Debt Feeding on Debt

Nov 26, 2012

The finance ministers of the Euro zone and the director of the International Monetary Fund decided in November to continue the payments to Greece. Five billion euros had already been paid in September, another eight billion in December and more than 30 billion euros last June, to allow Greece to avoid bankruptcy.

Meanwhile, the Greek deputies voted new austerity measures, such as the layoff of 125,000 more state workers between now and 2016.

Month after month, the treatment inflicted on Greece and the Greeks has pushed their economy further into recession and the population into misery. Instead of reducing the debt and deficit of Greece, which is the official justification for the harsh measures, these plans result in the opposite. Although Greece was under pressure to reduce its deficit to 120% of its GDP by the year 2020, the debt of the Greek state has instead grown, reaching 170% of GDP this year, putting off any debt reduction so far into the future that it is an illusion to suggest that Greece can put its finances back on a sound footing.

Faced with this reality, the European Central Bank, the IMF and the states of the Euro zone are divided over what road to follow. These institutions hold 75% of the Greek debt, having paid off those banks that had held Greek debt, leaving the institutions as the main creditors. So the ball is in their court.

Christine Lagarde, of the IMF, demands that the Europeans “restructure” the Greek debt before the IMF will disburse more loans to Greece. In other words she wants to see a lessening of the debt before giving out all or part of these loans, a solution they refuse to accept. The big banks, let off the hook for the Greek debts they held, are doing fine: it’s the taxpayers who have to absorb these losses.

In Greece, as in the other states of the Euro zone, the governments impose these drastic economic measures on their populations, under the pretext of reducing state debt and restarting the economy. But it’s a lie. These continuous economic austerity measures have ended and will always end with the same results: they impoverish the states and the populations, cause unemployment to skyrocket, plunge their economies into recession, and inflate the public debt. From June of 2011 to June of 2012, the debt of Ireland and Spain went UP by 10% and the debt in Italy and France in the same period went up by 5%.

For the big banks, the debt of these states has become a main source of both revenue and profit.