History shows why the Eurozone debt crisis is mounting

History shows why the Eurozone debt crisis is mounting

As we report today (http://www.ekklesia.co.uk/node/18061), the Jubilee Debt Campaign, of which is Ekklesia is a backer, is using the 60th anniversary of Germany's post-war debt deal to highlight the contrast between the settlement reached then and the disastrous austerity policies being imposed on Europe today -- pointing out the need for a radical shift in thinking and policy.

Fast action to reduce or cancel debts, a structured and sustainable repayment system, and the inclusion of all creditors are among the features needed, says JDC. It sets out the contrast between 'then' and 'now' in the following, summary terms.

(1) Swift debt cancellation

The debt cancellation for Germany was swift, taking place in advance of West Germany struggling to pay its debts. In contrast, when Greece’s huge debts were revealed in 2010, rather than any being cancelled, the IMF and EU gave bailout loans. This paid off some of the reckless lenders, but the debt remained, and rapidly grew as austerity and debt payments crashed the economy.

(2) Limited repayments

There was a clause which said West Germany should only pay for debts out of any trade surplus, and limited payments to the equivalent of three per cent of exports earnings every year. This meant those countries owed debt had to buy West German exports in order to be paid. It ensured that West Germany only paid for debts out of genuine earnings, rather than through taking out new loans, which sustains the crisis for years to come.

The ‘strategy’ in Greece, Ireland, Portugal and Spain today is to put the burden of adjustment solely on the debtor country, by making its economy more competitive through mass unemployment and wage cuts. This austerity has shrunk economies and made countries less able to pay debts. And without creditors like Germany willing to buy more of their exports, it inflicts pain without end.

(3) Inclusion of all creditors

The German debt reduction applied to all creditors, whether governments or private individuals and companies. In contrast, in 2011, discussions belatedly began on writing-off some of the Greek debt to private creditors. A limited agreement was finally reached in March 2012. But it only covered private creditors; by this stage the bailouts meant much of the debt was now owed to the IMF and EU.

Moreover, holders of Greek debt issued under British and Swiss law have been able to avoid the deal, and are still getting paid in full. Many of these are vulture funds, who bought the debt cheaply when the country was on the verge of defaulting, and are now making huge profits out of the Greek people.

The Jubilee Debt Campaign is calling for the cancellation of unpayable poor country debts, and bringing together a wide range of civic and faith groups to act towards this end. More here: www.jubileedebtcampaign.org.uk/

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