ToxicAid. On the European Bill of Fare

5 May 2011 by Eric Toussaint

In May 2010 the European Commission created the European Financial Stability Facility (EFSF), financed with several hundred billion euros. [1] Aid was intended for three years, but it is already clear that this limit will be overstepped. It is conditional on the concerned countries implementing austerity policies that are supposed to restore them to solvability. The EFSF is part of a broader aid programme, which also includes IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
financing for several hundreds billion euros under the same conditions, in keeping with the IMF Structural Adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

Policies that have been imposed to developing countries and to countries that used to belong to the Soviet bloc since the 1980s. On the other hand the ECB ECB
European Central Bank
The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.
decided to buy debt securities issued by countries that are meeting hard times but, and this is crucial, it does so with private banks on the secondary market Secondary market The market where institutional investors resell and purchase financial assets. Thus the secondary market is the market where already existing financial assets are traded. . Instead of directly lending to Eurozone member states, the ECB thus lends capital at a 1.25% rate to private banks which then, with this money, buy securities from States in difficulty at two or three times the rate for short term borrowing (if they are 10-year bonds the rates can reach 10 to 13% in the cases of Greece, Ireland or Portugal).

Next the ECB buys the securities issued by States [2] it had refused to grant direct loans to, from the same private banks! It seems entirely logical to think the ECB should lend the needed amounts directly at 1,25% interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. instead of lending it to banks that make juicy profits and take unconscionable risks in their lending policies, which States will eventually have to cover up in case of bankruptcy. But we shouldn’t just demand that the ECB lend directly to States, we must first and foremost have the illegitimate part of the public debt cancelled and the remainder significantly reduced. [3] If we do not give priority to this demand, the noose of the debt will hardly be loosened and these countries’ people will have to pay for the crisis for decades.

Several provisions in the treaties governing the EU, the Eurozone and the ECB must be repealed, for instance, articles 63 and 125 of the Lisbon Treaty that prohibit all restrictions on movements of capital and any help to member states meeting difficult times. We must also move out of the Stability and Growth Pact. Moreover, the current treaties must be replaced by new ones in a truly democratic constituent process, concluding with a solidarity pact among peoples to promote employment and protect the environment. We must thoroughly revise the current monetary policy as well as the status and practice of the European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.


Issuing Eurobonds

Faced with the depth of the crisis, European leaders decided to create and issue European bonds (Eurobonds) to partly finance the Fund established to provide loans to the most indebted countries. This new mechanism makes it possible for countries with AAA rating (as was the case for France and Germany in 2010) to borrow on the capital markets in the most favourable conditions. Again the process involves borrowing on the markets, i.e. with private banks or other investment bodies instead of directly financing the needs of public bodies with money from the ECB or the member states’ central banks.

Prospect of a Brady plan for the most indebted European countries

During 2010 European leaders realized that Greece, Ireland, Portugal and probably other countries as well would have to face even more difficult times in the coming years since a snowball effect has been triggered. While these governments repay their debts, their amounts steadily increase because of interest costs and weak economic growth. The debt repayment burden will soon become unbearable for some of them. This is why at the end of 2010 European leaders announced that from 2013 onward, new rules would be applied for issuing debt securities so as to make it possible to restructure the debt and reduce its amount. From June 2013 all securities issued by European member states will include a “collective action clause” mentioning that if a defaulting country cannot repay its debt, all investors will have to come together and indicate how debts can be restructured and possibly reduced. This kind of mechanism had already been discussed within the IMF in the early 2000s, in the wake of Russia and Argentina suspending their repayments in 1998 and 2001.

In short, in the years following 2013 private creditors must expect a restructuring of the debts of debtor countries, which means a reduction of their amounts after imposed negotiations. But we are not too concerned about the dividends of major shareholders in creditor private institutions: meanwhile, creditors will have received considerable amounts while reducing their exposure to countries at risk, because the IMF, the ECB and the European Commission are taking over. Patrick Artus, chief economist at Natixis, has the same analysis: At the beginning of the coming decade virtually all the debt owed to private creditors will have been repaid while virtually all the public debt owed by countries at risk will be to public creditors (European Financial Stability Facility (EFSF), European Union, IMF...) (Flash Economie, 24 March 2011,, our translation).

This actually recalls the management of the debt crisis in developing countries in the 1980s with the Brady Plan. [4] Indeed at the beginning of the 1982 crisis the IMF and the governments of the United States, the UK, and other major powers bailed out private bankers in the North that had taken huge risks when lending without restraint to countries of the South, particularly in Latin America (in a somewhat similar way to what happened with subprime mortgages or with countries such as Greece, Eastern European countries, Ireland, Portugal, Spain). When developing countries, starting with Mexico, were on the brink of defaulting, the IMF and member countries of the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

granted them loans on condition that they carry out repaying private banks and that they implement austerity plans (the notorious Structural Adjustment Policies). Next, as the South was getting more and more into debt through a snowball effect, they set up the Brady Plan (Brady was the US Treasury Secretary at the time) that involved restructuring the debt of major indebted countries through an exchange of securities. In some cases the amount of the debt was reduced by 30% and the new securities (Brady bonds) guaranteed a fixed interest rate of about 6%, which was quite favourable to bankers. This also insured that the same austerity policies would be carried out under control of the IMF and the WB World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

. Today, under different latitudes, the same logic results in the same disasters.

Translated by Christine Pagnoulle in collaboration with Marie Lagatta.

Éric Toussaint, Doctor in Political Science (University of Liege and University of Paris VIII), President of the CADTM-Belgium (Committee for the Abolition of Third World Debt), member of the Scientific Council of ATTAC France, member of the CAIC Commission for the Integral Audit of the Public Debt (Ecuador), author with Damien Millet of Debt, the IMF, and the World Bank. Sixty Questions, Sixty Answers, Monthly Review Press, New York, 2010. Author of A Diagnosis of Emerging Global Crisis and Alternatives (2009), 139p.; The World Bank: A Critical Primer (2008); The World Bank: a Never-ending Coup d’Etat. The Hidden Agenda of the Washington Consensus (2007), Your Money [or] Your Life - The Tyranny of Global Finance (2005), co-author of Tsunami Aid or Debt Cancellation (2005), The Debt Scam – IMF, World Bank and the Third World Debt (2003), Who owes Who? 50 Questions about World Debt (2004), Globalisation: ‘Reality, Resistance & Alternatives’ (2004). Co-editor with Damien Millet of La Dette ou la Vie, Aden-CADTM, 2011, contributor in Le piège de la dette publique, comment s’en sortir, Les liens qui libèrent, Paris, 2011.


[1Originally the amount was to be EUR 440 billion but with the continuing crisis and the speculative attacks it keeps increasing.

[2To make sure that institutional investors still get their return and that the ECB can buy as a last resort.

[3See Eric Toussaint, Eight key proposals for another Europe, proposal 1,

[4See Éric Toussaint, The World Bank: a Critical Primer (2008), Pluto, London, chapter 15.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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