Mission & Name
US Foreign Policy (Dr. El-Najjar's Articles)
Grexit or Jubilee?
How Greek Debt Could Be
By Ellen Brown
Al-Jazeerah, CCUN, July
The crushing Greek debt could be canceled the way it was
made – by sleight of hand. But saving the Greek people and their economy is
evidently not in the game plan of the Eurocrats.
have finally brought the country to its knees, forcing President Alexis
Tsipras to agree to austerity and privatization measures more severe than
those overwhelmingly rejected by popular vote a week earlier. No write-down
of Greece’s debt was included in the deal, although
the IMF has warned that the current debt is unsustainable.
Former Greek finance minister
Yanis Varoufakis calls the deal “a new Versailles Treaty” and “the
politics of humiliation.”
minister Panos Kammenos calls it a “coup d’état” done by “blackmailing
the Greek prime minister with collapse of the banks and a complete haircut
“Blackmail” is not too strong a word. The European
Central Bank has turned off its liquidity tap for Greece’s banks, something
all banks need, as explained earlier
here. All banks are technically insolvent, lending money they don’t
have. They don’t lend their deposits but create deposits when they make
as the Bank of England recently confirmed. When the depositors and
borrowers come for their money at the same time, the bank must borrow from
other banks; and if that liquidity runs dry, the bank turns to the central
bank, the lender of last resort empowered to create money at will. Without
the central bank’s backstop, banks must steal from their depositors with
“haircuts” or they will collapse.
What did Greece do to deserve this
According to former World Bank economist Peter Koenig:
Greek people, the citizens of a sovereign country . . . have had the
audacity to democratically elect a socialist government. Now they have to
suffer. They do not conform to the self-imposed rules of the neoliberal
empire of unrestricted globalized privatization of public services and
public properties from which the elite is maximizing profits – for
themselves, of course. It is outright theft of public property.
According to a July 5th article titled “Greece
– The One Biggest Lie You’re Being Told By The Media,” the country did
not fail on its own. It was made to fail:
[T]he banks wrecked the
Greek government, and then deliberately pushed it into unsustainable debt .
. . while revenue-generating public assets were sold off to oligarchs and
A Truth Committee
convened by the Greek parliament reported in June that a major portion
of the country's €320 billion debt is “illegal, illegitimate and odious” and
should not be paid.
How to Cut the Debt Without Loss to the
The debt cannot be paid and should not be paid, but EU
leaders justify their hard line as necessary to save the creditors from
having to pay – the European taxpayers, governments, institutions, and banks
holding Greek bonds. It is quite possible to grant debt relief, however,
without hurting the bondholders. US banks were bailed out by the US Federal
Reserve to the tune of more than $16 trillion in virtually interest-free
loans, without drawing on taxes. Central banks have a printing press that
allows them to create money at will.
The ECB has already embarked
on this sort of debt purchasing program. In January,
it announced it would purchase 60 billion euros of debt assets per month
beginning in March, continuing to at least September 2016, for a total of
€1.14 trillion of asset purchases. These assets are being purchased through
“quantitative easing” – expanding the monetary base simply with accounting
entries on the ECB’s books.
The IMF estimates that Greece needs debt
relief of €60 billion – a mere one month of the ECB’s quantitative easing
program. The ECB could solve Greece’s problem with a few computer
keystrokes. Moreover, in today’s deflationary environment, the effect would
actually be to stimulate the European economy. As financial writer
Richard Duncan observes:
When a central bank prints money and
buys a government bond, it is the same thing as cancelling that bond (so
long as the central bank does not sell the bond back to the public).
. . . The European Central Bank’s plans to create €1.1 trillion over the
next 20 months will effectively cancel the combined budget deficits of the
Eurozone national governments in both 2015 and 2016, with a considerable
amount left over.
Quantitative Easing has only been possible because
it has occurred at a time when Globalization is driving down the price of
labor and industrial goods. The combination of fiat money and Globalization
creates a unique moment in history where the governments of the developed
economies can print money on an aggressive scale without causing inflation.
They should take advantage of this once-in-history opportunity to
borrow more in order to invest in new industries and technologies, to
restructure their economies and to retrain and educate their workforce at
the post-graduate level. If they do, they could not only end the global
economic crisis, but also ensure that the standard of living in the
developed world continues to improve, rather than sinking down to third
That is how it works for Germany after World War II.
economist Michael Hudson, the most successful debt jubilee in recent
times was gifted to Germany, the country now most opposed to doing the same
for Greece. The German Economic Miracle followed massive debt forgiveness by
All domestic German debts were annulled, except
employer wage debts to their labor force, and basic working balances. Later,
in 1953, its international debts were written down.
Why not do the
same for the Greeks?
It was easy to write down debts that were owed to
Nazis. It is much harder to do so when the debts are owed to powerful and
entrenched institutions – especially to banks.
Loans Created with
Accounting Entries Can Be Canceled with Accounting Entries
be true for non-bank creditors. But for banks, recall that the money owed to
them is not taken from the accounts of depositors. It is simply created with
accounting entries on the books. The loans could be canceled the same way.
To the extent that the Greek debt is owed to the ECB, the IMF and other
financial institutions, that is another option for canceling it.
British economist Michael Rowbotham explored that possibility in 1998
for the onerous Third World debts owed to the World Bank and IMF. He wrote
that of the $2.2 trillion debt then outstanding, the vast majority was money
simply created by commercial banks. It represented a liability on the banks’
books only because the rules of banking said their books must be balanced.
He suggested two ways the rules might be changed to liquidate unfair and
The first option is to remove the obligation on
banks to maintain parity between assets and liabilities, or, to be more
precise, to allow banks to hold reduced levels of assets equivalent to the
Third World debt bonds they cancel. Thus, if a commercial bank held
$10 billion worth of developing country debt bonds, after cancellation it
would be permitted in perpetuity to have a $10 billion dollar deficit in its
assets. This is a simple matter of record-keeping.
option, and in accountancy terms probably the more satisfactory (although it
amounts to the same policy), is to cancel the debt bonds, yet permit banks
to retain them for purposes of accountancy.
Roadblock Is Political
The Eurocrats could end the economic crisis
by writing off odious unrepayable debt either through quantitative easing or
by changing bank accounting rules. But ending the crisis is evidently not
what they are up to. As Michael Hudson puts it, “finance has become the
modern-day mode of warfare. Its objectives are the same: acquisition of
land, raw materials and monopolies.” He writes:
Portugal, Italy and other debtor countries have been under the same mode of
attack that was waged by the IMF and its austerity doctrine that bankrupted
Latin America from the 1970s onward.
Prof. Richard Werner, who was
on the scene as the European Union evolved,
maintains that the intent for the EU from the start was the abandonment
of national sovereignty in favor of a single-currency system controlled by
eurocrats doing the bidding of international financiers. The model was
flawed from the beginning. The solution, he says, is for EU countries to
regain their national sovereignty by leaving the euro en masse. He writes:
By abandoning the euro, each country would regain control over monetary
policy and could thus solve their own particular predicament. Some, such as
Greece, may default, but its central bank could limit the damage by
purchasing the dud bonds from banks at face value and keeping them on its
balance sheet without marking to market (central banks have this option, as
the Fed showed again in October 2008). Banks would then have stronger
balance sheets than ever, they could create credit again, and in exchange
for this costless bailout central banks could insist that bank credit –
which creates new money – is only allowed for transactions that contribute
to GDP in a sustainable way. Growth without crises and large-scale
unemployment could then be arranged.
But Dr. Werner acknowledges
that this is not likely to happen soon. Brussels has been instructed by
President Obama, no doubt instructed by Wall Street, to hold the euro
together at all costs.
The Promise and Perils of Grexit
creditors may have won this round, but Greece’s financial woes are far from
resolved. After the next financial crisis, it could still find itself out of
the EU. If the Greek parliament fails to endorse the deal just agreed to by
“Grexit” could happen even earlier. And that could be the Black Swan
event that ultimately
up the EU. It might be in the interests of the creditors to consider a
debt jubilee to avoid that result, just as the Allies felt it was in their
interests to expunge German debts after World War II.
leaving the EU may be perilous; but it opens provocative possibilities. The
government could nationalize its insolvent banks along with its central
bank, and start generating the credit the country desperately needs to get
back on its feet. If it chose, it could do this while still using the euro,
just as Ecuador uses the US dollar without being part of the US. (For more
on how this could work, see
If Greece switches to drachmas, the funding
possibilities are even greater. It could generate the money for a national
dividend, guaranteed employment for all, expanded social services, and
widespread investment in infrastructure, clean energy, and local business.
Freed from its Eurocrat oppressors, Greece could model for the world what
can be achieved by a sovereign country using publicly-owned banks and
publicly-issued currency for the benefit of its own economy and its own
Ellen Brown is an attorney, founder of the Public
Banking Institute, and author of twelve books including the
best-selling Web of Debt. Her latest
book, The Public Bank Solution,
explores successful public banking models historically and globally. Her
300+ blog articles are at EllenBrown.com.
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