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Why we should talk about the origin of Greece’s debt… and then get rid of it
by Tiago Stichelmans
26 June 2015

The Truth Committee of the Hellenic Parliament has just released a report investigating the origin of Greece’s public debt. It shows that the debt is unsustainable, illegitimate, illegal and odious. Syriza now has two alternatives: repudiate its debt unilaterally or restructure it on the basis of the report

When Syriza formed a government at the beginning of the year, one of its main objectives was to restructure Greece’s public debt. This explains why the Hellenic Parliament established the ‘Truth Committee on Public Debt’ in April. The objective of this committee is to investigate the origins and increase in the public debt, as well as its consequences.

Two months later, while everyone is interested in knowing whether the Greek government and its creditors will reach a deal, allowing a payment due to the International Monetary Fund (IMF) on the 30th of this month, the Truth Committee released a preliminary report showing why Greece should not pay back the debt owed to the former Troika, which is composed of the IMF, the European Central Bank (ECB) and European Union member states.
The preliminary report, which analyses Greece’s public debt since 1980, presents some very interesting findings that should convince the government of Alexis Tsipras to hold firm against the creditors.

Firstly, it appears that Greece’s public debt before the Troika loans of 2010 and 2012 was not created by excessive public spending as suggested by the dominant narrative. The report shows that, from 1995 until 2009, Greece’s overall public expenses, excluding overspending in the defence budget, were lower than the Eurozone average (48% average compared to 48.4%). However, Greece’s public debt increased with the growth of interest rates, which impacted loans contracted in the 1980s until the mid-1990s. This represents two thirds of the debt increase between 1980 and 2007. In addition, Greece’s public debt was due to the Treasury’s financing shortfalls caused by illicit financial flows, accounting for a cumulative outflow of 200 billion euros between 2003 and 2009.

Secondly, the report explains in detail how the 2010 and 2012 loans were used, namely to save private creditors, mainly domestic and European banks rather than to save Greece (and its people). The accession to the Eurozone, and the consecutive reduction in interest rates, led to an important growth in the private debt in Greece, exposing domestic and European banks. The 2010 a loan of 110 billion euros rescued the banks exposed to Greece’s debt with a massive risk transfer to official creditors, these being the IMF, ECB and EU member states. The situation further deteriorated and another bailout was designed in 2012. This time, it came under the condition to partially restructure the remaining debt to private creditors. The face value of Greece’s bonds was reduced by 53.5%. However, many private creditors had already been paid off with the previous Troika loans. In the end, European taxpayers’ money has not been used to fund the expenses of Greece’s government but to save banks that took inconsiderate risks in the past.

Thirdly, the conditionalities attached to both bailouts deteriorated the Greek economy, aggravating the debt to GDP ratio. At 175%, Greece’s public debt is now completely unsustainable. It is against the rules of the IMF to rescue a country with an unsustainable debt. Given the interest of major IMF shareholders to save their banks exposed to Greek’s debt, the IMF introduced the ‘systemic exemption clause’, legalising the bailout. According to the former representative of Greece to the IMF, the IMF was completely aware of the unsustainability of Greece’s public debt. It has however tried to conceal it, including by training journalists to promote the position of the IMF and the ECB in Greece, as a former official at the IMF told the Truth Commission.

Fourthly, the report shows how all the conditionalities imposed by the creditors have massively deteriorated the humanitarian situation of Greece and have broken EU and international human rights law. Greece’s public debt is unsustainable and cannot be repaid without further massive human rights violations.

The report provides a wealth of evidence to claim that certain loans of the official creditors, these being the IMF, the ECB, and the EU member states, as well as private creditors’ loans, should be considered as either illegitimate or illegal or odious – or all of these combined.

The findings of the Truth Commission might not convince Greece’s creditors to cancel the claims, however. Because of this, the Greek government will be in the difficult position of having to take unilateral steps towards default and repudiation of the debt (and accept all its consequences) or accept its creditors’ conditions for additional financing for an unsustainable debt.

There is, however, an alternative to this dilemma. With the findings of this report, Greek public authorities have solid arguments to conduct an immediate debt standstill and initiate a new restructuring of the public debt, with the aim to massively reduce the debt burden by fully cancelling the illegitimate, illegal and odious parts.

There is wide consensus among economists that Greece’s debt burden is unsustainable and needs to be reduced, including by the IMF. The overdue restructuring has thus far been delayed due to political reasons. The Truth Commissions’ report could help to trigger the political process. Its findings are that the lion’s share of the current debt is due to bailout loans that were provided by the EU’s official creditors for the benefit of the EU’s financial sector, while the conditions attached to the loans violated the EU’s human rights law. This is why European citizens demand that Greek debt restructuring should be negotiated at an inclusive and transparent European debt conference. To avoid that future crises such as Greece occur in the first place, the United Nations should put a multilateral debt restructuring framework in place that prevents the bailout of reckless banks and facilitates the cancellation of illegitimate debt.


Tiago Stichelmans