European Crisis: Time for a Debt Court
Greece's debt crisis is proof that an international Debt Court is needed. And pressure is building for it across Europe.
The debt crisis facing Greece and other European countries is proof that ‘finance' is still in charge; that we are in a world where lenders can go on lending with impunity and borrowers will always have to pay the price.
That price is currently poverty in Greece, but for decades this one-sided financial system has caused poverty and suffering in dozens of developing world countries. After months on the verge of economic collapse and a rescue package amounting to hundreds of billions of euros, the Greek crisis has still not been resolved, because the mechanisms that could allow a solution to be reached do not exist in our financial system. A country has no access to justice to get rid of its unfair and unpayable debts.
While people go without healthcare and education, the lender can always expect repayment. However reckless a lender has been, the borrowing country has two choices: keep paying their debts no matter what the impact on their people, no matter how unfair those debts, or default and risk international economic isolation. Even though the latter solution might be better for their populations in the long-run, few governments will stomach it.
Essentially many developing countries have been, and continue to be, locked in a debtor's prison.
Today Greece has received a flavour of the medicine that has been given to poorer countries for too long. They are being forced to accept damaging economic policies imposed on them undemocratically by their creditors.
As economist Jayatri Ghosh says: "The Greek government is being asked to implement austerity measures that will cause a major decline in incomes and employment not just now but in the foreseeable future, and which will not correct the existing imbalances but actually worsen them."
This isn't just a problem for Greece. Juan Somavia, the head of the International Labour Organisation, expressed serious concerns this week that the sovereign debt crisis in Europe, coupled with a self-destructive global financial system, may put the already fragile efforts at global economic recovery in further peril.
A new ILO report says that the fiscal policies being forced on countries by the markets "may not be in their own interests if it leads to greater economic contraction or even a double-dip recession. It was just such a response that helped to bring about the Great Depression of the 1930s." The organisation reports that global unemployment is at its highest rate ever, with 34 million people thrown out of work through the financial crisis and 110 million people pushed into ‘vulnerable' work.
It doesn't have to be this way. It has taken a debt crisis on our own doorstep to wake up to some of the problems of a vastly over powerful financial system. But it isn't too late to put it right.
An international Debt Court could transform the situation, giving people back some of the power that has been taken from them by global finance.
Such a court would allow neutral arbitration in cases of debt disputes. If properly constituted, it would prevent creditors from squeezing debtors dry - realising that a state's primary duty is to its peoples' human rights. It could prevent irresponsible lenders giving money for useless, damaging or dangerous projects. It could stop private debt crises being turned into public debt crises. It could have adverted the Third World debt crisis of the 1980s and 90s and stopped vulture funds picking the last scraps off devastated countries.
Germany has recently called for something like a Debt Court to deal with Greece's debt crisis. But we need to make sure such a court would really work in the interests of the poorest.
In coming months, JDC will work with international partners to campaign for a Debt Court. We believe that such a court needs to be:
- Neutral: it cannot be controlled by creditors like the IMF. This is the problem with the current system
- Comprehensive: it must deal with all debts from all creditors and look at the justice of the lending behind the debt, as well as the sustainability of the debt itself
- Accessible to ordinary people to give evidence
- Able to order an immediate stay on payments for the country concerned
Find out more below.
Read three articles on the crisis in Greece and its implications. Jayatri Ghosh says Greece should learn from the lesson of Africa, Mark Weisbrot argues Greece should look to Argentina rather than Latvia and default and Jean Pisani-Ferry and André Sapir argue that Greece shows the need for a European arbitration mechanism.
Read analysis by the European Network on Debt and Development about Greece and Iceland, and our proposals for a Debt Court or arbitration mechanism and our article on a new IMF report which admits more debt relief might be necessary.