the lessons that can be drawn from the failure of the Greek 2012 restructuring

Written on February 6th, 2015 in politics Comments Off

Published on International Viewpoint, with Éric Toussaint, interviewed by Maud Bailly, Feb 3, 2015.

… How does this restructuring of the Greek debt compare with the Brady Plan that was implemented in countries of the South as a consequence of the 1982 debt crisis?  

  • The Brady Plan [2] was implemented in some twenty indebted countries towards the end of the 1980s. It was a way of restructuring debts through an exchange with US-guaranteed securities on condition that creditor banks reduce the amount of what is owed to them and that they use the money in the economy. In some cases the debt was reduced by 30%, and the Brady bonds guaranteed a fixed interest rate of about 6%, which is most favourable for bankers. The problem was thus solved for the banks and merely postponed for indebted countries.

We find the same components in the debt restructuring imposed on Greece, Ireland, Portugal and Cyprus as in the Brady Plan.

  • 1°: In the Brady Plan, just as in the Memoranda imposed on the countries on the ‘periphery’ of the EU, governments of the major powers and international institutions step in instead of private banks as main creditors. All those plans thus aim to make it possible for private banks to withdraw as main creditors of the countries concerned without significant loss since they are replaced by governments and multilateral institutions such as the IMF. This was what happened with the Brady Plan. In Europe, the European Commission, the European Stability Mechanism [ESM], the ECB and the IMF have gradually replaced private banks and private financial institutions as creditors.
  • 2°: All those operations are obviously accompanied by conditionalities that enforce the implementation of austerity measures and neoliberal policies.
  • 3°: The other common point lies in the ultimate failure of such restructuring for indebted countries. Even neoliberal economists such as Kenneth Rogoff and Carmen Reinhart [3] acknowledge that the Brady plan was not beneficial for the countries concerned: debt reduction was much more limited than had been announced and in the long term the amount of debt actually increased and the amounts paid are very high. We can now say the same about Greece, Cyprus, Portugal and Ireland.

If restructuring the debt is not a solution, what should be done to help those countries solve the debt issue?

  • Those countries ought to unilaterally: 1) set up an integral debt audit – with citizens’ active participation; 2) suspend debt repayment; 3) refuse to pay the illegal or illegitimate part of it; and 4) demand a reduction of the remainder. The reduction of what is left after cancellation of the illegitimate and/or illegal part can be seen as a form of restructuring but it cannot be isolated as a sufficient response.

What happens if a government starts negotiating with creditors without suspending repayment?

  • If there is no suspension of repayment or public auditing, creditors are in a dominant position. We mustn’t underestimate their manipulative skills that can lead governments to unacceptable compromises. Suspending debt repayment as a unilateral sovereign decision creates a new power relationship with creditors. Besides, with a suspension, creditors have to crawl out of the woodwork. Indeed if you deal with securities holders without suspension of payments they remain anonymous since securities are not nominal. Only if they topple this power relationship can governments create the necessary conditions for them to enforce measures that legitimize their action in domestic and international law. In the cases of Greece, Portugal, Ireland and Cyprus the troika is the major creditor and would be obliged to go to the negotiation table.

In this case could governments initiate negotiations to show public opinion that creditors have an unacceptable position and that they have no choice but to turn to unilateral actions? … //

… (full interview text).

Ending Poverty Related Links:

To End Poverty:

Eric Toussant: on en.wikipedia; /See also; /External Links; and on World People’s Blog.

Find articles about Basic Income Guarantee BIG on our blogs:

Other Links:

FCC chair announces strongest open Internet protections ever, on Intrepid Report, by Michael Winship, Feb 5, 2015;

Merkel, Hollande, Putin to discuss end to Ukraine’s civil war at Moscow talks, on Russia Today RT, Feb 5, 2015;

Freedom Rider: ISIS—A US-Saudi chicken comes home to roost, on Intrepid Report, by Margaret Kimberley, Feb 5, 2015;

How the Scammers Behind Virgin Gold Mining Corporation Bit Off More Than They Could Chew (III), on naked capitalism, by Richard Smith, Feb 5, 2015;

Critical Analysis: Six live cremations the West wants you to ignore, on Axis of Logic, by Robert Barsocchini of CounterCurrents.org, Feb 5, 2015: Western selective outrage has always included burning people alive. Acting exactly as any sane criminal would, Western criminals want you to let them get away with their crimes while they broadcast the usually lesser crimes of others as pretexts for continuing and escalating their own crimes …;

Thousands of Ukrainian troops thought to be trapped in Donbass, on Russia Today RT, Feb 2, 2015;

US/Florida: Sheriff Who Bragged Police Dog Ripped Testicles Off Suspect Also Told Drivers To Run Over Protesters, on Counter Current, by Moreh B.D.K, Feb 2, 2015;

The walls have ears, on Al-Ahram weekly online, by Khaled Dawoud, Jan 29, 2015; Leaked tapes are part of the arsenal in the battle being waged by the Muslim Brotherhood and its opponent …;

The Spectacular Media Failure on Charlie Hebdo, on Worker’s Action, by Shamus Cooke, Jan 13, 2015;

LE SPECTACULAIRE ÉCHEC MÉDIATIQUE À PROPOS DE CHARLIE HEBDO, dans Worker’s Action, by Shamus Cooke, le 13 janvier 2015;

Die BRD im Würgegriff der Bankenmafia, 46.04 min, von Holger Strohm am 27. Dezember 2014 hochgeladen.

Comments are closed.