Committee for the Abolition of Illegitimate Debt

Dear Ms. Bundeskanzlerin Angela Merkel,

Regarding your coming visit to Portugal, I hereby request that you forward the following brief message to your fellow citizens:

• We are well aware of the fact that in the past decade, your governments told you that you would have to forfeit part of your wages in order to protect your welfare State. They told you, and you believed them, that by forfeiting a little bit of your income you would become “more competitive” and thereby your country would generate enough savings to support your pensions and your children’s future social benefits.

• We are also well aware of the fact that the past decade was hard on you and that your country became less agreeable and more unequal. We know that the intended goal was achieved. That Germany became “more competitive”, exported more and imported less at lower costs. We know that your country generated large current account surpluses and that those savings were accumulated in your banks.

• We also know, but perhaps you do not, because your leaders do not tell you, that money accruing in your banks has been invested, for lack of a better choice, in low-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. loans to Southern European banks, including Portuguese ones. These banks then sold credit, amidst lots of shifty advertising, to Southern European families whose wages also did not rise all that much, but who harbored aspirations to homes, cars and a lifestyle akin to yours.

• Our economy faced globalization-bred competition - which largely benefited your exporting companies - and thus grew very slowly. But credit provided by your banks, via Portuguese banks, allowed household access to consumer goods, many of which produced by your exporting companies. For a while, this state of play seemed beneficial to everyone.

• In 2008, when bubbles started blowing up, your banks found out that they could not afford so much risky lending and cut credit to Southern European banks and even States. If the European Union had not decided that no bank would go under, making States responsible for bank 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). , we would have seen a wipeout of indebted banks as well as creditor banks. But the EU decided that first governments would provide “bailouts” to banks and afterwards it, the EU, jointly with 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.
  
  ECB : http://www.bankofengland.co.uk/Pages/home.aspx and 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.
  
  http://imf.org , would provide “bailouts” to States. This was how your banks, who offered low-interest loans beyond all responsible limits, saved themselves from going under. This was how your banks managed to go on charging interest on loans and securing loan payments. Otherwise, they would have gone bankrupt. Maybe you do not know about this, but loans to Greece, Ireland and Portugal are really debts imposed on the peoples of these countries in order to “bail-out” your banks.

• Perhaps you also do not know that up until now, your State and all of you as taxpayers, have not contributed a single euro to Greek, Irish or Portuguese “bailouts”. Until now, your government has provided guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). to a European fund which issues debt at almost null 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. and then offers loans to “bailed-out” countries at 3 to 4% interest rates.

• Perhaps you do not know that this may soon change. Austerity measures imposed in exchange for those loans are breaking “bailed-out” countries apart. These countries will soon reach a point where debt service Debt service The sum of the interests and the amortization of the capital borrowed. operations will stop. At this point everyone will incur extremely heavy losses, including German taxpayers.

• Perhaps you are not aware of this, but in the end, your decade-long effort to make Germany “more competitive” and surplus-generating may swiftly melt into thin air. Because your surpluses are our deficits and our debts are your banks’ assets. Your leaders should know that an economy is a system and that the eurozone economy is no exception to this. When system components seek advantage on the backs of others, disaster ensues for both the system and all components.

• Perhaps you do not know this, but your leaders have been deceiving you for too long.
  Forgive me, Ms. Merkel, if I come across as excessively bitter. But I am unable to hide this: the spectacle of peoples against peoples is unbearable to me, especially when all of them face a common challenge - a coalition of finance and governments who rule on behalf of the 1%, governments like yours and ours. I remember past tragedies that should be unthinkable and remain in history books. I hope you will agree with me at least on this one point, Ms. Merkel: we must avert a return to that past.

José Maria Castro Caldas

(Translated by Luís Bernardo)