The Debt Crisis : From Europe to Where?

26 February 2013

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Authors: Damien Millet,Daniel Munevar, Eric Toussaint, Renaud Vivien

Editors: Sushovan Dhar, Sundara Babu Nagappan

Produced by Vikas Adhyayan Kendra
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Malad West, Mumbai 400 064, INDIA
Ph: + 91 - 22 - 2882 2850 / 2889 8662
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Printed by Sudhir Joglekar for Omega Publications

 Preface by Eric Toussaint

The editors have chosen an excellent title for this book “The Debt Crisis: From Europe to Where?” which incorporates a series of analyses written mainly in 2011 - 2012. The epicentre of the crisis that began in the United States in 2007 shifted to Europe in 2010 and it is necessary to ask the questions: where is this crisis leading to? How will the rest of the world be affected?

The combined effect of a crisis of overproduction in the real estate sector in the U.S., as well as the banking and financial crisis of great magnitude produced the economic and social disaster. The banking and financial crisis was itself caused by the deregulation of the financial sector launched by the successive governments in the U.S. and Europe starting from the widespread introduction of neo-liberal policies in the 1980s. This deregulation allowed large banks and major insurance companies to develop derivatives Derivatives A family of financial products that includes mainly options, futures, swaps and their combinations, all related to other assets (shares, bonds, raw materials and commodities, interest rates, indices, etc.) from which they are by nature inseparable—options on shares, futures contracts on an index, etc. Their value depends on and is derived from (thus the name) that of these other assets. There are derivatives involving a firm commitment (currency futures, interest-rate or exchange swaps) and derivatives involving a conditional commitment (options, warrants, etc.). and structured products that are powerful weapons of mass destruction. These bombs began to explode in 2007 and the explosions are not yet over. The current crisis is clearly a major crisis of the capitalist system. The current governments benefit from it, since they can apply shock therapy. The policies they are developing will prolong and aggravate the crisis.

The European Union (EU) stands at the centre of the crisis because when it was formed with 27 countries, the interests of big capital had dominated their integration. In any case, large companies are not interested in reducing the differences among the various European economies: the gap between the legal minimum wage in Bulgaria and that in France is 12. This gap is 3 or 4 in the interiors of South Asia and the same goes for Latin America. Aided and abetted by European leaders, large private companies operating in the EU derive maximum benefits: no taxes for the flow of their goods and services and the possibility to exploit the huge differences in wages among workers within the single European market (500 million residents). To sum up, how European integration is accomplished determine the Centre/Periphery relations in Europe. This is great for the employers but at the same time it makes economically weaker countries vulnerable vis-à-vis the international crisis. Particularly, Greece, Ireland, Portugal, Spain, Italy, Latvia, Romania, Bulgaria, Cyprus and Hungary are affected by the EU’s menacing crisis and the list will extend in the months and years to come.

The history of the last two centuries has taught us that a debt crisis erupting in the economies of the capitalist Centre have sooner or later a negative impact on the economies of the Periphery, because the ebb and flow of capital caused by the Centre’s economies stir up the international economy. Since 2004, high prices of raw materials and low international 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.
combined with China’s impressive growth have protected the emerging markets from the most destructive effects of the banking and financial crisis of the countries of the Centre. The emerging economies have accumulated large foreign reserves that may play the role of shock absorbers in the case of capital outflow from the Periphery to the Centre. Countries like India and China are also partially protected by the fact that their banking system is not under the control of the Centre’s major international private banks. Still it would be wrong to assume that this time the disasters caused by large private companies in the countries of the Centre and also by the North American and European political leaders will have no consequence for the economies of the peripheries. Similarly, it is clear that the global capitalist system is also causing the climate and food crises gravely affecting the planet’s poorest people. We must therefore respond by breaking away with the system. To return to the European debt crisis - the focus of this book published by Vikas Adhyayan Kendra - there are several key lessons learned: - the need for a clear break with the capitalist system and the need to shift most of the economic activities to the domain of common goods Common goods In economics, common goods are characterized by being collectively owned, as opposed to either privately or publicly owned. In philosophy, the term denotes what is shared by the members of one community, whether a town or indeed all humanity, from a juridical, political or moral standpoint. ; a deep collaboration of existing interests between the peoples of the planet’s North and South (Centre and the Periphery) that have been subjected to the dramatic consequences of the debt system and international institutions (such as 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 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.

, who have specialised in the management of financial crises); the need to jointly oppose all the offensives of Capital against Labour and for that purpose, to build a powerful front of the oppressed men and women, a collective of the 99% against the 1% dominating the planet.

The Debt Crisis : From Europe to where?


1. Editors’ note

2. Prologue The CADTM: 20 years of struggle for the oppressed - Eric Toussaint

3. Introduction by Eric Toussaint

European Capitalism in Crisis

4. Greece: The very symbol of illegitimate debt - Eric Toussaint

5. Europe Gets Shock Therapy like Latin America in the 1980s and 1990s - Eric Toussaint interviewed by Carlos Alonso Bedoya

6. Greece, Ireland and Portugal: why agreements with 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.

are odious - Renaud Vivien & Eric Toussaint

7. Greece: The IMF and Lagarde get it wrong - Eric Toussaint & Damien Millet

8. All the loans accorded by the Troika are illegitimate - Eric Toussaint interviewed by Ana Benačić

9. In the eye of the storm: the debt crisis in the European Union - Eric Toussaint interviewed by the CADTM

10. Now approaching Spain, the bank hurricane continues along its path of destruction - Eric Toussaint

The Global Context

11. G20 G20 The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central-bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). : The Symbol of a System Failure - Eric Toussaint

12. Barack Obama: The change that didn’t happened - Eric Toussaint & Daniel Munevar

Resistance & Alternatives

13. The International Context of the Global Outrage- Eric Toussaint

14. Seismic election results in Greece - Eric Toussaint

15. Do we need a public debt? - Damien Millet & Eric Toussaint

16. Our AAA : Audit, Action, Abolition - Damien Millet & Eric Toussaint

17. Eight key proposals for another Europe - Eric Toussaint

End Notes

The Debt Crisis : From Europe to Where?

Other publications in English :

  • Africa : the debt trap and how to get out of it
    27 March - CADTM
  • Greece 2015: There was an alternative
    6 October 2020 - Eric Toussaint
  • Impact of European policies on the Global South and possible alternatives
    8 September 2020 - ReCommons Europe
  • Package of common demands on debt and the need for citizens’ control on finance at European level - Executive summar
    3 August 2020 - CADTM, Collective
  • The Debt System, A History of Sovereign Debts and their Repudiation
    24 September 2019 -



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