July 2011        

Whose default?

As the realisation dawns on commentators that the debt burden placed on the state by both the private banking system and the EU and IMF is unpayable, the debate about what to do grows.
     While cries for default seem to be growing, also growing are grass-roots campaigns and mobilisations for repudiation. So, what is the difference?


Repudiate is the political act of saying that this debt, or part of the state’s debt, is not ours and so is not our responsibility. We will not pay private individuals’ and institutions’ debts.
     The debt socialised by the state through the September guarantee, through the NAMA purchases, the billions spent recapitalising bankrupt banks, the loans to Irish banks from the ECB and the EU-IMF imposition, is not sovereign debt. It was not credit used by the state to benefit the people of the country, therefore it will not be paid by the people of the country. Those who took the profits off these debts and took the risk involved in borrowing these debts—Irish banks, developers, European banks, ECB, ICB—must also take the losses.
     Following the political repudiation of this debt the state should establish an honest and transparent audit for all society (and future lenders) to see what debt is being honoured and what isn’t, and why it isn’t.
     The state should then instruct the creditors—some of whom will be paid for some of their debts but not for others—what debt would and would not be honoured and, of the debt that won’t be honoured—who to chase for their loan.
     No doubt lenders would try two courses, one to negotiate and the other to sue. Depending on the situation of the state and support for the policy, an appropriate response should be adopted.
     The purpose of the audit is both economic and political: economic, to determine what debts are legitimate and should be paid, and political, to educate and mobilise society in defence of what will be a media and establishment onslaught against the policy.

Whose default?

Default is an economic event usually based on the “can’t pay” argument. It largely ignores the political origins of the debt and accepts state responsibility but seeks to renegotiate, on the grounds that the state not being able to pay doesn’t help anyone. And so it is mutually beneficial to creditor and debtor to renegotiate before the state defaults on the grounds that it simply cannot pay.
     The likelihood in Ireland, unless a mass mobilisation occurs, is that the lenders themselves will see the inevitable coming and will approach Ireland to renegotiate so as to avoid outright default. This could be described as a creditor-led default. It is the creditor leading from a position of strength and would probably seek to extend the loan period, slightly reducing the interest but getting more in return over a longer period and imposing strict conditions in return.
     This is likely to happen and will mean that Ireland will lose even more economic control and our economy will be turned completely into a debt-servicing economy whose function is to transfer wealth from labour here to capital in the core. It would accentuate the deficits accumulated in the periphery and the surpluses accumulated in the core and would continue the huge imbalance within the euro zone that has been a central feature of this crisis.
     However, there is also another default argument, one that is closer to the “repudiate” position and comes from a political economy viewpoint. Radical economists at “Research on Money and Finance” (www.researchonmoneyandfinance.org) have been to the fore in recommending debtor-led default for peripheral countries.
     Peripheral countries are indebted to the core because of structural imbalances within the euro zone, which facilitated the increased competitiveness of the German economy at the expense of the periphery.
     The “correction measures” imposed have been imposed not to benefit peripheral countries but to ensure the repayment of loans to the core to protect the euro. Therefore it is not the fault of peripheral countries that they are in the position they are in, and so they should take the lead in declaring a default and offering renegotiation on the periphery’s terms.
     Whether one pursues the repudiate position or the debtor-led default, the fact remains that it requires a popular mobilisation to force it and also to withstand the pressure and anti-people policies of European finance capital that will follow.

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