What is happening to Greece is a repeat of the failed structural adjustment policies of the 1980s and 90s

Date: 21 February 2012

As Eurozone finance ministers sat down in Brussels to decide on Greece’s future, across town a well-timed University of London conference was underway to try to learn lessons from Latin America’s own debt crisis in the 1980s and ’90s. Eurozone ministers would have done well to attend because what happened in Latin America three decades ago bears a striking resemblance to what is currently taking place in Europe. 

Then the International Monetary Fund and World Bank lent money to dozens of countries which would otherwise have defaulted, in order to keep the debt repayments flowing back to the banks of the rich world who had created the crisis by their own reckless strategies. They then insisted those countries adopt a set of structural adjustment policies which saw industry privatised, money freed from government control and markets ripped open to competition with well-subsidised companies from the US and Europe. During the 1990s, 54 countries went backwards in terms of per capita income and the number of people in extreme poverty increased by 100 million – not because of war or natural disaster but because of debt and structural adjustment. Human welfare was sacrificed to the diktats of the financial system. In other words, poverty boomed, inequality soared and finance was proclaimed king. 

The same logic is being applied to Greece today. The slashing of pensions by another 13% and the minimum wage by 22%, and the large reduction in spending with concomitant public sector job losses, can only make the depression longer and deeper. The increased rates of murder, suicide and HIV in Greece today are a result.

So what’s the point of the ‘bail-out’? To keep the money flowing into the European financial system. Indeed, the likely creation of an escrow account will mean that Greece’s people are by-passed entirely – money will be lent from European institutions, ultimately tax payers money – and flow out into the coffers of European banks. It is a bank bail-out on a gigantic scale. 

And it gets even better for the banks. By forcing Greece to speed up its €50 billion privatisation programme, airports, ports, motorways, water, sewage systems and much more are coming up for sale, to be snatched up by the financiers of the countries imposing the policies. 

There are alternatives. After the Second World War Germany received massive debt cancellation and its repayments on the remaining debt were explicitly linked to the country’s growth. Elsewhere governments have stood up to the power of their creditors by defaulting, by auditing their debts or by insisting on their own terms for repayment – from Argentina to Ecuador to Iceland – and they have done better than if they’d followed the path laid down by their creditors.   

When debt cannot be paid we need to stop punishing the people least responsible and start looking at changing the rules governing those who are responsible.