26 January 2015
Greece’s election has delivered a clear
rejection of Troika-imposed austerity and the EU’s approach to the crisis. Here
are six key points about Greece’s debt. View as PDF >>
Photo: Chaouki/Flickr
1) European banks were bailed out, not the
people of Greece
It is not the people
of Greece who have benefitted from bailout loans from the IMF, EU and European
Central Bank, but the European and Greek banks which recklessly lent MONEY
to the Greek
State in the first place.
to the Greek
State in the first place.
When the IMF, European
and ECB bailouts began in 2010, €310 billion had been lent to the Greek government by reckless banks and the wider European
financial sector. Since then, the ‘Troika’ of the
IMF, EU and European Central Bank have lent €252 billion to the Greek
government.[1] Of this, €34.5 billion of the
bailout money was used to pay
for various ‘sweeteners’ to get the private sector to accept the 2012 debt
restructuring. €48.2 billion was used to bailout Greek banks following the restructuring, which did not discriminate between
Greek and foreign private lenders. €149.2 billion has been spent on paying the
original debts and interest from reckless lenders. This means less than 10% of
the money has reached the
people of Greece.
Today the Greek
government debt is still €317 billion. However, now €247.8 billion – 78% of the debt – is owed to the
‘Troika’ of the IMF, European Union and European Central Bank, ie, public
institutions primarily in the EU but also across the world. The bailouts have
been for the European financial sector, whilst passing the debt from being owed
to the private sector, to the public sector.
Greece government debt
payments
|
|
2010
|
2011
|
2012
|
2013
|
2014
|
Total
|
|
Principal (minus
payments covered by new T-bill issuances)
|
|
|||||
|
Interest
|
|
|||||
|
Total
|
€32.5bn
|
€40.5bn
|
€22.4bn
|
€23.2bn
|
€30.6bn
|
€149.2bn
|
Who the Greek debt is owed to, end-2014
|
Amount owed
|
|
|
IMF
|
|
|
EU
|
€194.8 billion[2]
|
|
ECB
|
|
|
Other
|
€69.2 billion[3]
|
|
Total
|
€317 billion
|
2) It was clear in 2010 that the Troika
programme wouldn’t solve the problem of Greek debt
When the ‘Troika’
programme began in 2010 Jubilee Debt Campaign warned that this was repeating
mistakes made in developing countries in the 1980s and 1990s. Bailing out
European banks rather than making them cancel debts would ensure the private
speculators would get repaid, whilst the public would pay the costs of having
to cancel debts in the future. Austerity would crash the economy, increase
poverty and unemployment, and increase the relative size of the debt. This is
exactly what has happened.
This was also known
within the institutions conducting the bailout. Leaked minutes of the IMF Board meeting in 2010 which
decided on the bailout showed that many countries were opposed and thought
debts should be cancelled instead. Most strikingly, drawing on their own
experience of failed bailouts in the late 1990s and early 2000s, Argentina
argued that a “debt restructuring should have been on the table”. Brazil said
the IMF loans:
“may be seen not as
a rescue of Greece, which will have to undergo a wrenching adjustment, but as a
bailout of Greece’s private debt holders, mainly European financial
institutions”.
Iran said it would
have expected a debt restructure to be discussed, as did Egypt, which said the
IMF’s growth projections were “optimistic”, a word repeated by China. The
growth projections were extremely optimistic; Greece’s economy is now 19%
smaller than the IMF said it would be, having shrunk by more than 20% since the
start of 2010.
India warned that the
scale of cuts would start a spiral of falling unemployment which would reduce
government revenue, causing the debt to increase, and making a future debt
restructuring inevitable. They did; unemployment in Greece is over 25%, with
almost two-in-three young people out of work.
The combination of the
crashing of the economy and the Troika debts means Greek government debt has
grown from 133% of GDP in 2010 to 174% today.
The bailout and
austerity programme did not take place because it was thought it would help the
Greek people or reduce the size of the debt. It was done to save European and
Greek banks and protect the profit of speculators.
3) Syriza’s proposals have a clear precedent
Syriza is proposing a
debt conference based on the ‘London conference’ which agreed debt cancellation
for Germany in 1953. The 1953 conference agreed to cancel 50% of Germany’s debt
to governments, people and institutions outside the country, and
the payments on the remainder were made conditional on Germany earning the revenue
from the rest of the world to pay the debt. Greece was one of the countries
which took part in the debt cancellation.
Syriza is proposing
debt cancellation through a similar conference (some have suggested of around
50%, though there is no policy officially stated), with the remainder of the
debt to be paid over several decades to ensure that Greece can continue to
repay.
The German debt deal
in 1953 was very successful. It supported German economic recovery, and gave an
incentive for creditors to trade so that they would be repaid.
4) The 2012 private creditor write-down was a
flawed solution
In 2012, two years
after the bailouts began, it was finally accepted that Greece needed some debts
cancelling. An agreement was reached with many private creditors to cancel 50%
of the debt owed to them. However, by this stage, the IMF, EU and ECB had been
bailing out these reckless lenders for the previous two years, so many had
already been repaid. None of the debts owed to the public institutions were
included in the debt reduction.
Moreover, whilst the
IMF, EU and ECB debts were excluded, debts owed to Greek banks and financial
institutions, including pension funds, were not. The 50% debt reduction
bankrupted these banks, so the Greek government borrowed more money from the IMF, EU
and ECB to bailout the banks. The pension funds which lost large amounts were
not refunded.
Finally, whilst a
large majority of private creditors agreed to the debt reduction, various
vulture funds refused to do so. These speculators bought up Greek debts owed
under British law cheaply and have continued to demand to be paid in full. The
total amount of ‘vulture fund’ debt which avoided the agreed restructuring was €6.5 billion. The Greek parliament passed legislation to enforce the agreed debt
reduction on all bonds held under Greek law, but the British government refused
to do the same. The vulture funds have continued to be paid, making a huge
profit on the amount they bought the debt for. This was effectively profit
being given to the vultures by the IMF, EU and ECB, which has left a debt for
the Greek people.
At the end of 2011,
before the ‘debt relief’, Greece’s government debt was 162% of GDP. Today it is 174%.
5) If Greece defaults, it will not have to
leave the Euro
Syriza’s policy is to hold a
conference to negotiate debt reduction, rather than a
default on the debt. However, if a default did take place, there is no economic
reason why this would mean Greece would leave the Euro. Forcing Greece out of
the Euro would be a political retaliation to a default.
Even if Greece
were
forced out of the Euro it could continue to use the currency, just as many
countries use the US dollar without the approval of the US government. What
other Eurozone members could do is withdraw European Central
Bank lending to Greek banks, so that all Euros in circulation in Greece would
have to already be there, or come from income from trade.
Whilst Syriza has said
it will not unilaterally default on the debt, defaults tend to be economically
beneficial for the country concerned.
At the end of 2001
Argentina defaulted on unaffordable debt payments. In 2000, Argentina’s debt
payments had reached 45% of exports ($14 billion),[4] double the amount the IMF and World Bank regard as payable.[5] At the time the Argentine people had experienced three years
of recession. The percentage of the population living on less than $2 a day had
quadrupled from less than 5 per cent in the early 1990s to over 20 per cent.
Following the default,
the Argentine economy began growing again, poverty fell rapidly and the country
became more equal.
6) The way the world deals with debt crises is
not working
The Greece and
European debt crisis is the latest in a long-line of debt crises which have
affected all continents since bank lending was liberalised in the 1970s. The
African and Latin American debt crises of the 1980s and 1990s were followed by
the East Asian Financial Crisis of 1996-1998, Russian default in 1998 and
Argentina default in 2001.
The current case in
the US courts, where vulture funds have forced Argentina to default on its
debts, has convinced developing countries that change is needed and rules need
to be introduced through the UN for resolving debt crises. In September 2014 a
UN resolution was passed by 124 votes for to 11 against to establish a new
legal framework for the debt restructuring process (such as a bankruptcy
procedure for governments). The first negotiations in this process are taking
place in early-February 2015.
However, despite the
clear failures to resolve debt crisis in Europe, the EU decided to abstain on
the vote, with the UK and Germany amongst those who broke from this collective
position and voted against. Such governments are acting as if the international
debt system is working fine, when current events in Greece and Argentina show
it is clearly broken and in need of major overhaul.
Notes
[1] The IMF lent €20.1 billion in the first programme and €12 billion
in the second. Some has been repaid, so debt today is €27 billion. The EU has
lent €194.8 billion, none of which has been repaid. ECB has bought up bonds on
private markets and has not said how much has been bought and repaid. However,
IMF documents show €26 billion is due to be repaid to the ECB between 2015 and
2030.
[2] €52.9 billion from the first programmehttp://ec.europa.eu/economy_finance/publications/occasional_paper/2012/pdf/ocp94_summary_en.pdf and €141.9 billion from the second programmehttp://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/index_en.htm EU debts are due to begin to be repaid in 2020.
[3] Implied from the amount left over from the other creditors
[4] World Bank.
World Development Indicators database.
[5] The IMF and World Bank say that once foreign debt payments reach
15-25 per cent of exports, a government is likely to be unable to pay its
debts. In reality, levels less than this can still cause huge suffering or lead
countries into defaulting.
Countries
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