Maddy Evans, Jubilee Debt Campaign
The main thing this collection of articles and film shows is that bank bailouts in the style that we saw in the UK and the US are not the only option in the face of banks going bust.
Nothing here argues that there was an easy to deal with the banking crisis. But reading these items makes you realise that the range of options is much wider than we were led to believe.
The Iceland story is fascinating – the government allowed Iceland’s banking sector to collapse, and whilst it protected domestic savings the majority of the losses were borne by foreign interests. Iceland is still committed to paying foreign creditors, but at its own pace –a big difference from Greece now which struggles repeatedly to meet payment deadlines. There’s an interesting interview with the Icelandic president you can watch here: http://www.youtube.com/watch?v=CTljJA_0Y6Y where he asks "We introduced currency controls, we let the banks fail, we provided support for the poor and did not introduce austerity measures. Why do we consider banks to be like holy churches of the modern economy?”.
The next three articles look at Argentina and compare the Argentinian debt default to what’s now happening in Greece. Argentina similarly imposed wide reaching austerity measures in exchange for a series of bailouts, but eventually as the economy continued to suffer and people went into the streets banging pots and pans and forcing out the government, and its successor caretaker government. Eventually Argentina decided to risk default – and within three years the economy had returned to its pre-crisis output levels. The New York times article points out that the consequences of the default are that nearly a decade later, Argentina hasn’t re-entered the global credit market, but how do any negative impacts of that match up against the trajectory that Argentina was on before the default?
Finally, the Bloomberg article highlights the Ecuadorian case, where the government has ordered an audit of the debt in order to establish which parts of it should be paid and which shouldn’t based on legitimacy. The ‘debt audit’ concept has also been used by campaigners in Tunisia, Egypt and Greece. The debt audit takes the debate away from the idea that if debts can be paid they should be, and questions the morality on which this assumption lies. If countries in the global south are saddled with debts that were the result of rich countries’ lending to former dictators, should the people have to pay? What about debts from projects that benefited multinational companies, not the people in the country concerned? What about debts run up by huge bank bailouts over which people had no democratic control…
It’s not on the reading list this week, but David Graeber does a good job of tracing the development of the strict morality that says debts should be paid at whatever cost in the opening chapters of his book Debt: the first 5000 years.
I suppose the real question though isn’t how we could have done the bank bailouts differently, but how we can stop that situation occurring again, right now across Europe, but also into the future. As Ann Pettifor’s interview points out, “We can either fold our arms and say leave it to the invisible hand… or as policy makers we can manage it in as orderly way as possible….Its not going to be easy and the bankers will scream blue murder, but we’ve got to make our choices.”
She underlines the point that currently no radical change is on the agenda of the UK government, “We could have said…. We hate what you’ve done, but of course we have to bail you out, but there are terms and conditions… we said nothing of the sort… our governments simply in a state of shock maintained the system as it was prior to the crisis.”
Anyway, til next time!
Each week someone from the econowhat? team will be reading the books and articles and watching the film. That person will post up their comments here to get the discussion started, then please add your own comments. The bloggers are not expert economists, but other people we know are, so don't be shy to ask questions.
Nadia Idle, War on Want
Maddy Evans, Jubilee Debt Campaign
Ruth Bergan, Trade Justice Movement
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