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11 questions / 11 answers about the new global debt crisis and how it can be radically reduced
First Part (1/5): debt as an instrument of domination
by Eric Toussaint , Olivier Bonfond , Mats Lucia Bayer
29 December 2020

Introduction: The current crisis is the most severe since 1929. It is a multi-dimensional crisis of capitalism as it affects simultaneously democracy, health, the economy, climate, environment and social rights.

The current health crisis already has and will have dramatic socio-economic consequences as well as a huge impact on public debt and finance, both in the North and in the South. The present study will focus on public debt. But we should keep two important facts in mind.

First, according to estimates published in Science magazine in 2018, there are over a million yet unknown viruses carried by mammals and birds, between 540,000 and 850,000 of which could infect humans. There is no mystery about the causes of the current CoViD-19 pandemic, or indeed of any modern pandemic. The risks of those viruses contaminating humans are greatly increased by the neoliberal capitalist logic that involves massive deforestation, expansion of chemical intensive agriculture, industrial breeding, international trade in excessive and unsustainable international trade in production and consumption goods,. This logic destroys nature and increases contacts between humans and wild fauna and breeding stocks, potentially bearing pathogenic viruses. 70% of recent diseases (Ebola, Zika) and “almost all known pandemics” (influenza, aids, Covid-19) originate in animal pathogens.

Second, the dramatic health situation we are experiencing is the direct consequence of disastrous austerity measures that have weakened our public health systems, our public services and our social security. While in the Global South the IMF has imposed drastic cuts in health expenses for the last four decades, in Europe, from 2011 to 2018, the European Commission made 63 recommendations that EU member states should privatize parts of their health care sectors or reduce public expenditure in the field of health care.

Solving the health crisis and preventing other deadly and devastating pandemics from multiplying in the coming years thus necessarily involves that we break away from capitalistic logic and build another society based on values that are other than profit, economic growth, competition, selfishness and private property of major means of production.

As we shall see in this study, debt is one of the main instruments that keep capitalism steady and thriving.


While debt is not necessarily bad (question 1), for over two centuries public debt has been used, on the one hand, as a device for transferring wealth to holders of capital and, on the other, as an instrument of political and economic domination (questions 2 and 3).

In the South, as was the case in the 1982 crisis, the debt trap is again closing in. According to the World Bank, 19 countries are partly or completely defaulting, and 28 countries are over-indebted. While the current crisis has resulted in the loss of some 300 million full-time equivalent jobs within a few months (ILO), 100 more million people are about to fall into extreme poverty and 250 more million are facing acute food insecurity, while countries of the South still devote five times more resources to service the debt than for health expenses, the immediate and unconditional cancellation of the debt of countries of the South is a vital issue. In spite of some official speeches pointing in that direction, the answer given by the G20 and the creditors is again nothing but smoke and mirrors (questions 7 and 8).

In Europe governments are restaging the bad script they played in 2008. After provisionally alleviating fiscal rules, the European governments are borrowing billions on the financial markets to save large companies, banks and shareholders as a priority. If social movements allow this to happen, it is most likely that neoliberal governments will very soon present us with a new version of TINA (There is no alternative) and, because of a public debt considered to be too high (increase of 20% of the GDP just in 2020), force on citizens new antisocial policies such as more attacks against social rights, social security and labour law, reduction of democratic rights, more privatizations in key areas. The measures that have been taken so far (national and EU’s recovery plans, ECB’s emergency programme) are grossly insufficient and, contrary to what is claimed by some economists, no change in the neoliberal orientation is on the agenda (questions 9 and 10).

This disastrous scenario is not inevitable. A beneficial way out of the crisis is possible, and there are credible solutions to radically reduce the debt and change course (question 11).

People and progressive governments in the North and in the South must rely on international law, assert that several kinds of debt do not have to be repaid (question 4) and draw their inspiration from several concrete experiences of countries that either suspended payment or cancelled their public debt (question 5) in order to question its payment. We must also draw the lessons of how the Syriza government in Greece faced the debt issue so as to avoid another capitulation in front of creditors when a progressive government again finds its way to power (question 6).

Part 1: Debt, a means of domination
1. Is debt as such an evil?
2. How does debt become a mechanism for appropriating wealth?
3. Why is the debt a means of political and economic domination?

Part 2: No, a debt must not always be repaid
4. Which kinds of debt must not be repaid?
5. What are the historical examples of countries that suspended or cancelled their debt?
6. What can be learned from the Greek experience in terms of debt?

Part 3: Public debt in the South: the trap is closing in
7. Why is the debt trap again closing in for countries of the South?
8. What answer is provided by the G20 and creditors to manage the crisis in the South?

Part 4: Public debt in the North: there is currently no break from neoliberalism
9. What is the situation in Europe?
10. What answers are provided by States, by the ECB and the EU?

Part 5: There are alternatives!
11. What solutions ought to be put forward to radically reduce the debt?

Part 1: Debt, a means of domination

Although not all debt is bad in itself, the reality is that debt has been, for more than two centuries, a mechanism for transferring wealth created by workers to holders of capital on the one hand, and an instrument of political and economic domination on the other.

1. Is debt as such an evil?

The CADTM is an international network present in more than 30 countries which acts at local and international level to achieve two objectives: the immediate and unconditional cancellation of the whole debt of the countries of the South, and the cancellation of all illegitimate debts in the world.

For the CADTM, debt cancellation is not an end in itself. It is a necessary, but not sufficient, condition to guarantee the satisfaction of human rights. If the World is to evolve towards greater social justice in the respect of the environment it is necessary to go well beyond the cancellation of public debt.
Calling for debt cancellation does not mean refusing all forms of public debt. Even if it is preferable to finance human development through resources that do not generate debt, public debt can be a financing instrument for public authorities, on condition that it be used to promote large-scale social or ecological projects, such as:

  1. investment in public health and services;
  2. replace fossil fuels and nuclear energy by environmentally friendly renewable sources;
  3. finance a transformation of current agricultural practices;
  4. finance a vast programme of home building and renovation in order to create homes of better quality that consume less energy;
  5. greatly reduce road and air transport in favour of socialized rail systems.

To come out on top of the current economic, social, health and climate crises, it may be necessary to incur some public debt. But it is fundamental that the borrowing policy be transparent and democratic, i.e. under the control of the citizens, and that it be aimed at serving the interests of the community. Who do we borrow from? What conditions may be acceptable? What for? What are the alternatives to indebtedness? These are all basic questions that need to be asked. They are not being asked at the moment.

2. How does debt become a mechanism for appropriating wealth?

Debt is a powerful mechanism for transferring wealth to the holders of capital, who, especially by charging interest, siphon off a significant part of the wealth produced by the workforce. This mechanism is programmed to continue indefinitely, in particular through “rollover”: a refinancing technique that “allows” States to repay old loans that have reached maturity by subscribing new loans of the same amount. Rollover, which is practized by governments worldwide, is very convenient for banks. On the one hand, it allows them to continue to receive the interest on the debt indefinitely. On the other hand, it allows them to maintain pressure on the States: if the latter dared to implement policies to the detriment of the banks, they could increase the debt burden by raising interest rates, or worse, they could decide to block the rollover, and so, financially strangle the country.

This wealth pumping mechanism has deprived socially useful and environmentally sustainable policies of much needed resources. Over the period 1980-2008, the countries of the South transferred $4.4 trillion in debt service payments. This also represents enormous amounts for the countries of the North: between 2010 and 2019, the 19 countries of the euro zone paid the major banks €2,496 billion in debt interest, an average of €250 billion per year (source: eurostat).

“National debts, i.e., the alienation of the state... marked with its stamp the capitalistic era... The public debt becomes one of the most powerful levers of primitive accumulation. As with the stroke of an enchanter’s wand, it endows barren money with the power of breeding and thus turns it into capital, without the necessity of its exposing itself to the troubles and risks inseparable from its employment in industry or even in usury.” Karl Marx (1867), chapter 31, book 1 of Capital.

3. Why is the debt a means of political and economic domination?

Indebtedness as a means of imposing free trade and subordination on Latin American countries

From the 1820s onwards, European, but especially British, bankers actively sought to put the newly independent South American States into debt. These States needed funds, in particular to finance war efforts and to strengthen their independence. But this recourse to external debt proved disastrous, these loans were contracted on leonine terms including excessive interest rates, and, abusive commissions. In The Debt System – a history of sovereign debts and their repudiation, Eric Toussaint shows that, for an issued security worth £100, the debtor country received only £65 pounds, the rest constituting retainers and commissions for the issuing bank. However, the debtor State had to pay rates of up to 6%, calculated, of course, on a debt of £100, to be repaid in full. Debtor countries very quickly entered a vicious circle of indebtedness.

In 1825, the first great world crisis of capitalism broke out, as a consequence of the bursting of a speculative bubble on the London Stock Exchange. European bankers then stopped granting loans (end of rollover) and very quickly all independent Latin American countries found themselves financially strangled causing total or partial suspensions of payments. The Western powers, especially Great Britain, then used debt as a means of pressure and subordination, to impose policies in favour of their interests, in particular: free trade agreements opening the economies of the new states to British goods and investment, while Britain continued to protect its industry and trade; “conditioned” loans to oblige States to use the money from the loans to buy English goods, so returning the money lent directly back to England) and privatizations (in 1825, Simon Bolivar, President of Great Colombia, had to sell off Peruvian mines to pay debt premiums.

George Canning, an important British diplomat at the time, wrote in 1824: “The deed is done, the nail is driven, Spanish America is free; and if we do not mismanage our affairs sadly, she is English.” Thirteen years later, Woodbine Parish, British consul in Argentina, speaking of a pampas gaucho, wrote: “Take his whole equipment— examine everything about him— and what is there not of raw hide that is not British? If his wife has a gown, ten to one it is made in Manchester.”

So, after freeing themselves from the Spanish and Portuguese colonial yokes, the Latin American States entered a new cycle of dependence, subordination and spoliation, guided by the interests of British and French big capital.

”Loans... are yet the surest ties by which the old capitalist states maintain their influence, exercise financial control and exert pressure on the customs, foreign and commercial policy of the young capitalist states” Rosa Luxemburg, The Accumulation of Capital, chapter 30, 1913)

The indebtedness of Africa and other countries of the South during the 1960s-1970s follows exactly the same process and pursues the same objectives

The debt of African countries (but also of other countries of the South) increased sharply during the 1960s and 1970s for several reasons.

Let us begin by recalling that, on several occasions, the debts contracted by the colonial powers during colonization and used to plunder the resources of these countries and oppress their peoples, were bequeathed to the newly independent African states, a practice that is totally odious and contrary to international law.

The World Bank and the IMF lent massively to serve the economic interests of the colonial powers, either to impose a development model based on the export of commodities (oil, gas, minerals) and agricultural products (tea, cocoa, bananas, coffee), while the European countries could process these products and make huge capital gains, or to finance mega-projects to serve the interests of the Western powers, such as enormous hydroelectric dams to extract minerals (copper and uranium) and export them to the world market. These two institutions have also lent for the foreign-policy interests of dominant countries, in order to keep other countries in the capitalist fold.

“In many cases, the loans were intended to corrupt governments during the Cold War. The problem then was not whether the money served the well-being of the country, but whether it led to a stable situation, given the geopolitical realities of the world.” Joseph E. Stiglitz, in L’Autre mondialisation, Arte, 7 March 2000.

Northern governments also made “conditioned” loans: the money received had to be used to purchase supplies, goods, equipment and technology from the lending countries.

For their part, private investors were interested in lending money to countries that had significant raw material resources, because should these countries one day have difficulty repaying, this as yet unexploited wealth was thought to guarantee repayment.

What’s more, in the vast majority of cases, the governments of the South, rather than opposing this mechanism of subjugation of their country and people, preferred to take a commission and make arrangements with the local ruling classes, who had (and still have) an interest in perpetuating the debt mechanism.

Whether for the countries of Latin America in the first half of the 19th century or for all the countries of the South in the second half of the 20th century, debt was used by the ruling classes of the North to replace colonialism with a new form of colonialism, using debt to maintain their domination over the economies and peoples of the South.

In his book Confessions of an Economic Hit man (Plume, 2004), John Perkins describes the infernal process he was party to: they drove governments to contract debts they were unable to repay, then could easily pressure them into complying with their employers’ expectations such as selling their natural resources at a derisory price, voting for their proposals at a UN session or allowing a military base on their territory. If this method failed, they would use a more brutal approach (a coup or an assassination).

The 1982 global debt crisis: a weapon to impose austerity and neo-liberalism on more than 100 countries of the South

During the period 1960-1980, the developing countries, under strong pressure to borrow, increased their debt 12-fold, from $50 billion to $600 billion. The countries of the South had been generally able to repay their debts, thanks to their exports of raw materials. But from 1978 onwards, that changed very quickly. There were two main reasons for this:

  • a rapid fourfold increase in interest rates which passed from 3% to 12% and so increased debt repayments;
  • a sharp drop in commodity prices.

These two factors financially throttled the Southern countries and in 1982, the crisis blew up and more than a dozen countries defaulted on payments.

The IMF then weighed in, its logic is simple: in exchange for its emergency loans, it imposed neoliberal economic policies on the “beneficiary” countries. They became subject to austerity policies that cause reductions in the number of civil servants, wage freezes, drastic cuts in health and education spending, privatisation of natural resources and strategic economic sectors and liberalization of the economy by opening their markets to multinational corporations.

The outcome of these policies is entirely negative: debt increased, poverty and inequality worsened, human development remained at a standstill, the economic and social fabric has been disrupted and ecosystems have continued to be severely degraded. Moreover, this system of domination is still in place. It has changed its name several times (today we no longer speak of Structural Adjustment Policy (SAP), but of Strategic Document for Growth and Poverty Reduction (SDPGR)), but the logic remains the same and the States and peoples of the South continue to be subjected to the dictates of creditors, the IMF and the World Bank.

In the North, the domination by debt has been in full swing since 2009

Although done less violently than in the countries in the South, the global debt crisis of the 1980s also involved financial blood-letting and social aggression in the countries of the North.

Since the 2008 financial crisis, which, through massive socialisation of private debts, has turned into a sovereign debt crisis, the peoples of Europe, especially those of Southern and Eastern Europe, can feel in their flesh the devastating effects of the neo-liberal austerity policies that are being implemented in the name of public debt repayment. Increased privatisations, cuts in direct taxes, financial deregulation, fiscal austerity, attacks on social rights, weakening of trade unions, more flexible labour laws, all these offensives against social achievements are being carried out in the name of reducing the budget deficit and repaying the debt. In the North also, public debt plays this political role of domination: it is in the name of debt repayment and the reduction of public deficits that, for decades, all EU governments have been making massive cuts in public services, privatising strategic and/or profitable public enterprises, degrading public health systems, and carrying out an offensive against citizens economic and social rights.

“There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.” (John Adams, 1735-1826, second President of the United States)

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

Olivier Bonfond

Is an economist and adviser to the CEPAG (André Genot Centre for Popular Education, Belgium). He is a militant for Global Justice, a member of the CADTM, of the Citizens’ Debt Audit Platform in Belgium (ACiDe) and of the Truth Commission on Public Debt founded on 4 April 2015.
He has published the following books in French: Et si on arrêtait de payer ? 10 questions / réponses sur la dette publique belge et les alternatives à l’austérité (Aden, 2012) and Il faut tuer TINA. 200 propositions pour rompre avec le fatalisme et changer le monde (Le Cerisier, fev 2017).
He also coordinates the Belgian website Bonnes nouvelles (also in French).

Mats Lucia Bayer