Capitalism and Government Debt at Odds in Greece (2/2)
Michael Hudson says unlike personal and corporate debt, there is no legal framework for writing off government debt, so there is deliberate anarchy in place
PERIES: Welcome back to the Real News Network. I’m Sharmini Peries coming to you from Baltimore. And I’m in conversation with Michael Hudson about the Greek financial crisis and the debt that is owed to its lenders, ECB, the IMF, and other lenders that come under their auspices. And we’re talking about what Greece can do, what solutions and mechanisms should there be in order to address these kinds of situations that we are faced with, and Greece in particular.
Michael, thank you so much for joining us, again.
HUDSON: Good to be here.
PERIES: So Michael, earlier you were calling the debt that Greece has an odious debt. Describe what that is, and explain the mechanism that you have derived that could possibly deal with the debt crisis.
HUDSON: The term odious debt is a legal term. It was invented earlier in the century, almost 100 years ago, for debts that are basically wrong, that are taken over by a non-democratic government in the name of the people, and paid to themselves or to their clients. And then you try to shift this debt onto a country’s taxpayers. And international law, such debts don’t have to be paid.
Well, that’s exactly what happened in Greece. The loans that were made to Greece were not really made to Greece. Greece was only a vehicle for the European Central Bank and the International Monetary Fund to pay bondholders to make a killing. The bondholders that had bought Greek bonds for 30 cents on the dollar were all of a sudden paid at 100 cents on the dollar. This made hundreds of billions of dollars for speculators and insiders. And then the European Central Bank said, just like we made Ireland’s government pay for all of the crooked debts by the Irish banks to bondholders, and make the Irish taxpayers pay, so we’re going to make you, the Greek taxpayers pay.
Well, one of the principles of odious debt is a principle of–similar to what’s called fraudulent conveyance in the United States. Under U.S. law if somebody makes a loan to another person, or a company especially, when you know that the company can’t pay, suppose that you see somebody who owns–a widow who has inherited a house, a home, and she doesn’t have much money. But the home is worth, say, a few hundred thousand dollars. Suppose you lend her maybe $1000 to help her buy groceries. And then all of a sudden you say, well, it’s collateralized by the house. And then you say, well, all of a sudden, before she gets her next welfare check to pay it back you say, well, now repay us. Oh, you can’t pay? We’re going to grab the house.
That’s considered an odious debt. That’s considered a fraudulent debt, because the purpose, the lender had no idea at all how the creditor could repay in the normal course of business. During the 1980s, a lot of corporations in America were taken over by high-interest junk bonds. People would borrow a lot of money, take over the company, and then they’d empty out the pension funds. They’d sell off the parts and break them up. And the companies tried to protect themselves by suing under the law of fraudulent conveyance.
Well, this is very much what is done to Greece. The European Central Bank says, we will lend you even more money. We know that you can’t pay, and we’re not even going to discuss whether you pay or not. We’re going to lend you money, and if we don’t lend you money we’re going to smash all of your banks. We’re going to stop the bank internet payment. We’re going to stop supplying you with money, and we’re going to drive you bankrupt if you don’t agree to sell off your public domain, as we’ve discussed in the previous issue.
Now, all of this is illegal under the odious debt law. And so finally the Greek ruling party now, the Syriza, is preparing a legal case to say, to go to the European court of justice, and say this is an odious debt. What we need is–we’re not going to go to the IMF, because that’s a kangaroo court. The IMF people are tunnel-visioned doctrinaire people who are trained simply to calculate, what do you have to repay? We’re coming in and we’re smashing and grabbing. [Inaud.]
PERIES: Michael, is there a precedent set for an odious debt case involving a nation?
HUDSON: Not really. The closest precedent was in the 1920s for German reparations debt, and for inter-Allied debt. And the Young Plan created an international forum that decided these debts shouldn’t be paid. And there was a moratorium in 1931 and then again in 1934. So in practice, people have followed them without ever creating a court, without ever creating a legal body to say, what is an odious debt, and where do we draw the line to say if Greece can only earn so much, how does it have to pay? There’s no vehicle at all to do that.
And so what Greece has to do in effect is reinvent the wheel. It has to say, look, there has to say some body of law as an alternative to anarchy. Because under anarchy, the central bankers can come in and grab whatever we want, or try to bankrupt us and drive us out of the Eurozone, and create just a disaster here. And it’s–there should be a principle that if a country is a sovereign country, it has the right to say we can, [here] are the terms on which we can repay the debt. That’s part of international law since 1648. That was the year when the 30 Years’ War ended and the whole definition of a state came into being. And the definition of a state is the ability to issue its own money, the ability to set its own taxes, and the ability to set its own laws, as well as the ability to go to war.
And Greece has that right, and the Eurozone is saying, wait a minute, you’re part of the Eurozone now. And even though the Eurozone doesn’t have a parliament, even though in the absence of the Eurozone having a political entity, you have to do what the bankers say. And we bankers work for a bunch of very, very wealthy Europeans and foreign investors. We want your land. And it’s basically as if the mafia have taken over Europe. And suddenly Greece is saying, my God, we have to save Europe from these crooks.
PERIES: Michael, you have a specific proposal how to address these kinds of odious debts, and how to provide a, as they say, a haircut or a debt reduction plan. Describe what that looks like.
HUDSON: Well, for the last few weeks I was in Greece, and also in Brussels, talking to politicians mainly on the left to say, here are the principles of an international organization that we insist being created. We don’t have a name for it yet, but it’s not going to be the IMF, it’s not going to be the European Central Bank, it’s not going to be a bank where the U.S., where Wall Street has veto power under U.S. power. They’ve talked to the BRICS bank, they’ve talked to Russia and China, talked to other countries. And it may very well be that they work with the BRICS bank to help us create and sponsor an international agency that will do what almost all the economists from the left to the right agree that has to be done, write down the debts.
The European Central Bank and the IMF are not run by economists. They’re run by lawyers. Christine Lagarde, the head of the IMF, was an anti-labor lawyer. They worked for firms to smash up labor. That’s the job of the IMF. It’s not to help countries how to balance a payments deficit. It’s to strip away their pensions, cut their wages, and make them more competitive under the pretense that any country can pay its debt if it only will reduce its wages and living standards by enough.
That’s an odious concept. That’s the right-wing concept, and it’s effect is it’s downright evil. And that’s what finally the Greeks are coming out and saying, that the way in which the financial system is structured now is anti-human, against human rights, against national sovereignty, and it’s pretty much what in the vernacular is called evil.
PERIES: Michael Hudson, thank you so much for joining us today.
HUDSON: It’s really good to be here. Thank you, Sharmini.
PERIES: And thank you for joining us on the Real News Network.