By Nicky Dempsey
The campaign to cancel government debt is gathering some momentum in European Union countries.
In Greece, Alexis Tsipras, leader of SYRIZA consistently calls for a cancellation of at least some part of the Greek debt.
In Ireland, up to 100,000 people marched on 9 February in four different southern cities to demand cancellation of the so-called ‘promissory notes’ which were used to bail out holders of bonds in the failed speculators’ Anglo Irish Bank. These AIB debts have been assumed by the state and are now formally part of Irish government debt.
The weight of the government debt burden that has accumulated in many European countries has become insupportable. According to EU Commission forecasts, of all taxes collected in Greece this year one in eight Euros will be consumed simply by paying interest on government debt. In Ireland, that proportion rises to one Euro in every six of tax revenue being paid to Irish government bondholders.
In Greece there would be no deficit at all if it were not for these interest payments as the Greek public deficit is equivalent to its interest bill. In Italy and Portugal the interest bill is actually larger than the deficit.
Cyprus is the latest country to fall into the clutches of the Troika of the IMF, EU and European Central Bank. It will be forced to mount some bailout of its banks, so that its interest bill will probably also exceed the total level of the deficit.
It is notable that in Cyprus, against all previous Troika policy, bank depositors and bondholders will be faced with taking some losses. Although this will mean the savings of ordinary citizens may be nearly halved, the harsher treatment of bondholders arises because EU banks will not be affected. Instead, Russian banks will suffer losses along with oligarchs and others hiding from the tax authorities. This separate treatment highlights the real purpose of all the bailouts to date, which is to protect European and US banks and other financial institutions. Ordinary savers in Cyprus will now be hit only because no losses will be incurred by European and US banks.
The contrast with the treatment of homeowners could hardly be greater. New EU rules will make it easier for banks to repossess homes where borrowers are struggling to meet mortgage payments. The Troika have obliged the Irish government to introduce legislation to overcome a long-standing prohibition against repossession. In Greece, only the scale of the likely wave of repossessions has made the government and the banks postpone their plans.
On the left the political response has been to call for debt cancellation. Alexis Tsipras plans to call a mid-year summit to promote the call for debt cancellation. This is an important step forward.
The burden of the capitalist crisis is being shifted on to the shoulders of the workers. Cancelling the debt would shift some of that burden back again.
Clearly, government debt is not the cause of the crisis and even repudiating or cancelling a large part of the existing debt would not by itself restore growth or create jobs. But it is a necessary part of a recovery programme which would reduce the burden of taxation which is overwhelmingly paid by workers and the poor. It would also be a first step in Europe to providing an internationalist response to the crisis.