The EU’s response to Tunisia and Ukraine: what help for what democracy?

14 April 2014 by Renaud Vivien

On 16 April 2014 the EP will have the opportunity to change the EC’s loan project which is supposedly to help Tunisia overcome its increasing social and economic problems. MEPs should not miss this opportunity, especially since they did not have their say on the content of the EU’s ’help’ to Ukraine. As in the case of Ukraine, the EU’s EUR300 million ’help’ to Tunisia, as presented in the EC’s proposal, is a sham that is in contradiction with the EU’s commitments and falls in line with the IMF’s neoliberal policies.

First, this so-called help only adds to the country’s debts, for contrary to what is claimed the amount received is a loan and not a grant. However, the debt burden is already crushing the Tunisian and Ukrainian peoples. In 2013 Tunisian debt repayments amounted to seven times the budgetary heading for employment and training and three times the heading for health care Care Le concept de « care work » (travail de soin) fait référence à un ensemble de pratiques matérielles et psychologiques destinées à apporter une réponse concrète aux besoins des autres et d’une communauté (dont des écosystèmes). On préfère le concept de care à celui de travail « domestique » ou de « reproduction » car il intègre les dimensions émotionnelles et psychologiques (charge mentale, affection, soutien), et il ne se limite pas aux aspects « privés » et gratuit en englobant également les activités rémunérées nécessaires à la reproduction de la vie humaine. .

Also, the loan is intended, in priority, to allow Tunisia and Ukraine repay debts contracted by former governments. In Tunisia almost 85% of the loans contracted since the revolutionary uprising in 2011 have been used to repay debts contracted by the Ben Ali regime. Two resolutions adopted by the European Parliament have declared these debts as ’odious’ [1]. In Ukraine the loans from the 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.
, the EU and the European Investment Bank (EIB) also aim at preventing the country defaulting on EUR7.3 billion in repayments to its creditors (who are mostly private banks) for this year alone. Although there is a real social emergency these loans will only assure creditors and coupled with the conditionalities imposed by the IMF will contribute to further deteriorate the people’s living conditions.

In return for loans to Ukraine so it may repay its old debts, the interim government must indeed comply to the dot with the IMF’s injunctions, namely; increase the price of gas by 50% from 1st May 2014, freeze civil servants’ wages and pensions, and reduce their number by 24,000 . The same applies in Tunisia where in April 2013 the interim government subscribed to a 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).

programme for three years that includes recapitalization Recapitalization Reconstituting or increasing a company’s share capital to reinforce its equity after losses. When the banks were bailed out by the European States, they were most often recapitalized with no conditions attached and without the States having the decision-making power their participation in the banks’ capital should have given them. of Tunisian banks before their privatization, revising Labour Laws to further reduce the rights of workers, lowering wages, freezing the number of civil servant posts, reducing social protection, and postponing the age of retirement. The IMF also demands a phasing out of all subsidies for food products, fuel and electricity for lower income people whereas a quarter of the population lives below the line of poverty. Simultaneously the IMF suggests that corporate income tax should be lowered and that transnational companies operating in Tunisia should benefit from more tax exemptions.

While such anti-social measures are the standard recipe for austerity enforced by the IMF, on countries of the South for over thirty years, and on several European countries since 2008, the IMF does not desist from such policies that result in increased poverty, inequalities and public debt. Let us recall that the IMF has itself acknowledged in a recent report that the austerity policies enforced on Greece by the EU, 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.

and itself have been a failure [2]. We must therefore conclude that its own reports have no effect, on either the way the institution is run or, on the EC since the latter only lends to countries that accept the IMF’s conditions, as is the case for Ukraine and Tunisia.

However, on 16 April, the EP has the opportunity to vote for the cancellation of all the conditionalities the IMF attached to the EU loan to Tunisia. This is the least MEPs can do if they sincerely want to help the Tunisian people and if they sincerely care about democracy and national sovereignty.

Indeed, the IMF measures, as formulated in the EC’s proposal, have no democratic legitimacy whatsoever. On the one hand, the agreement with the IMF that binds Tunisia for three years was signed in 2013 by a caretaker government that had no legitimacy to make such a decision. The IMF is aware of this but its aim is not to support a democratic transition, but to keep the country in its hold whatever will be the result of the general elections that are to take place this year. The same strategy has also been used in Ukraine where the IMF advanced its loan less than two months before the following presidential elections.

On the other hand, as could be seen last January when popular protest spread through the country and won a temporary respite from the current government that consists of technocrats the measures imposed by the IMF are not supported by the Tunisian people.

Finally the EU’s loan project is challenged by several Tunisian social movements and political parties that call it ’toxic’ because of the IMF’s conditionalities [3]. They call upon the MEPs to cancel such austerity measures as well the odious debt Tunisia inherited from the Ben Ali era. Only on such conditions can the EU claim to be helping the Tunisian people.

Translation Christine Pagnoulle and Mike Krolikowski

Renaud Vivien Co-general secretary of CADTM Belgium;

Renaud Vivien

member of CADTM Belgium, member of the Truth Commission on Public Debt.

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