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19th Sep 2020

Pressure grows for independent audit of Greek debt

  • Campaigners say public debt should be audited to separate 'odious' debt from legitimate public borrowing (Photo: Before)

A group of some 200 academics, economists, MEPs and other notables have issued a call for an audit of Greek debt, a demand that may be raised in the Greek parliament in the coming days and which has also been quickly embraced by Irish trade unions and development NGOs regarding Dublin's public borrowing.

The group, which includes former UN assistant secretary general Denis Halliday, and ten left-wing and Green MEPs, on Thursday (3 March) argued for the creation of an debt audit commission similar to that established in 2008 by the Ecuadorean government that ultimately led to a repudiation of ‘illegitimate' debt.

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The concept has since been embraced by Irish campaign groups and organisers hope similar pressure to launch forensic investigations will also be mounted in Spain and Portugal and other heavily indebted European states.

The idea comes from European debt and development NGOs, including Jubilee Debt Campaign, a UK-based Christian charity, and Eurodad, the European Network on Debt and Development, who have long campaigned for Western countries to cancel the debt of developing countries and are now turning their attention to the debt of peripheral eurozone states.

On Friday, Irish development organisation Afri, author Fintan O'Toole, a series of Irish economists and leading trade unionists backed the creation of a similar commission in their country.

An audit commission, composed of public auditors, economists, lawyers and other specialists, as well as representatives of civil society and organised labour, would look into why public debt was incurred, the terms under which it was contracted, what the borrowed money was spent on and seek to establish who was responsible for problematic debt agreements.

"Such an audit would throw up some interesting questions regarding the legality - banks may have been lending in contravention of public debt rules of European debts," Jubilee Debt Campaign director Nick Dearden said.

The group of signatories, which also include British director Ken Loach, American linguist Noam Chomsky, Slovenian philospher Slavoj Zizek and Indian economist CP Chandrasekhar, say that the commission should have full access to public debt agreements and documentation for the last four decades, including bond issues, bilateral, multilateral, and other forms of debt and state liabilities.

The commission would also have the power to summon public officials to give evidence and examine Greek and foreign bank accounts.

Should proof emerge of portions of Greek borrowing incurred for wasteful or corrupt purposes, such findings could then be used as the basis for a repudiation, or default, of ‘odious debt'. Debts defined as illegitimate, odious or illegal could then be declared null and void and Greece could refuse to repay.

Odious debt a legal theory that posits that the national debt incurred by a despotic regime for purposes that do not serve the best interests of the nation do not have to be paid back.

The concept then began to be used in the late 1990s by development charities to argue that whether a government had been despotic or not, the debt burden forced on third world nations, particularly in Africa, was trapping countries in underdevelopment.

In 2007, the Ecuadorean government established a debt audit commission whose report issued the following year found that some of the country's bonds had been contracted illegally. The document was then used by President Rafael Correa as grounds for a write-down on sections of the debt that saved the country billions of dollars in repayment.

Mr Correa is looking to perform a second audit, while Nepal, Paraguay and Bolivia are also considering establishing commissions.

Core Eurozone banks and Berlin and Paris would likely be against such a move, as, according to the latest government budget, Greek public debt is expected to rise from €299 billion, or 127 percent of GDP, in 2009 to €362 billion, or 159 percent of GDP, in 2011. Any substantial repudiation of this debt would punch massive holes in the balance sheets of the banks in the core of the Eurozone that performed much of the lending, mainly German and French institutions. Similar effects would be felt by UK banks in the case of Irish lending.

Such a development could also precipitate a fresh revival of market contagion were it believed that international lenders could be forced to incur significant losses.

Initially promoted by leftist groups in Greece, the concept is now steadily gaining a wider hearing as a growing number of voices in the country begin to make the argument that the cost of paying back 'illegitimate' debt should not be borne by the Greek people. Instead, they say, the burden should be shared by 'predatory lenders'.

Echoing such sentiments, Eurodad's Oygunn Brynildsen said: "Failing to hold lenders to account for reckless behavior, combined with a lack of transparency, encourages bad lending and, ultimately, chronic and unjust debt."

The Greek labour minister, Louka Katseli, is thought to be sympathetic to the idea and support is growing across the political spectrum, say drafters of the call for an audit commission, with MPs expected to raise the proposal in parliament in the coming days.

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