), Hypo Alpe Adria (Austria). Éric Toussaint challenged the speakers to mention ten banking establishments that were put into difficulty or failure through a payment default on the part of a State. The aforementioned ’experts’ were unable to reply.

During the day the two CADTM deputies had contacts with several researchers and professors who, each in their field, develop very interesting approaches to the question of sovereign debt: among others, Benjamin Lemoine, author of L’ordre de la dette. - Enquête sur les infortunes de l’État et la prospérité du marché (Paris, La Découverte, 2016) with whom the CADTM has previously collaborated, Pierre Pénet and Juan Flores Zendejas from the University of Geneva and Grégoire Mallard from the Geneva graduate institute.

Eric Toussaint was also invited to speak on a panel of representatives from social movements and “Civil Society” devoted to the causes of sovereign debt. He presented the point of view of the CADTM on the 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.
doctrine (see and called for unilateral sovereign actions suspending debt repayments and repudiating illegitimate debts. Also present on the panel was Bodo Ellmers, from Eurodad, who presented a panorama of struggles against illegitimate public debts. Grégoire Mallard discussed the debates on sovereign debt held in the UN throughout the 1970s-80s particularly mentioning the positions of Algerian jurist Mohamed Bedjaoui.

In Geneva we had the opportunity to meet Jean Ziegler, whom we have invited to give a conference in Belgium with CADTM in 2018. As his agenda is heavily charged the date has yet to be fixed but we can already start looking forward to it. Jean Ziegler wrote the preface to n° 72 of the CADTM magazine Les Autres Voix de la Planète dealing with “Vulture Funds Vulture funds
Vulture fund
Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors.
” (autumn 2017, available soon) and is preparing the release of his next book: Le capitalisme expliqué à mes petits-enfants (Capitalism explained to my grand-children - English title not announced), a must read!

Belgrade 6 to 10 October

The CADTM was invited to speak at the Centre for Emancipating Politics and on the Feminist Forum at the Faculty of Philosophy run by professor Nada Sekulic in Belgrade on 5 and 6 October. We stayed a few days more so as to meet with persons or militant groups promoting popular struggles against exploitation and oppression in Serbia, Slovenia and broadly throughout the region.
On the way we read official IMF documents concerning Serbia. Both 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.

are very pleased with Serbia’s privatisation programme and the scathing inflicted on labour protection. The IMF also points out that Serbia’s debt is on a downward tendency and in 2017 was 75% of the country’s 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.
On the evening of 6 October Eric Toussaint gave a lecture at the Faculty of Philosophy in the University of Belgrade entitled “Why and How can European Illegitimate Debt be Abolished?” The event was organised by the CPE and the Feminist Forum. The audience of about seventy people was very largely under thirty years of age and several radical left sympathisers and activists were among them.

After the lecture and debate we were welcomed at the “October” cultural centre that is run by several groups of young activists. It is an ’alternative’ centre with a bar, vegetarian canteen, a documentation centre, a meeting room and much more. About fifty people were present. In addition to the formally organised political activities the centre is also a place of meeting and exchange for young progressives and/or victims of specific forms of oppression (particularly women and LGBTIQ), in a society where oppressive systems and a strong Far-right movement sometimes express themselves brutally. For this reason the centre does not have a public façade, the access is through a corridor and across a court yard. This is to provide protection against the incursions of Far-right groups who have already attacked the centre. After an attack last year one Far-right activist was leniently condemned, while others accused were rapidly discharged.

On 7 October we met Aleksandar Matković, a young researcher and militant Marxist at Novi Sad (Serbia’s second city, to the North of Belgrade, it is industrial and has a university). We discussed Serbia’s political and economic situation. He told us about the last great waves of struggle: the big strikes of 2017 in several important foreign owned corporations (Fiat, Hesteel Serbia – the principal steel works, purchased by a Chinese group in 2016 –, etc.) imposing poor working conditions (allowed by the State to attract foreign investment); the student movement in spring 2017 which started when Aleksandar Vučić won the presidential election where fraud was suspected (a Conservative, he was until then the Prime Minister) the struggle against the Belgrade waterfront project, a future ultra-modern mega-zone for foreign corporations and the wealthy to be built along the riverside on a flood risk zone. A public/private partnership accused of corrupt dealings using foreign capital, notably from the United Arab Emirates.

We were also accompanied by Lucien Perpette, a militant originally from Liege who has been living in Slovenia for twenty-five years. Lucien took part in several CADTM activities during meetings in Croatia in 2013 and Bosnia in 2014 (see here and here), in Slovenia in 2015 and in Belgium over the last ten years. Lucien was active in the solidarity with the multi-ethnic Bosniac resistance during the war of 1992-1995, notably in his support for the actions of Workers aid international for Bosnia. Lucien also took part in a CADTM convoy, with Eric Toussaint among others and activists from groups such as ’Socialism without borders’ or Alternative libertaire, who carried humanitarian aid to Multi-ethnic resistance at the height of the war in Sarajevo. At that time, along with Jos Geudens, one of the founders of CADTM – deceased in March 2010 in Kenya –, Lucien organised holidays for Bosniac children to take them away from the war for a few weeks.

On the afternoon of the 7th, Eric Toussaint gave a conference in the ’October ’ centre reserved for participants in the ’socialist Studies’ courses organised by the CPE for activists from different social backgrounds and of different ages (the participants this year are aged between 18 and 38) with lectures over two semesters aimed at resolving difficulties caused by the weaknesses and fragmentation of the Serbian left – as in the rest of the region, with the possible exception of Slovenia. Catherine Samary gave a lecture last year and Costas Lapavitsas is scheduled for December of this year. Among the matters covered during this conference were: the Greek debt audit experience (2011-2015); the debt audit experience of Ecuador (2007-2009); the lessons learned from Iceland (2008-2013); the odious debt doctrine; the Russian debt repudiations of 1918 and the situation in Catalonia today. After the lecture the discussions with the CPE activists largely lengthened the evening.

Over the following days we met several activists from the Marx 21 group, the Borba group and the Social Democracy Union (SDU). We also had a meeting with Rastko Močnik, Slovenian Professor of Sociology (retired). Rastko was very involved in the struggles for Slovenian emancipation. With him we analysed the situation in Slovenia and could compare it with the situation in Serbia where the situation is completely different from that of other ex-Yugoslav countries. Social struggles have met with relative success, the national minimum wage has recently been increased to €800p/m comparable to wages in a country such as Spain. A unified Left party called ’The Left’ sits in the Slovenian parliament, it has its contradictions but it does defend several progressive measures such as opposing the government’s anti-refugee policies.

<span lang='fr'>Eric Toussaint et Elena qui traduisait du français en serbe</span>
Eric Toussaint, and Elena who translated the French to Serbian

Here are a few political and social points on Serbia that we picked up from different people that we met over these few days:

  • Since the end of “Socialism” as developed in Eastern Europe, production collectives have been privatized or nationalized as a step towards privatization. Some were shared out to the employees who have mostly been pressured into selling out to the private sector. Privatization has provoked a lot of corruption.
  • The advantages of collective organisation have been wiped out by Milosevic, ten years of war and the liberalization of the economy with the active encouragement of the International Financial Institutions once the war had ended. The Unions are very weak, more or less separate from company to company and often in complicity with politicians or the employers. Thus, strikes tend to be ’Wildcat’ in nature, without official union involvement. Cronyist practices are widespread: It was said that some employees were forced by their employers to vote for the ’correct’ candidate (the conservative Vučić ) in the last Presidential election. To show they did so they had to photograph themselves putting the ’correct’ bulletin into the voting box. Some employees are even forced to give some of their wages back to their employer or be fired.
  • Wages are very low (on average 250-300 euros a month but they may be much lower), there is high unemployment and a lot of temporary or part-time working, including in the public administration. Many teachers earn less than €250 p/m and must take on other part-time jobs to make ends meet.
  • Finally in Serbia there are between 250 – 300 thousand refugees from the Balkan wars, of which large numbers are living in precarious conditions and cannot return to their homelands (Kosovo and Bosnia in particular) because of the nationalist policies in the States that formerly belonged to Yugoslavia.

A few conclusions

In Geneva we were clearly reminded that the dominant class is very favourable to public indebtedness and it is essential that the social movements do not allow them to impose their one-sided views. When challenged, political deciders and financial experts show their contradictions. The social movements should find support from the academic circles in the struggle against public debt.
In Belgrade we saw that the left and the social movements are aware of the importance of raising the questions of public, and private, debt (remember that the Yugoslav crisis in the 1980s was directly tied to public debt issues). Although the conditions that would permit launching campaigns on debt issues are not as yet reached we have created important ties with Serbian and Slovenian activists that we shall seek to develop.

Translated by Mike Krolikowski and Christine Pagnoulle


[1For analysis and alternative proposals see Que faire des banques (in French)

Other articles in English by Nathan Legrand (15)

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