Saving the euro or the people? A failure to learn from past mistakes
Datum: 07-12-2010
Een blog van Eurodad-medewerker Øygunn Sundsbø Brynildsen over de Europese schuldencrisis.
"Are you working on debt? Wasn’t the debt crisis solved years ago?” As a debt campaigner I am often put this question. However, it’s been a while now since I’ve been asked this. Recently, people have rather tended to ask what kind of debt: "Like in Greece and Ireland?”
Although debt crises are nothing new, it’s the first time in a long while that sovereign debt has impacted directly on the lives of EU citizens, and rarely does a day pass without words such as restructuring, spreads, austerity, sovereignty (or rather the lack of it), insolvency and even default featuring on the first page of European and international newspapers.
However, European leaders don’t seem willing enough to learn from the history of debt crises that has swept the lives of so many people in the South.
A few things (some) European decision-makers have learnt from the current debt crisis:
1. Politicians got real (finally!): Now they know that eventually one of the peripheral EU countries will reach a stage where it’s no longer able to service its debt, or won’t be able to do it without starving its citizens.
2. Fast amputation may be better than endless gangrene: if a country is insolvent, a swift and predictable debt resolution is better than ad hoc and lengthy negotiations, which are costlier for creditors and, not least, for the people of the insolvent country.
3. Reckless bankers should also pay the bill: some decision-makers now acknowledge that if private banks and other private financial institutions have engaged in reckless lending leading to the build up of unsustainable debts, they should also take part in the haircut of debt restructuring.
...but failing to provide solutions
However, unfortunately decision-makers are not taking action. Moreover, even the more progressive official discussions nowadays are missing three important pieces of the puzzle:
- Who decides what a sustainable debt level is? Who decides if citizens are bearing an excessive share of the burden? If this is left to discussion at the EU Council, dominated by Germany, they will happily starve the Irish, Portuguese and Greeks before recognising that the debt service is too high for a certain country.
- Who decides which creditors (public as well as private) have behaved prudently and which creditors have lent recklessly? Only if an appropriate differentiation is made will lenders have incentives not to lend recklessly in the future.
- And, mostly importantly: Why waste time scaring off the private sector and letting them attack more eurozone countries instead of taking action NOW?
Developing countries know better
The failure of European leaders to translate their new acknowledgements into practice is having devastating implications for citizens of indebted EU countries who are the ones ultimately paying the bill for bailing out those who created the crisis. Not only are people suffering from rising unemployment and cuts in welfare budgets, but even sovereignty is at stake. In Greece, the parliament never approved the government’s agreement with the IMF and the EU. Next week, it is likely that the Irish parliament will be set aside when the government signs an agreement which will impact on the Irish economy for at least the next decade.
Developing countries have lived this for decades; governments diverting resources away from welfare budgets towards external creditors, and taking on new loans to pay old ones. The EU seems unwilling to learn from past failures of dealing with debt crises.
What should EU leaders do ?
1. Put in place an independent debt work-out mechanism to which countries facing debt difficulties can turn.
2. Listen to voices of civil society – and their people: a fair solution to sovereign debt problems requires an international mechanism that independently and transparently audits the payability and legitimacy of sovereign debt and gives the bill to those who misbehaved.
3. Act NOW: tomorrow will be too late.
In the near future I’m afraid I’ll be facing a new question: "Why didn’t European decision-makers provide a solution when they had the chance?”
Delen:
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