[In case you miss it: Hugo Adan. July 10, 15.]
By Michael Hudson.
July 8, 2015
Here only extracts: Introduction and Summary. To see full content OPEN:
Introduction: The Financial Attack on Greece:
Where To From Here?
The major financial
problem tearing economies apart over the past century has lain more with
official inter-governmental debt than with private-sector debt. That is why the
global economy today faces a similar breakdown to 1929-31, when it became
apparent that the volume of official inter-government debts could not be paid.
The Versailles Treaty had imposed impossibly high reparations demands on
Germany, and the United States imposed equally destructive demands on the
Allies to use their reparations receipts to pay World War I arms debts to the
U.S. Government.
Legal procedures are
well established to cope with corporate and personal bankruptcy. Courts write
down personal and business debts either under “debtor in control” procedures or
foreclosure, and creditors take a loss on loans gone bad. Personal bankruptcy
permits individuals to make a fresh start with a Clean Slate.
It is much harder to
write down debts owed to or guaranteed by governments. U.S. student loan debt
cannot be written off, but remains to prevent graduates from earning enough
take-home pay (after debt service and FICA Social Security tax withholding is
taken out of their paychecks) to get married, start families and buy homes of
their own. Only the banks get bailed out, now that they have become in effect
the economy’s central planners.
Most of all, there
is no legal framework for writing down debts owed to the IMF, the European
Central Bank (ECB), or to European and American creditor governments. Since the
1960s entire nations have been subjected to austerity and economic shrinkage
that makes it less and less possible to extricate themselves from debt.
Governments are unforgiving, and the IMF and ECB act on behalf of banks and
bondholders – and are ideologically captured by anti-labor, anti-government
financial warriors.
The result is not
the “free market economy” it pretends to be, nor is it the rule of economically
rational law. A genuine market economy would recognize financial reality and
write down debts in keeping with the ability to be paid, but inter-government
debt overrides markets and refuses to acknowledge the need for a Clean Slate.
Today’s guiding theory – backed by monetarist junk economics – is that debts of
any size can be paid, simply by reducing labor’s wages and living standards
plus selling off a nation’s public domain – its land, oil and gas reserves,
minerals and water distribution, roads and transport systems, power plants and
sewage systems, and public infrastructure of all forms.
Imposed by the
monopoly of inter-governmental financial institutions – the IMF, ECB, U.S.
Treasury, and so forth – creditor financial leverage has become the 21st
century’s new mode of warfare. It is as devastating as military war in its
effect on population: rising suicide rates, shorter lifespans, and emigration
of the age-cohort that always have been the major casualties of war: young
adults. Instead of being drafted into the army to fight foreign foes, they are
driven from their homes to find work abroad. What used to be a rural exodus
from the land to the cities from the 17th century onward is now a
“debtor exodus” from countries whose governments owe unpayably high sums to
creditor governments and to the banks and bondholders on whose behalf they
impose their policy.
While pushing the
world economy into a state of war internationally, high finance also is waging
a class war against labor – and ultimately against governments and thus against
democracy.
The ECB’s policy has
been brutal toward Greece this year: “If you do not re-elect a right-wing party
or coalition, we will destroy your banking system. If you do not sell off your
public domain to buyers, we will make life even harder for you.”
No wonder Greek
Finance Minister Yanis Varoufakis called the Troika’s negotiating position
“financial terrorism.” Their idea of “negotiation” is surrender. They are
unyielding. Official creditor institutions threaten to isolate, sanction and
destroy entire economies, including their industry as well as labor. It
transforms the 19th-century class war into a purely destructive
meltdown.
That is the great
difference between today and 1929-31. Then, the world’s leading governments
finally recognized that debts could not be paid and suspended German
reparations and Inter-Ally debts. Today’s situation is using the unpayability of
debts as leverage for class war.
The immediate
political aim of this financial warfare in Greece is to replace its elected
government (supported by a remarkable July 5 referendum vote of 61 to 39) with
foreign creditor control by “technocrats,” that is, bank lobbyists, factotums
and former Goldman Sachs managers. The long-term aim is to impose a war against
labor – in the form of austerity – and against the power of governments to
determine their own tax policy, financial policy and public regulatory policy.
Fortunately, there is
an alternative. Here is what is needed. (I outlined my proposals in a
presentation before the Brussels Parliament on July 3, following an earlier
advocacy at The Delphi Initiative in Greece, convened by Left
Syriza the preceding week.)
Summary
Every nation has a right to defend itself against attack –
financial attack just as overt military attack. That is part of the principle
of self-determination.
Greece, Spain, Portugal, Italy and other debtor countries
have been under the same mode of attack as that of the IMF and its austerity
doctrine that bankrupted Latin America from the 1970s onward. International law
needs to be updated to recognize that finance has become the modern-day mode of
warfare. Its objectives are the same: acquisition of land, raw materials and
monopolies.
A byproduct of this warfare has been to make today’s
financial network so dysfunctional that nations need a financial Clean Slate.
The most successful one in modern times was Germany’s Economic Miracle – the
post-World War II Allied Monetary Reform. All domestic German debts were
annulled, except employer wage debts to their labor force, and basic working
balances. Later, in 1953, its international debts were written down. The logic
prompting both these acts needs to be re-applied today.
With specific regard to Greece, Syriza’s leaders have said
that they want to save Europe. Principally, from the eurozone’s destructive
economic irrationality in not having a real central bank. This defect was
deliberately built into the Eurozone, to enforce a monopoly of commercial banks
and bondholders powerful enough to gain control of governments, overruling
democratic politics and referendums.
Eurozone rules – the Maastricht and Lisbon treaties – aimed
at blocking governments from running budget deficits in a way that spend money
into the economy to revive employment. The new aim is only to rescue
bondholders and banks from making bad loans and even fraudulent loans, bailing
them out at public expense. Economies are obliged to turn to commercial banks
for loans to obtain the money that any economy needs to grow. This principle
needs to be rejected on grounds that it violates a basic sovereign right of
governments and economic democracy.
Once an economy is fiscally crippled by (1) not having a
central bank to finance government spending, and (2) by limiting government
budget deficits to just 3% of GDP, the economy must shrink. A shrinking economy
will mean fewer tax revenues, and hence deeper government budget deficits and
rising government debt.
The ultimate killer is for the ECB, IMF and EC to demand
that governments pay their debts by privatizing public infrastructure, natural
resources, land and other assets in the public domain. To compound this demand,
the Troika have blocked Greece from selling to the highest bidder, if that
turns out to be Gazprom or another Russian company. Financial politics thus has
become militarized as part of NATO New Cold War politics. Debtor economies are
directed to sell to euro-kleptocrats – on terms financed by banks, so that
interest charges on the deal absorb all the profits, leaving governments
without much income tax.
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