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Debt, a weapon of mass destruction aimed at the people
by Pascal Franchet
20 December 2014

Sarajevo Peace Event, June 3, 2014

This statement is on behalf of the CADTM (Committee for the Abolition of Third World Debt ).
CADTM was founded in 1990. It has since become a global network present in forty countries in Africa, South East Asia , Central and South America and Europe. Focused since its beginning on the debt of the South, since 2008, its attention has also been turned to the debt of the North. In Europe, committees exist in Belgium, France , Greece and Spain. More are being set up in several other European countries (Poland, Luxembourg).
Our experience of debt and structural adjustment programs in the South allows us to analyze and fight against the austerity plans and illegitimate and odious debt of the northern countries of the world.

To begin I will start with a statement by Warren Buffet, who, according to Forbes magazine, is one of the richest men in the world: "There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning (New York Times 26/11/2006).”

This cynical statement has the merit of clarity. We are talking here of war, economic war that is not constrained by borders and does not bother about nationalities, only about the interests of one social class. This type of war is responsible for millions of deaths each year, it is comparable with armed conflict. As the capitalist economy has become global so, along with it, has economic warfare.

This remark is intentionally general. I want to present a wide framework in which many different situations may exist. My presentation is not cover all situations and will not be giving lessons to anyone or talking in the place of anyone. Each country or group of countries has its own experience in terms of public debt and I come here, just as much, to learn about them; from you.

My intention is to show that within this global economic war, which, because of the crisis, has attained an exceptional scale, debt plays a crucial and central role. From this point of view, the class conflict between us and the bourgeoisie, the struggle against the illegitimate and odious public debt, can not be separated from the global struggle against this capitalist society. I will conclude with some proposals for concrete actions that we can discuss together.

Although our world has never produced so much wealth, material goods and sustenance, there is devastating poverty. Nearly a billion people suffer from hunger and the gap between the richest and the poorest continues to grow. The richest 10% now possess between 80% and 90% of the World’s wealth. This ruthless economic war maintains the people of the South in underdevelopment, famine and disease while their natural resources are plundered by industrial corporations with the complicity of the governments.

The economic and financial crisis that exploded in the United States in 2008 caused unemployment and poverty for millions of Americans. Four million foreign workers were sent home (Mexico, El Salvador, etc.), deteriorating the situation in their countries, in which more than 15% of GDP came from the remittances these workers sent to their families. More than one in 7 US residents are now pursued by a debt collection agency and more than 13 million households have been evicted from their homes because they could no longer repay the mortgages. Thousands of businesses have closed and cities, like Detroit (ex cradle of the automobile industry), are bankrupt .

This crisis was quickly exported to Europe, the weak link in global capitalism, with its share of social disintegration, mass unemployment and destruction of industrial employment. The situation and the policies currently observed to be at work in the South and East of Europe seems to be, for many economists, transforming them into a new third world.

States and governments rushed to the rescue of the banks that became short of money, and to make the population pay for the crisis. €1.2 trillion were made freely available, hive-off vehicles for toxic assets were created, €3 trillion of guarantees have been provided to allow banks to borrow from the European Central Bank. In total, in 2009, the European Commission authorized Member States to intervene to up to €4.5 trillion.

A concrete illustration of neoliberalism can be observed in the financial structure of multinational corporations and of big national companies. Capital’s offensive against labour in all industrialized countries since the mid-1970s has allowed it to increase its share in the distribution of the value produced to the detriment of the workers. In 15 years, labour’s share has decreased between 8 and 13 % depending on the country.

This extra profit has not been invested in new machines or the maintenance and renovation of the old, nor in research and development (R&D). The much greater part is distributed in dividends and financial investments. In the early 1980s the shareholders of these industrial corporates chose to move towards a more financial structure of their activities, preferring speculation and casino-style operations rather than industrial investment .

This pursuit of maximum profit with an immediate rate of return on investment of around 15-18 % per year led (and still leads today) to the massive relocation of industrial jobs away from the rich countries to countries with lower wages and lower or non-existent social cover( see Bangladesh textile factory that collapsed on workers killing a thousand people).

But it would be wrong to believe that European relocations are only in one direction, away from the rich countries towards the South and East of Europe. In fact, if Hungary has benefited from the creation of 60,000 new jobs in 20 years (1990 to 2010) due to relocation, at the same time it has suffered a net loss of 1,5 million jobs in industry, agriculture and services.

So that this financial structure could spread its wings; as from the beginning of the 1980s banking and finance has been released from the regulations established by public authorities after the end of the second world war (since the New Deal for USA). Bank deposits activities and commercial activities have merged, complex derivatives products appeared and proliferated, such as CDSs (Credit Defaults Swaps ) better known as “subprimes”, and financial speculation has spread to raw materials and foodstuffs.

“This happened seven years ago and and four years ago. Agricultural prices soared. Mid-2008, they were three times higher than at the beginning of the millennium. Shortly after, they fell again to quickly rise to new records again. These Price fluctuations had dramatic consequences. Millions of people lost their lives. There were riots, violence and unrest. The United Nations Food and Agriculture Organization (FAO ) estimates that the 2007-2008 crisis caused the deaths of approximately 80 million people. In Pakistan, for example, poverty has increased by 35 %. In Ethiopia , people have had to reduce their calorie intake by a quarter“. “While in 2003 only $13 billion had been invested in the markets for derivatives of raw material, ten years later, in spring 2013, it was 33 times more - $430 billion. Up until the year 2000, the share of contracts traded for speculative purposes did not exceed 20 percent. This has changed dramatically. Today, speculative contracts are responsible for 80 percent or more of this activity”.
Source = Alliance Sud.
La spéculation sur les denrées alimentaires March 2014

Complicity of the States and of the European Union

The liberalization of finance and of the real economy would not have happened without the active complicity of the governments. Another essential aspect of the financialization of the society was that the ruling class, the bourgeoisie, used it to ensure the submission of governments and states. The conversion of social democracy to neoliberalism, over several decades (the conservative parties had already come over) was not sufficient, it was necessary to ring-fence the autonomy of the States.

This was done with the creation of the European Union and the adoption of its undemocratic treaties that have the power of constitutions. The creation of the European Central Bank and the adoption of its Statute which prohibits states from borrowing from their own central banks and from public companies. But if the ECB is independent from the states, in fact, it promotes private banks (financial institutions and subsidiaries of multinational corporations) which can borrow at very low or even negative (below inflation) rates and then lend to states and households at much higher rates. The ECB is clearly a tool for the financial markets rather than being at the service of the States. The use of (and addiction to) financial markets is now obligatory.

At the same time, the bourgeoisie has put pressure on governments (oh, very light pressure!) to reduce of tax rates on corporate profits and on the richest households. Government resources have declined. Public expenditure is restrained and an accumulation of large fiscal and budget deficits has resulted, that can only be balanced by borrowing from those who have benefited from these tax cuts. The financial markets are fixing, unilaterally, the interest rates of government bonds.

In the name of balanced budgets and debt repayments, austerity plans are applied more or less violently across the whole of Europe. The social protection systems are the main target (pensions, health care, unemployment benefits, etc.) but also wages, labour laws, public employment, bringing political support to business, privatization and industrial destruction. The result is a considerable social decomposition that provides a breeding ground for populists, nationalists and xenophobic parties on the extreme right.

Austerity policies in Europe threaten and attack a social edifice of human and labour rights that grew out of more than 60 years of social solidarity. The South and East of Europe have become the laboratories of these austerity policies as Pinochet’s Chile was the laboratory of neoliberalism, inspired by the Chicago School.

This social regression also promotes the return of patriarchy, sexism and the questioning of women’s rights such as the right to abortion. The ground is ready for an ideological regression. We are facing a real decline of civilization.

In this backward step of civilization, the IMF plays, with the ECB and the European Commission, the same role it played in the early 1980s in Africa and Central and South America. The European austerity plans are a true copy of the structural adjustment programs implemented in the South as from 1982. Austerity policies lead, throughout Europe, to unemployment and poverty, especially for women and youth, but also for the middle class, they increase debt instead of reducing it, and degrade the ecosystem.

The strategies are similar, public debt is used as a key issue to impose growing exploitation of peoples. It is in this name that the structural adjustment programs in the South were implemented. It is still in this name that the austerity plans in Europe are pleaded. This is a real war against the people and the debt plays the function of a weapon of mass destruction aimed at the people.

This economic war may, recent news is full of examples, lead to armed conflicts ( Mali, Central Africa) or to dictatorships (Thailand). Debt serves a very specific function: the enslavement of national and local economies to the dictatorship of finance.

Here I would like to make proposals

The dependence on the financial markets is neither absolute nor unavoidable. International law permits states to step away from binding treaties where necessary, to satisfy the basic needs of population. That international law also provides for the suspension of debt repayment and even cancellation in case of illegitimate, illegal or odious debt.

But the law is nothing without the political will to impose it. This will cannot arise without social mobilization able to express the needs of the people.

These issues of public debt and financialization of society are voluntarily presented by the watchdogs of the media as too complex for ordinary people to understand . However, if certain financial mechanisms are actually extremely complex, it is not the same for the public debt. To see through the opacity, maintained by governments, Just ask the right questions. Why did we borrow? To who’s advantage? Should we really repay? What can we do?

We make three main proposals:

  • a moratorium on payment of the debt
  • a public audit
  • cancellation of illegitimate, illegal and odious debt

1. Declare a moratorium on debt payments.

A simple decree is sufficient. The advantage of a moratorium is to immediately relieve public finances and to identify the unknown creditors who crawl out of the woodwork and are revealed to parliament and the public.

The payment of interest or repayment of capital (coupons) is made anonymously by compensation funds or through financial investment organisations.
Parliamentarians who vote the budgets do not know who profits from the service of the debt (public money)!
Suspending debt repayments would create the best conditions for a public audit.

2. How to do a public debt audit.

Citizens audits are under way in several countries (Spain, Portugal, Greece, France, Belgium, Brazil and elsewhere ). They clarify which public debts should not be repaid. They are an important support for mobilizations.

Adding “public” to audit means to us that this action should have the largest possible base. Using expert and technical collaborators should not mean delegating power but using their skills and sharing them. The goal is to simply and clearly take back the control of what is decided in our name, to enable a collective decision. The goal of an audit is to clarify and to make understandable what is behind public debt and to mobilize public opinion by providing evidence and arguments necessary for the repudiation of the debt identified as illegitimate, illegal and/or odious.

The purpose of a public audit is first to see through the opacity that has become commonplace concerning debt, and to answer several questions:

1) Where does the debt come from?
2) The public debt, how does it work?
3) Was it subscribed in the public interest?
4) Who profits?

Then determine the share of public debt which should be cancelled or repudiated.

Without being exhaustive, we can propose the following definitions:

  • Illegitimate Debt: a debt taken on by a government that is not in the general interest, or to the detriment of the general interest. We distinguish between what is legal (eg. a budget voted in a democratic context) and what is legitimate. A debt incurred to cover tax breaks for the rich and for big corporates can legally be considered not be legitimate.
  • Illegal debt: debt taken-on in violation of applicable legal or constitutional order. (Parliament not consulted, Constitution not respected)
  • Odious debt: debt resulting from loans to authoritarian regimes or that are imposed under conditions that violate the social, economic, cultural, civil or political rights of the populations affected by the repayment.
    (“If a despotic power incurs a debt not for the needs or in the interest of the State, but to strengthen its despotic regime, to repress the population that fights against it, etc., this debt is odious for the population of all the State.
    This debt is not an obligation for the nation; it is a regime’s debt, a personal debt of the power that has incurred it, consequently it falls with the fall of this power.”(Sack’s definition))
  • Unsustainable debt: debt whose repayment condemns the population of a country to impoverishment, degradation of health and public education, rising unemployment and even malnutrition. This is the case, for example, of Greece, Cyprus and Ireland.

3) Decide collectively to cancel illegitimate, illegal or odious debt

These cancellations depend on the specific situation and circumstances of each country’s debt. There are many examples in history, of total or partial suspension and cancellation of debt .

It must be also be emphasised that total or partial cancellation of the debt is not an end in itself and alone will not transform society, it is only a step in the right direction, a means to an end.

Other measures are to be taken: an end to austerity plans, reforms to the tax and banking systems, creation of legitimate public funding mechanisms, development and expansion of public services, strengthen the pension system, reduce working hours and introduce a new incomes policy, bring on another Europe of the peoples by promoting a constitutional process that will replace the existing treaties, promote relations of solidarity between countries and peoples, etc.

But! illegitimate, odious, illegal and/or unsustainable debt is an important barrier to break down in order to finally achieve the peace and economic development which we reclaim.

Thank you.

PS: for much more information on all these issues visit the CADTM web site.

Citizen’s public debt audit groups have been formed in several European countries. They are grouped together as the ICAN network. CADTM is involved in groups in Portugal, Greece, Spain, Belgium, France. These include trade unions, political parties, associations and individuals. They work together for the audit of public debt, to explain its mechanisms, to break down the dominant discourse and to propose alternatives and mobilizations.

I said in the introduction, that what I explain reflects a general framework. To progress further, CADTM may take part in all actions. Your public debt creditors and ours are often the same. The role that the Troika (ECB , European Commission and IMF) plays is called to spread to all countries. We have common enemies! Let’s fight them together!

Translation Mike Krolikowski

Pascal Franchet

Président du CADTM France