Dear all,
Please find below the summary and here the link http://www.eurodad.org/files/pdf/537475054c4d5.pdf to the report of the conference "Alternative solutions to the debt crisis", which took place in
Brussels ahead of the recent European Parliament elections. I look forward to continuing the debate on this crucial topic.
All the best,
Bodo
Bodo Ellmers
Policy and Advocacy Manager - Debt and Responsible Finance Unit
EURODAD - European Network on Debt and Development
Rue d'Edimbourg, 18-26. Brussels 1050. Belgium
http://www.eurodad.org/ Email: [email protected]
ALTERNATIVE SOLUTIONS TO THE DEBT CRISIS
After the financial crisis, debt burdens are weighing heavily on countries in Europe, the MENA region and elsewhere. Citizens are concerned about the high costs of debt service that eat up their tax payments. Each Euro of public income that our governments pay for debt service is a Euro not paid on public services or social protection to the people. Moreover, the citizens whose money is used to pay off debts find that much public debt that burdens our nations is illegitimate. They also find that the loans have been taken out against their will and without their due authorisation, and that the money has not been used for their benefits. Citizens feel that this debt is not our debt, and that we should not pay what we do not owe.
The experts and activists brought together at the "Alternative solutions to the debt crisis" conference proposed a number of policy options about how to deal with current debt problems. A key measure is certainly to bring the costs of debt service down.
THE PROPOSALS CAN BE GROUPED INTO TWO DIFFERENT CATEGORIES:
The first is to reduce the debt stock, the total amount or volume of debt in crisis countries, through debt restructuring, cancellation or repudiation. There are different ways to get there. One proposal that stood out because it featured in many presentations is to deal with the European "peripheries" debt problem in a similar way as Germany's post-war debt in 1953 was dealt with. Convene a major conference of creditors and debtors that deals comprehensively with the debt burden, and takes developmental criteria into account when deciding on the size of debt reduction and the
revised terms of debt repayments. For instance, by limiting their volume as share of GDP, or making them dependent on current account surpluses, in the same way as the London Debt Accord did in 1953.
The second is to reduce the cost of debt service. Several experts argued that it is not the size of the debt stock that matters but the costs of it, which is primarily determined by the interest rate a debtor nation has to pay. Therefore, the aim is to get the interest rates down and/or to reschedule repayment to a point of time when the economic and financial situation of debtor countries has improved. One prominent example would involve the European Central Bank: the ECB could purchase government bonds of debt-distressed nations and convert them into zero-interest bonds with long or even infinite maturities.
However, there was a strong sense, especially among the activists at the conference, that not all debt can be considered alike. A distinction needs to be made between legitimate and illegitimate debts. A key instrument is the debt audit, an investigation into the origins of public debt that can be conducted by citizens or governments, and assess either a nation's debt stock (which historically happened in Ecuador) or outstanding loans (as Norway did as a creditor nation). Illegitimate debt should be repudiated by debtors, and ultimately creditors have to accept that they have to cancel illegitimate claims.
There was a strong consensus that solving the current debt crisis is not enough. Unless major reforms take place, we will soon end up in the next crisis. The reasons for debt crises are manifold and differ from country to country, and so did the proposals. Just a few examples contain better citizen participation in and oversight over budget making, public borrowing and spending, in order to reduce waste, corruption, and the embezzlement of funds. A large set of proposals addressed the tax policies. In particular low and decreasing tax rates for capital and corporations have been identified as key reasons for the fiscal deficits that ultimately led to the debt crisis. Higher or new taxes, for instance on wealth or financial transactions, featured strongly in the debate on how to finance public affairs while reducing the need to borrow from financial markets. Importantly, experts also mentioned the need to strengthen the domestic economy and its industrial and productive capacities, as trade deficits cause a balance of payment crisis. Several mentioned that the character of conditionalities that creditors such as the IMF impose do more harm than good in this regard.
In Europe in particular, bank bail-outs and macroeconomic imbalances have been triggers for the sovereign debt crisis. The view on solutions here differed, with some proposing deeper integration and better coordinated EU policies in more sectors as the best way, while others advocated for more national sovereignty, including even an exit from the European Monetary Union in order to increase national policy space.
There was a strong consensus that we do not have the right institutions to prevent and manage debt crises, and that the institutions we have (in particular the Troika) are illegitimate and fell victim to elite capture, which explains why they managed the crisis for the benefit of the rich. The debate about "alternative institutions" is certainly one that should follow on from the discussion about "alternative solutions" that took place at the conference.
There are at least two prerequisites for reforms to happen. Firstly, a change in attitude is needed. There is still a predominant view in mainstream thinking that the "guilt" for a debt crisis is to be found on the debtor's side, and consequently the debtor has to be punished and change their behavior. The debtor has to adjust. In practice, however, there is no lack of evidence of misconduct on the creditors' side, which contributed decisively to the debt crises. It should be obvious that the debt relation necessarily involves two parties. Both share the co-responsibility for preventing debt crises and for overcoming debt when prevention failed. Debtors (nations and individuals) must develop the courage to default when creditors refuse to act responsibly. Secondly, political change on a local, national and international level is needed in order to shift the power balance from creditors to debtors. More precisely, from political forces that are captured by creditors and are dancing to
their tune, to those who want to solve the debt crisis in the public interest, based on principles of justice and solidarity.
Please find below the summary and here the link http://www.eurodad.org/files/pdf/537475054c4d5.pdf to the report of the conference "Alternative solutions to the debt crisis", which took place in
Brussels ahead of the recent European Parliament elections. I look forward to continuing the debate on this crucial topic.
All the best,
Bodo
Bodo Ellmers
Policy and Advocacy Manager - Debt and Responsible Finance Unit
EURODAD - European Network on Debt and Development
Rue d'Edimbourg, 18-26. Brussels 1050. Belgium
http://www.eurodad.org/ Email: [email protected]
ALTERNATIVE SOLUTIONS TO THE DEBT CRISIS
After the financial crisis, debt burdens are weighing heavily on countries in Europe, the MENA region and elsewhere. Citizens are concerned about the high costs of debt service that eat up their tax payments. Each Euro of public income that our governments pay for debt service is a Euro not paid on public services or social protection to the people. Moreover, the citizens whose money is used to pay off debts find that much public debt that burdens our nations is illegitimate. They also find that the loans have been taken out against their will and without their due authorisation, and that the money has not been used for their benefits. Citizens feel that this debt is not our debt, and that we should not pay what we do not owe.
The experts and activists brought together at the "Alternative solutions to the debt crisis" conference proposed a number of policy options about how to deal with current debt problems. A key measure is certainly to bring the costs of debt service down.
THE PROPOSALS CAN BE GROUPED INTO TWO DIFFERENT CATEGORIES:
The first is to reduce the debt stock, the total amount or volume of debt in crisis countries, through debt restructuring, cancellation or repudiation. There are different ways to get there. One proposal that stood out because it featured in many presentations is to deal with the European "peripheries" debt problem in a similar way as Germany's post-war debt in 1953 was dealt with. Convene a major conference of creditors and debtors that deals comprehensively with the debt burden, and takes developmental criteria into account when deciding on the size of debt reduction and the
revised terms of debt repayments. For instance, by limiting their volume as share of GDP, or making them dependent on current account surpluses, in the same way as the London Debt Accord did in 1953.
The second is to reduce the cost of debt service. Several experts argued that it is not the size of the debt stock that matters but the costs of it, which is primarily determined by the interest rate a debtor nation has to pay. Therefore, the aim is to get the interest rates down and/or to reschedule repayment to a point of time when the economic and financial situation of debtor countries has improved. One prominent example would involve the European Central Bank: the ECB could purchase government bonds of debt-distressed nations and convert them into zero-interest bonds with long or even infinite maturities.
However, there was a strong sense, especially among the activists at the conference, that not all debt can be considered alike. A distinction needs to be made between legitimate and illegitimate debts. A key instrument is the debt audit, an investigation into the origins of public debt that can be conducted by citizens or governments, and assess either a nation's debt stock (which historically happened in Ecuador) or outstanding loans (as Norway did as a creditor nation). Illegitimate debt should be repudiated by debtors, and ultimately creditors have to accept that they have to cancel illegitimate claims.
There was a strong consensus that solving the current debt crisis is not enough. Unless major reforms take place, we will soon end up in the next crisis. The reasons for debt crises are manifold and differ from country to country, and so did the proposals. Just a few examples contain better citizen participation in and oversight over budget making, public borrowing and spending, in order to reduce waste, corruption, and the embezzlement of funds. A large set of proposals addressed the tax policies. In particular low and decreasing tax rates for capital and corporations have been identified as key reasons for the fiscal deficits that ultimately led to the debt crisis. Higher or new taxes, for instance on wealth or financial transactions, featured strongly in the debate on how to finance public affairs while reducing the need to borrow from financial markets. Importantly, experts also mentioned the need to strengthen the domestic economy and its industrial and productive capacities, as trade deficits cause a balance of payment crisis. Several mentioned that the character of conditionalities that creditors such as the IMF impose do more harm than good in this regard.
In Europe in particular, bank bail-outs and macroeconomic imbalances have been triggers for the sovereign debt crisis. The view on solutions here differed, with some proposing deeper integration and better coordinated EU policies in more sectors as the best way, while others advocated for more national sovereignty, including even an exit from the European Monetary Union in order to increase national policy space.
There was a strong consensus that we do not have the right institutions to prevent and manage debt crises, and that the institutions we have (in particular the Troika) are illegitimate and fell victim to elite capture, which explains why they managed the crisis for the benefit of the rich. The debate about "alternative institutions" is certainly one that should follow on from the discussion about "alternative solutions" that took place at the conference.
There are at least two prerequisites for reforms to happen. Firstly, a change in attitude is needed. There is still a predominant view in mainstream thinking that the "guilt" for a debt crisis is to be found on the debtor's side, and consequently the debtor has to be punished and change their behavior. The debtor has to adjust. In practice, however, there is no lack of evidence of misconduct on the creditors' side, which contributed decisively to the debt crises. It should be obvious that the debt relation necessarily involves two parties. Both share the co-responsibility for preventing debt crises and for overcoming debt when prevention failed. Debtors (nations and individuals) must develop the courage to default when creditors refuse to act responsibly. Secondly, political change on a local, national and international level is needed in order to shift the power balance from creditors to debtors. More precisely, from political forces that are captured by creditors and are dancing to
their tune, to those who want to solve the debt crisis in the public interest, based on principles of justice and solidarity.
