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Jubilee Statements

Monitoring the impacts of government and corporate behaviour in communities overseas.

European debt crisis urges a reexamination of sovereign debt management

Release Date: 10-May-2011

As a series of bailout packages have been negotiated with Greece, Ireland and soon Portugal, it is time to examine the global orthodoxy in dealing with debt. In mid-May a bailout, expected to equal approximately €80 billion, with the European Union and the International Monetary Fund, is set to be agreed upon with Portugal. The package will see ordinary people bear the greater burden of reform as a program of shock therapy, involving large spending cuts, tax increases and labour market reforms, is introduced. Those banks largely responsible for the reckless private lending which spawned the current crisis are set to be the largest benefactors. 

Increasing resistance to the bailouts has been felt across Europe as nationals express their opposition to paying for the excesses of their banking elite. In Iceland, voters recently rejected a government-backed deal to repay Britain and the Netherlands following the collapse of Icelandic banks in 2008. The decision will not be without consequence for the country, which faces an impending court case by the UK and the Netherlands, the potential block to its bid to join the European Union and a lowering of its credit rating on international markets. In Greece, hundreds of academics, politicians and activists have called for a debt audit commission to examine the legitimacy of the country’s debt, in the hope of holding to account those responsible.

The European debt crisis points to a greater systemic problem of dealing with debt. Across the Global South, the IMF has repeatedly negotiated ‘emergency’ packages, which have seen foreign banks bailed out, while the governments themselves spiral down deeper into debt, at great cost to citizens who had nothing to do with causing the crisis. The European crisis is an opportunity for leaders to challenge the global mechanism for dealing with debt. Our attention is on these leaders as developments continue to unfold.