IMF Lent To Greece Knowing It Could Never Pay Back Debt
By The Real News Network
Transcripts of the Video Interview with Professor Michael Hudson by Sharmini Peries
SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.
The latest economic indicator showed that the Greek economy shrank by 0.4% in the last three months of 2016. This poses a real problem for Greece, because its lenders are expecting it to grow by 3.5% annually, to enable it to pay back on its bailout loan. Greece is scheduled to make a 10.5 billion euro payment on its debt next summer, but is expected to be unable to make that payment, without another installment from its $86 billion bailout.
A growing impasse between the International Monetary Fund, and the European Central Bank, Greece’s two main lenders, is threatening to push Greece into default, and pull out of the euro. Meanwhile, the Greece government told its lenders, that we now call “Troika” today, that it will not agree to any more austerity measures. Here’s what the government spokesperson told the press on Thursday.
GREEK SPOKESMAN: (Greek)
SHARMINI PERIES: Joining us today, to take a closer look at the Greek situation is Michael Hudson. Michael is a distinguished Professor of Economics, at the University of Missouri, Kansas City. He’s the author of many books, and the latest among them is, J is for Junk Economics: A Guide to Reality in the Age of Deception.
Thank you so much for joining us today, Michael.
MICHAEL HUDSON: It’s good to be here. But I take issue with one thing that you said. You said the lenders expect Greece to grow. That is not so. There is no way in which the lenders did expect Greece to grow. In fact, the IMF was the main lender. It said that Greece cannot grow, under the circumstances that it has now.
What do you do in a case where you make a loan to a country, and the entire staff says that there is no way this country can repay the loan? That is what the IMF staff said in 2015. It made the loan anyway – not to Greece, but to pay French banks, German banks and a few other bondholders – not a penny actually went to Greece. The junk economics they used claimed to have a program to make sure the IMF would help manage the Greek economy to enable it to repay. Unfortunately, their secret ingredient was austerity.
Sharmini, for the last 50 years, every austerity program that the IMF has made has shrunk the victim economy. No austerity program has ever helped an economy grow. No budget surplus has ever helped an economy grow, because a budget surplus sucks money out of the economy. As for the conditionalities, the so-called reforms, they are an Orwellian term for anti-reform, for cutting back pensions and rolling back the progress that the labor movement has made in the last half century. So, the lenders knew very well that Greece would not grow, and that it would shrink.
So, the question is, why does this junk economics continue, decade after decade? The reason is that the loans are made to Greece precisely because Greece couldn’t pay. When a country can’t pay, the rules at the IMF and EU and the German bankers behind it say, don’t worry, we will simply insist that you sell off your public domain. Sell off your land, your transportation, your ports, your electric utilities. This is by now a program that has gone on and on, decade after decade.
Now, surprisingly enough, America’s ambassador to the EU, Ted Malloch, has gone on Bloomberg and also on Greek TV telling the Greeks to leave the euro and go it alone. You have Trump’s nominee for the ambassador to the EU saying that the EU zone is dead zone. It’s going to shrink. If Greece continues to repay the loan, if it does not withdraw from the euro, then it is going to be in a permanent depression, as far as the eye can see.
Greece is suffering the result of these bad loans. It is already in a longer depression today, a deeper depression, than it was in the 1930s.
SHARMINI PERIES: Yeah, that’s an important… at the very beginning of your answer here, you were making this very important point, is that although the lenders – this is the Eurozone lenders – had set a target of 3.5% surplus as a condition on Greece in order to make that first bailout loan. The IMF is saying, well, that’s not quite doable, 1.5% should be the target.
But you’re saying, neither of these are real, or is achievable, or desired, for that matter, because they actually want Greece to fail. Why are you saying that?
MICHAEL HUDSON: Because when Greece fails, that’s a success for the foreign investors that want to buy the Greek railroads. They want to take over the ports. They want to take over the land. They want the tourist sites. But most of all, they want to set an example of Greece, to show that France, the Netherlands or other countries that may think of withdrawing from the euro – withdraw and decide they would rather grow than be impoverished – that the IMF and EU will do to them just what they’re doing to Greece.
So they’re making an example of Greece. They’re going to show that finance rules, and in fact that is why both Trump and Ted Malloch have come up in support of the separatist movement in France. They’re supporting Marine Le Pen, just as Putin is supporting Marine Le Pen. There’s a perception throughout the world that finance really is a mode of warfare.
If they can convince countries somehow to adopt junk economics and pursue policies that will destroy themselves, then they’ll be easy pickings for foreign investors, and for the globalists to take over other economies. So, it’s a form of war.
SHARMINI PERIES: Right. Michael, you were saying that the newly appointed ambassador, Ted Malloch of the Trump administration to the European Union has suggested that Greece should consider leaving the European Union, or the euro in particular.
What do you make of this, and will this be then consistent with what Greece is suggesting? Because Greece has now said, no more austerity measures. We’re not going to agree to them. So, this is going to amount to an impasse that is not going to be resolvable. Should Greece exit the euro?
MICHAEL HUDSON: Yes, it should, but the question is how should it do it, and on what terms? The problem is not only leaving the euro. The problem really is the foreign debt that was bad debt that it was loaded onto by the Eurozone. If you leave the euro and still pay the foreign debt, then you’re still in a permanent depression from which you can never exit.
There’s a broad moral principle here: If you lend money to a country that your statistics show cannot pay the debt, is there really a moral obligation to pay the debt? Greece did have a commission two years ago saying that this debt is odious. But it’s not enough just to say there’s an odious debt. You have to have something more positive.
I’ve been talking to Greek politicians and Syriza leaders about what’s needed, and what is needed is a Declaration of Rights. Just as the Westphalia rules in 1648, a Universal Declaration that countries should not be attacked in war, that countries should not be overthrown by other countries. I think, the Declaration of International Law has to realize that no country should be obliged to impose poverty on its population, and sell off the public domain in order to pay its foreign creditors.
The Declaration would say that if creditors make a debt that cannot be repaid, the debt is by definition odious, so there is no need to pay it. Every country has the right not to pay debts that are unpayable except by bankrupting the country, and forcing it to sell off their public domain to foreign countries. That’s the very definition of sovereignty.
So, I’m hoping to work with politicians of a number of countries to draw up this Declaration of Debtor Rights. That’s what’s been missing. There’s an idea that if you withdraw from the euro, you can devalue your currency and can lower labor standards even further, wipe out the pensions, and somehow squeeze out enough to pay the debt.
So, the problem isn’t only the Eurozone. True, joining the euro meant that you’re not allowed to run a budget deficit to pump money into the economy to recover – like America has done. But the looming problem is that you have to pay debts that are so far beyond your ability to pay that you’ll end up like Haiti did after it rebelled after the French Revolution.
France said, sure, we’ll give you your independence, but you’ll have to reimburse us, for the fact that we no longer hold you as slaves. You have to buy your freedom. You can’t say slavery is wrong. You have to make us, the slaveholders, whole. So Haiti took this huge foreign debt to France after it got its independence, and ended up not being able to develop.
A few years after that, in 1824, Greece had a revolution and found the same problem. It borrowed from the Ricardo brothers, the brothers of David Ricardo, the economist and lobbyist for the bankers in London. Just like the IMF, he said that any country can afford to repay its debts, because of automatic stabilization. Ricardo came out with a junk economics theory that is still held by the IMF and the European Union today, saying that indebted countries can automatically pay.
Well, Greece ended up paying… taking on an enormous debt, paying interest but still defaulting again and again. Each time it had to give up more sovereignty. The result was basically a constant depression. Slow growth is what retarded Greece and much of the rest of southern Europe.
So unless they tackle the debt problem, membership in the Eurozone or the European Union is really secondary.
SHARMINI PERIES: All right. There’s so much more we can get into. For example, how much of Greece has already been sold out in the fire sale in order to service the debt. But let’s talk about that in another segment.
Thank you so much for joining us, Michael.
MICHAEL HUDSON: Good to be here, Sharmini.
SHARMINI PERIES: And thank you for joining us on The Real News Network.
Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Killing the Host (2015), The Bubble and Beyond (2012), Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971), amongst many others.
Michael acts as an economic advisor to governments worldwide including Iceland, Latvia and China on finance and tax law. He gives presentations on various topics at conferences and meetings and can be booked here. Listen to some of his many radio interviews to hear his hyperspeed analysis of the geo-political machinations of global economics. http://michael-hudson.com