Thursday, June 30, 2011

New CYM Facebook Page


Check out and 'like' the new Connolly Youth Movement facebook page!

Saturday, June 25, 2011

Soverieign Debt Crisis in Europe

Special Edition of Socialist Voice on the Debt Crisis:

As the sovereign debt crisis in the European Union's periphery countries - most notably in Greece, Portugal, Ireland and Spain - gathers pace its severity has begun to threaten the very existence of the euro, a central component of both the political and economic project of centralisation and control by monopoly capital throughout the continent.


Memorial Lecture - Feile an Phobail

Making of an Irish Communist Leader

New Book out on deceased Irish Communist leader Michael O'Riordan

Michael Quinn, The Making of an Irish Communist Leader: Michael O’Riordan, 1938–1947 ·

To be launched in June in Connolly Books - Details TBC

Tuesday, June 21, 2011

the argentine debt experiance - LASC

When: Wednesday 22 June
Time: 7:00pm
Where: LASC Offices, 5 Merrion Row, Dublin 2

In December 2001, Argentina experienced an unprecedented economic
crash, with a 75% devaluation of their currency. Enormous hardship
ensued for their people and large scale populal mobilisation. The
economic collapse included the largest sovereign default in the
history of modern finance.

Since then the Argentine economy recovered by doing exactly the
opposite to what they were told by the International Financial
Institutions (with a 100% payoff to the IMF). Argentina’s experience
is poignantly relevant to Ireland today, yet the Irish media continues
to demonize the Argentina’s actions through misinformed reporting.
Tony will discuss some of the historical context, the parallels and
the differences between the Irish and the Argentine experience and
will take a sneak peak into the future at Ireland's options and their
possible consequences; adding a little hindsight. The presentation
will be interactive incorporating video.

Tony Phillips is an Irish Researcher at the School of Economics of the
University of Buenos Aires (UBA), he is an activist on sovereign debt
in Argentina and a technical advisor on specialist aspects to latin
governments. He has followed the situation closely in Ireland and
published a number of articles and letters to the editor, e.g.:

Peoples Movement Booklet Launch

Dear Colleagues,

The People’s Movement will hold a press conference in Buswell’s Hotel at 11:30 on Thursday next to launch its booklet ‘The European Stability Mechanism and the case for an Irish Referendum’.

The press conference will be followed by a picket on the Dail calling for a referendum – Kildare St entrance – from 12:30 to 1:30.

People’s Movement banners/posters only please as we wish to emphasise a specific theme..

The picket coincides with the Europen Council meeting in Brussels at which final agreement on the ESM is expected to be secured.

Please do try to get along.

087 2308 330

Saturday, June 18, 2011

Kerry Repudiate leaflet

Charleville sets up 'Dump the bondholders' group

Report from Repudiate the debt -

On a cold, wet Friday evening more than forty people braved the elements to attend a public meeting in Charleville, Co. Cork. The meeting had been convened by local people who have taken part in the weekly protest in the nearby parish of Ballyhea against the bank bail-out.

Mick Ryan opened the proceedings and chaired the meeting, the purpose of which was to see what potential there was for establishing a “Dump the Bond-Holders” group in the town.

Despite the inclement weather, the numbers surprised the organisers. The meeting-room was full, and the attendance spilled out into the corridor. The speaker from the Repudiate the Debt Campaign outlined the origin and nature of the debt and the central role being played by the European Union in the imposition of this unbearable, unpayable and odious debt on the Irish people.

The two main local papers showed a good interest in the meeting, and the local community radio carried out an interview with the RDC speaker. The meeting started on time and did not finish until 10:30 p.m., with a great deal of discussion and debate and questions from the floor for the two invited speakers. The other speaker was from People Before Profit.

The final item of business was the establishment of the Charleville Dump the Bond-Holders Group. They will begin a weekly protest after 11 a.m. mass in the town.

It was a good start and shows that around the country a good number of people are not buying the nonsense peddled by the establishment and its media about this debt and who is responsible for it but are agreed that the Irish people should not pay it. There was clear and vocal support for a referendum on this debt.

We will put up details of the group and assembly time and venue on this site as soon as possible.

Peoples Picnic Dublin

Press statement
16 May 2011

People’s Picnic Against the Debt

The Repudiate the Debt Campaign has organised a People’s Picnic Against
the Debt, to take place in Merrion Square, Dublin, on Sunday 19 June
from 2:30 to 4:30 p.m.

There will be a parade from the park gates at Merrion Square (West),
opposite the National Gallery, and the release of balloons that will
highlight the €150 billion in corporate debt imposed on the Irish people
by the EU and IMF and the Irish Government.

The picnic is for bringing people together to help build “hope and
defiance” and is the first of a number to be held over the summer.

Signatures will also be collected, calling for a referendum on this
unbearable, unpayable and odious debt.

Eoghan O’Neill
087 2172440

Kerry Repudiates!

Kerry Says Repudiate Bank Debt Now: Robbers and Villains Family Event in Tralee Town Park this Saturday 18th June

The recently formed Kerry Repudiates Debt group is holding a ‘Robbers & Villains’ family event this Saturday in order to call for the repudiation of the mountain of private bank debt.
Kerry Repudiates Debt is forum of concerned citizens who are demanding the repudiation of the private bank debt that is being foisted on to ordinary citizens.

Simon Quinn (spokesperson for Kerry Repudiates Debt) says that “we as a people are being forced through stealth taxes and vicious to pay a debt that is not of our making. The imposition of this un-payable debt is a massive transfer of wealth from working people, small businesses, family farmers, the self-employed, the unemployed and the poor to German, French and British banks”.

The ‘Robbers & Villains’ event will be held this Saturday 18th June in Tralee Town Park (Parc na Piarsaig, Denny Street from 1 to 3 pm. This is a family fancy dress picnic with free entertainment by magician Chris Reina. All are welcome to come along and join in.

Total subservience by our government has thus far resulted in punitive interest rates on government borrowing and EU demands to surrender corporation tax. With the mounting debt crisis in the EU and the imminent Greek default, now is the time for Irish citizens to stand up and demand that we cut ourselves free from the debt of reckless banks.

Contact: Simon Quinn 087 2966534

Thursday, June 16, 2011

June Socialist Voice

Latest edition of Socialist Voice available below, check it out

* Employment report will be shelved in pursuit of failed strategy [NC]
* Debt crisis significantly worse than the state reported! [NL]
* Real jobs needed, not welfare cuts [BH]
* Garret Fitzgerald: a bankrupt legacy [CMK]
* The legacy of James Connolly [Tom Redmond]
* Whither Cuba? [Roger Keeran and Thomas Kenny]
* Spain’s ideology-free protest [TMS]
* The world of workers
* Legal challenge to Government betrayal [MNM]
* Mexican art master at IMMA [TR]
* Films: Scéal na Laoch [MNM]
* Films: Heritage [MNM]
* Opinion: United we stand [SW]

Repudiate the debt press statement

Press statement
16 May 2011

People’s Picnic Against the Debt

The Repudiate the Debt Campaign has organised a People’s Picnic Against
the Debt, to take place in Merrion Square, Dublin, on Sunday 19 June
from 2:30 to 4:30 p.m.

There will be a parade from the park gates at Merrion Square (West),
opposite the National Gallery, and the release of balloons that will
highlight the €150 billion in corporate debt imposed on the Irish people
by the EU and IMF and the Irish Government.

The picnic is for bringing people together to help build “hope and
defiance” and is the first of a number to be held over the summer.

Signatures will also be collected, calling for a referendum on this
unbearable, unpayable and odious debt.

Repudiate the debt

World Peace Council Poster

2 comrades in Spain arrested



On the afternoon of Tuesday, June 14, several plainclothes police officers went to the new offices of the PCPE in Candás, and, without explanation, they have arrested the comrades Vanesa García Rodríguez and José Ivan Fernandez, the latter a member of the Central Committee of PCPE.

With the same style as the political-social brigade of the previous dictatorship, a large group of secret police officers arrived in two vehicles, which have required two members of the party and brought them prisoners, without any explanation and even without telling anything to the other person who was in the room at that time.

This police action is one more expression of the line of harassment that the police forces are carrying out against the political activity of the PCPE and its militants. This action responds to a political intention of trying to prevent the political activity of the Party, which directly confronts the interests of the dictatorship of capital, the oligarchy and the state apparatus that protect them. This action also takes place at a time when the government of the social-democracy promotes the new labour reform that aims to liquidate the collective bargaining rights and wants to put the working class at the feet of the businessmen.

No harassment, however violent it may be, will prevent the continuation of the political activity of the PCPE side by side with the working class in struggle for socialism and communism. In this situation, any attack serves only to increase the fighting morale of the Party and its determination to confront these actions with the support of the people and the class.

The PCPE demands the immediate release of its two members with no charges of any kind.

The PCPE denounces the action of the police forces of the dictatorship of capital, an action that demonstrates once again the class character of the state and its apparatus of repression.



Anti-Communism in Catalonia

Dear comrades:

From CJC want to denounce a new case of represion against the comunists in Spain.

While we are waiting for the resolution of the trial againts the three comrades of CJC/PCPE of Barcelona, the represive forces are not relaxed, and now strikes with arbitral arrests against the comrades Ivan and Vanesa of the PCPE in Asturias.

Comrades this represion is not casuality, its the answer of a system who don´t have nothing to offer to a more and more angry people, and who have fear that under the direcction of the revolutionaries have force to demand their own rigths.

We need to make the most difusion as possible of this case and all the international solidarity, to struggle against this case of repression.

We will send you the statement translated in english as soon as posible.

revolutionary greetings!

Commission of International Relations of CJC.

Yes there is future for the youth, and it is built by fighting!!

Wednesday, June 15, 2011

Austerity in Portugal

An Unprecedented Aggression against the People and the Nation
Written by Portuguese Communist Party

Exposing the lie behind the PS-PSD-CDS operation, the measures proposed constitute the greatest aggression against the people's rights and the nation's interests since fascist times.

It is an illegitimate program of foreign intervention, set up so as to favour domestic and foreign economic and financial corporations. It extends and goes deeper than the rejected PEC IV [Stability and Growth Program nr 4, previously rejected by parliament and thus prompting the upcoming general election]. It is an unprecedented attack against our sovereignty and independence, made possible only by the surrender of national interests now being undertaken by the PS, PSD and CDS [parties]. If it were to materialize, this intervention would contribute to worsen the economic recession, and to create more unemployment and poverty – as a result of less public investment, lower salaries and pensions, and the onslaught against small businesses – as well as to heighten foreign dependence. This is an intervention and an interference that the Portuguese people cannot accept. If it were to be applied, it would worsen all the nation's problems, including the conditions to be able to pay off the foreign debt.
Here is a summary of some of the many measures envisaged.

Heightened exploitation
-Sacking workers is to be made easier and cheaper, by reducing the compensation paid by bosses from 30 days to 10 days' worth of salary per year worked, and expanding the scope of "just cause" for dismissal;
-The unemployment benefit's maximum duration is to be reduced to 18 months, and its amount reduced to 2.5 IAS, while its value is systematically reduced after 6 months;
-Working hours are to be made more flexible, through a "pool of hours" and a reduction in the amount paid for overtime;
-Collective bargaining and the role of trade unions in negotiations are attacked.

Attacks against workers' and pensioners' incomes
-Freeze on the national minimum wage, and an overall devaluation of salaries through changes in labour legislation and unemploymnt benefits;
-A drop in the real value of pensions to go on for three years – including the minimum pension – as well as cuts in over-1500 euro pensions;
-VAT rises, particularly in the rates applied on essential supplies and services, as well rises in as other indirect taxes;
-IRS [individual income tax] rises through the reduction/abolition of certain exemptions (health, education and housing), including higher taxation on pensions and the introduction of taxation on social support income;
-Elimination of IMI [municipal real-estate tax] exemptions in the first years following a home purchase, together with increases in the reference values used for calculations and in the rates charged;
-Raises in electricity and gas prices, through liberalization and VAT increase;
-Higher rents and easier evictions;
-Further cuts in social services spending;
-A major raise in additional fees for health services and lower percentages of cover for pharmaceutical prices;

Attacks against working people and against the State's role
-Significant cuts in health, education, justice, and local and regional governments;
-Closing down and concentration of services (hospitals, health centers, schools, courts, finance offices and other central and regional government services);
-A three-year freeze on civil service workers' salaries; tens of thousands of jobs cut in public services;
-Elimination of a significant number of municipalities and wards, thus leaving vast areas and many people further from essential services;


-Privatizations – stepped-up pace in the handover of State companies and state holdings to private capital;
-Privatization of state holdings in EDP, REN, and TAP [electricity company, rail infrastructure and airline] by the end of 2011;
-Surrender of the State's special rights ("golden share") in strategic companies such as PT [telecommunications];
-Privatization of Caixa Geral de Depositos's [large mostly-State bank] insurance branch (that accounts for over 30% of the group's financial activities) as well as of other sections, particularly those operating abroad;
-Extending the privatization process to municipality-and region-owned companies;
-Offensive against the public passenger and goods transportation sector, specifically with the privatization of ANA [airports], CP Freight [railways], suburban rail lines, sea ports, etc;
-Large-scale sale of public property;
-Transfer (by closing them down, or allowing for their dilapidation) of public services to the private sector, and of major sectors hitherto guaranteed by the State;

More support for banks and corporations

-Banks and corporations are not penalized by any measure whatsoever;
-Transfer of 12,000,000,000 euros to banks, in addition to State guarantees worth 35,000,000,000 euros.
-The State to fully and definitively bear the losses due to the BPN's [bankrupt private bank, recently "nationalized"] fraudulent management, [re-]privatizing it by July 2011 at no minimum price and free of any burden whatsoever for the buyer;

4 May 2011

Cuba's economic reforms

Whither Cuba?
Written by Roger Keeran and Thomas Kenny

In April 2011, the Sixth Congress of the Communist Party of Cuba (PCC, Partido Comunista de Cuba) adopted bold new guidelines to deal with serious economic problems. Some of these guidelines involve reducing the size of state employment, giving more autonomy to state enterprises, encouraging cooperatives and private enterprise, and promoting production and efficiency.

As a result, some commentators have suggested that Cuban socialism is in trouble, or is failing, or is heading the way of the Soviet Union under Mikhail Gorbachev.

Though not specialists on Cuba, we have written a book on the causes of the Soviet Union’s downfall, Socialism Betrayed: Behind the Collapse of the Soviet Union. One of us visited the Soviet Union twice under Gorbachev. Both of us recently returned from a visit to Cuba. These experiences prompt several observations.

The betrayal of the Soviet Union consisted of the overthrow of socialism and the splintering of the Union state along national lines. This resulted directly from five concrete processes: 1) liquidation of the Communist Party of the Soviet Union, 2) the handover of the media to anti-socialist forces, 3) wholesale privatizing and marketizing the planned, publicly owned economy, beginning under Gorbachev and reaching a climax under Yeltsin, 4) unleashing nationalist separatism, and 5) surrendering to U.S. imperialism.

These processes are not going on in Cuba. Therefore, the short answer to the question “Is Cuba moving back to capitalism?” is no. But the matter deserves a fuller answer. Below is an outline of our views, a preface to a more extensive piece to follow.

To assess where Cuba is heading is somewhat premature, since the Cuban reforms have barely begun. Trying to assess the similarities and differences in the situations of Cuba and the Soviet Union is fraught with difficulty.

These are two very different countries of vastly different sizes, histories, and contexts. Nevertheless the building of socialism is shaped by general tendencies, as well as by national peculiarities. Just as capitalism has problems endemic to it, across time and borders, so socialism in different countries confronts similar problems. Comparisons are possible.

Socialist countries can face problems of motivation, productivity, efficiency, and quality. State control and planning can lead to bureaucracy, red tape and delay. Providing all people with employment can lead to overstaffing and inefficiency. Ensuring all people with the basics of a decent life – education, health care, food, housing, clothing and culture – can lead to rationing and lines and limitations on the quality and variety of consumer goods. Rationing and limited quantities of consumer goods can lead to a black market or second economy.

All these problems existed in the Soviet Union, and they exist today in Cuba, exacerbated of course by the fifty-year US blockade, by the collapse of the socialist bloc in the Soviet Union and Eastern Europe, and more recently, by the fallout from the 2008 global recession.

On the surface, Cuba’s initiatives to address these problems resemble Gorbachev’s in 1985-86. Gorbachev’s call for a move from “extensive” to “intensive” development resembles the slogans of the recent Congress of the Cuban Communist Party – “Production” and “Efficiency.” Gorbachev’s moves to develop joint ventures, cooperatives and private enterprise, sound similar to the new directions outlined by the recent PCC Congress.

Below the surface, however, the differences in the problems and approaches loom larger than the similarities.

Revolutionary Morale, National Unity

When Yuri Andropov and Gorbachev began to tackle the accumulated problems of Soviet socialism in the 1980s, they did so against a sixty-year historical backdrop that was much more stressful and contentious than Cuba’s.

The Soviets had had to undertake breakneck industrialization and forced agricultural collectivization. They had to forge multinational unity. They had to withstand the internal divisions generated by erstwhile revolutionary leaders who went over to the side of counterrevolution, some of whom who became conspirators with foreign enemies of the revolution. They had to undergo the trials and repressions of the 1930s. And, of course, they had to survive the supreme test of the Nazi invasion. As if that were not enough, then came the task of post-war reconstruction after a loss of perhaps twenty-seven million citizens, and the four-decade-long military burden of the Cold War.

Cuba’s road to socialism has been hard and long. The Cuban revolution beat back the US-sponsored Bay of Pigs invasion and recurrent acts of counterrevolutionary terrorism that cost the lives of some 3000 of its citizens. The revolution experienced defections. At times it had to impose repression. Above all it suffered – and suffers – the cruel, illegal, and relentless U.S. blockade. The blockade is not only a drag on Cuban economic development; it represents the US drive to strangle socialism in Cuba. That obstinate drive takes many non-economic forms: the funding of so-called “dissidents,” the sponsorship of bogus “democracy” movements, and a non-stop ideological campaign against Cuba. The ideological campaign against Cuba is reflected even in the struggle over how these latest reforms are to be interpreted.

But these travails never reached the scale or destructiveness of what the Soviet Union suffered, nor did they leave the legacy of division. To a remarkable degree the Cubans have been able to preserve revolutionary morale and national unity. They see the building of socialism as a fulfillment of national independence and national destiny outlined by Jose Marti in the struggle against colonial Spain and Yankee imperialism.

A Clear Focus

A second major difference has to do with the focus of reform. Almost every leftwing commentator, including Fidel Castro, viewed the initial economic reforms that Andropov and Gorbachev undertook to improve intensive development, efficiency, productivity and quality as sensible and long overdue. Almost immediately, however, Gorbachev lost the focus on economics and initiated reckless and sweeping changes in Soviet foreign and domestic policy, practices, personnel, and ideology with neither clear objectives nor the people’s consent.

Within a year after proposing the acceleration of economic development, Gorbachev launched from above a dubious anti-alcohol campaign, declared the Soviet foreign policy would no longer be guided by class principles but by universal human values, made unilateral concessions to the U.S. on armaments and Afghanistan, began undermining the Communist Party of the Soviet Union and turned the media over to elements opposed to the Party and socialism.

By contrast, the Cuban Guidelines are tightly geared to improving production and efficiency. No sign whatsoever has emerged that the Cuban Communist Party intends to follow the top-down, broad, unfocused, and undisciplined shock therapy that transformed the Soviet Union in five years from an imperfect socialism to gangster capitalism.

Public Property, Black Markets, Party Corruption

A third difference has to do with the treatment of private property. In both the Soviet Union and Cuba, a substantial black market or second economy developed. Its measurement is problematic, but it is safe to say that in the Soviet Union this cancer was much greater and more problematic in 1985 than it is in Cuba today, and the accompanying corruption had spread throughout the CPSU.

The real problem in the Soviet Union was that Gorbachev’s reforms not only legalized much previously illegal private economic activity, but that he rushed headlong to allow private enterprise under the guise of fake “cooperatives,” dismantled central planning, opened wide the door to foreign investment, and began the wholesale transformation of state property into private property.

It is true that the Cuban reforms imply a modest expansion of capitalist relations of production. This will inevitably reinforce petty bourgeois consciousness in a sector of the population. Such a policy has risks. However, unlike the Soviets, the Cubans, although encouraging some private enterprises and giving greater responsibility to the management of state enterprises, are doing so in a careful, disciplined, and measured way with guidelines and limitations.

The Guidelines which the PCC has forwarded to the National Congress of People’s Power declare, for example, that the socialist state enterprise will remain “the principal form of the national economy,” that the planning process will encompass both state and non-state entities, that “the concentration of property…shall not be permitted,” and that “the separation of state and enterprise functions will take place through a gradual and ordered process.”

The reform process in Cuba will entail a greater role for the PCC, a party that is clearly close to the Cuban people, not the weakening, disorganization, and elimination of the CPSU, which occurred in the USSR.

Previous Reform Experience

Cubans may speak of “changing their economic model,” but they use the word “model" differently than it is used in the US. By “model” they mean a set of economic policies suited to the concrete needs of socialist construction in a given period of medium duration.

Since 1959 revolutionary Cuba has reformed its “model" several times. The model in the early days of the revolution was to begin the socialist transformation: to nationalize the big foreign companies, distribute land to the landless, cope with the US blockade by diversifying trade to the socialist lands, and create the first planning institutions. In 1975 the Second PCC Congress debated new Socio-economic Guidelines. In 1976 these led to the first Five-Year Plan. In 1985, the Third PCC Congress began a “rectification process” that entailed dismantling some market mechanisms and enhancing economic centralization.

In the Special Period beginning around 1990 (its worst years were in the mid-1990s), the loss of Soviet aid and socialist markets and the tightening of the US blockade, caused Cuba to seek a new model. On an emergency basis, Cuba drastically altered its policies. It built up tourism, instituted two currencies, enforced belt-tightening wherever possible, conserved foreign exchange, turned state farms into co-ops, allowed limited private enterprise in the retail sector, but all the while conserved earlier advances in health care and education.

The present reforms address long-term and short-term problems, including, for example, the overstaffing problem at state-owned enterprises, the unlikelihood of the end of the US blockade any time soon, and the decline of exports stemming from the world economic crisis that began in 2008. In its new model, Cuba is mobilizing its unused reserves of labor, redeploying some labor, incentivizing labor to heighten output, fostering certain private enterprises in construction supplies and elsewhere, giving greater autonomy and responsibility to state enterprises, and fostering agricultural cooperatives on fallow land.

Not to tackle these problems would also pose risks.

Wide Democratic Discussion

After a year of discussion and revision of the initial Communist Party of Cuba’s Draft Guidelines by the people as a whole in study groups, work places, neighborhoods, trade unions and other venues, the Draft Guidelines were then discussed in the provinces. In April 2011 they were discussed and revised by the Party Congress itself. Many changes occurred in this process. For example, the redeployment of 500,000 workers, the original proposal, was reduced, after discussion, to 300,000. The Guidelines, now numbering 313, will be turned into laws and policy by the Cuban parliament, the National Assembly of People’s Power. The whole process is a dramatic illustration of the search for informed consent from below. No such process existed in 1985-1991 in the Soviet Union.


In short, the Cubans have learned from the disastrous course pursued by Gorbachev. They are cognizant of the uniqueness of their history and current situation, and aware of what went wrong in the Soviet Union. They are avoiding sweeping, unfocused, top-down, divisive changes. They are keeping the reform process democratic, measured and focused on improving economic performance. Though they intend to improve economic efficiency and increase production and productivity by giving greater autonomy and responsibility to state enterprises and by allowing the formation of non-state entities including cooperative and private businesses, they are doing so gradually and within a web of regulations, limitations and taxation.

The reforms represent, not opportunism, but a policy of struggle against existing economic conditions and contradictions: against imperialism, against the blockade, against the effects of the world recession. The Cubans give every indication of understanding the pitfalls into which the Soviet Union fell and of avoiding them. Without endangering the hard–won gains and unity of the past, without sacrificing the involvement of the people and the fundamentals of socialism, they are determined to find their own way forward.

Their reforms differ from the Soviet reforms as much as Varadero Beach differs from the Siberian tundra.

This, at any rate, is our early take on Cuba ’s new path.

May 28, 2011

Peoples Picnic Change of Park

Change of park!!!

Sunday 19th June
People's Picnic, Baloon Protest, Merrion Square, Dublin, 2.30pm - see attached poster

Tuesday, June 14, 2011

Repudiate the debt events

Week of Hope and Defiance

Thursday 16th June
Banner Display - O'Connell Street, Dublin, 5pm

Friday 17th June
Dump the Bondholder, Public Meeting, Charleville Cork, 8.30pm

Saturday 18th June
Kilkenny Repudiates, Collect Signatures, Kilkenny City, 11am

Thieves and Robbers, Fancy dress parade and picnic, Tralee Kerry

Sunday 19th June
People's Picnic, Baloon Protest, Iveagh Gardens Dublin, 2.30pm - see attached poster

For more details of all events and to get involved check out our new relaunched website at

Please share these events on facebook, post on your blogs and forward to friends and family.

Wednesday, June 8, 2011

Michael Hudson on....

When Greece exchanged its drachma for the euro in 2000, most voters were all for joining the Eurozone. Their hope was that it would ensure stability, and that this would promote rising wages and living standards. Few saw that the stumbling point was tax policy. Greece was excluded from the eurozone the previous year as a result of failing to meet the 1992 Maastricht criteria for EU membership, limiting budget deficits to 3 percent of GDP, and government debt to 60 percent.

The euro also had other serious fiscal and monetary problems at the outset. There is little thought of wealthier EU economies helping bring less productive ones up to par, e.g. as the United States does with its depressed areas (as in the rescue of the auto industry in 2010) or when the federal government does declares a state of emergency for floods, tornados or other disruptions. As with the United States and indeed nearly all countries, EU “aid” is largely self-serving – a combination of export promotion and bailouts for debtor economies to pay banks in Europe’s main creditor nations: Germany, France and the Netherlands. The EU charter banned the European Central Bank (ECB) from financing government deficits, and prevents (indeed, “saves”) members from having to pay for the “fiscal irresponsibility” of countries running budget deficits. This “hard” tax policy was the price that lower-income countries had to sign onto when they joined the European Union.

Also unlike the United States (or almost any nation), Europe’s parliament was merely ceremonial. It had no power to set and administer EU-wide taxes. Politically, the continent remains a loose federation. Every member is expected to pay its own way. The central bank does not monetize deficits, and there is minimal federal sharing with member states. Public spending deficits – even for capital investment in infrastructure – must be financed by running into debt, at rising interest rates as countries running deficits become more risky.

This means that spending on transportation, power and other basic infrastructure that was publicly financed in North America and the leading European economies (providing services at subsidized rates) must be privatized. Prices for these services must be set high enough to cover interest and other financing charges, high salaries and bonuses, and be run for profit – indeed, for rent extraction as public regulatory authority is disabled.

This makes countries going this route less competitive. It also means they will run into debt to Germany, France and the Netherlands, causing the financial strains that now are leading to showdowns with democratically elected governments. At issue is whether Europe should succumb to centralized planning – on the right wing of the political spectrum, under the banner of “free markets” defined as economies free from public price regulation and oversight, free from consumer protection, and free from taxes on the rich.

The crisis for Greece – as for Iceland, Ireland and debt-plagued economies capped by the United States – is occurring as bank lobbyists demand that “taxpayers” pay for the bailouts of bad speculations and government debts stemming largely from tax cuts for the rich and for real estate, shifting the fiscal burden as well as the debt burden onto labor and industry. The financial sector’s growing power to achieve this tax favoritism is crippling economies, driving them further into reliance on yet more debt financing to remain solvent. Aid is conditional upon recipient countries reducing their wage levels (“internal devaluation”) and selling off public enterprises.

The tunnel vision that guides these policies is self-reinforcing. Europe, America and Japan draw their economic managers from the ranks of professionals sliding back and forth between the banks and finance ministries – what the Japanese call “descent from heaven” to the private sector where worldly rewards are greatest. It is not merely delayed payment for past service. Their government experience and contacts helps them influence the remaining public bureaucracy and lobby their equally opportunistic replacements to promote pro-financial fiscal and monetary policies – that is, to handcuff government and deter regulation and taxation of the financial sector and its real estate and monopoly clients, and to use the government’s taxing and money-creating power to provide bailouts when the inevitable financial collapse occurs as the economy shrinks below break-even levels into negative equity territory.

Regressive tax policies – shifting taxes off the rich and off property onto labor – cause budget deficits financed by public debt. When bondholders pull the plug, the resulting debt pressure forces governments to pay off debts by selling land and other public assets to private buyers (unless governments repudiate the debt or recover by restoring progressive taxation). Most such sales are done on credit. This benefits the banks by creating a loan market for the buyouts. Meanwhile, interest absorbs the earnings, depriving the government of tax revenue it formerly could have received as user fees. The tax gift to financiers is based on the bad policy of treating debt financing as a necessary cost of doing business, not as a policy choice – one that indeed is induced by the tax distortion of making interest payments tax-deductible.
Buyers borrow credit to appropriate “the commons” in the same way they bid for commercial real estate. The winner is whoever raises the largest buyout loan – by pledging the most revenue to pay the bank as interest. So the financial sector ends up with the revenue hitherto paid to governments as taxes or user fees. This is euphemized as a free market.

Promoting the financial sector at the economy’s expense

The resulting debt leveraging is not a solvable problem. It is a quandary from which economies can escape only by focusing on production and consumption rather than merely subsidizing the financial system to enable players to make money from money by inflating asset prices on free electronic keyboard credit. Austerity causes unemployment, which lowers wages and prevents labor from sharing in the surplus. It enables companies to force their employees to work overtime and harder in order to get or keep a job, but does not really raise productivity and living standards in the way envisioned a century ago. Increasing housing prices on credit – requiring larger debts for access to home ownership – is not real prosperity.

To contrast the “real” economy from the financial sector requires distinctions to be drawn between productive and unproductive credit and investment. One needs the concept of economic rent as an institutional and political return to privilege without a corresponding cost of production. Classical political economy was all about distinguishing earned from unearned income, cost-value from market price. But pro-financial lobbyists deny that any income or rentier wealth is unearned or parasitic. The national income and product accounts (NIPA) do not draw any such distinction. This blind spot is not accidental. It is the essence of post-classical economics. And it explains why Europe is so crippled.

The way in which the euro was created in 1999 reflects this shallow vision. The Maastricht fiscal and financial rules maximize the commercial loan market by preventing central banks from supplying governments (and hence, the economy) with credit to grow. Commercial banks are to be the sole source of financing budget deficits – defined to include infrastructure investment in transportation, communication, power and water. Privatization of these basic services blocks governments from supplying them at subsidized rates or freely. So roads are turned into toll roads, charging access fees that are readily monopolized. Economies are turned into sets of tollbooths, paying out their access charges as interest to creditors. These extractive rents make privatized economies high-cost. But to the financial sector that is “wealth creation.” It is enhanced by untaxing interest payments to banks and bondholders – aggravating fiscal deficits in the process, however.

The Greek budget crisis in perspective

A fiscal legacy of the colonels’ 1967-74 junta was tax evasion by the well to do. The “business-friendly” parties that followed were reluctant to tax the wealthy. A 2010 report stated that nearly a third of Greek income was undeclared, with “fewer than 15,000 Greeks declar[ing] incomes of over €100,000, despite tens of thousands living in opulent wealth on the outskirts of the capital. A new drive by the Socialists to track down swimming pool owners by deploying Google Earth was met with a virulent response as Greeks invested in fake grass, camouflage and asphalt to hide the tax liabilities from the spies in space.” (Helena Smith, “The Greek spirit of resistance turns its guns on the IMF,” The Observer, May 9, 2010.)

As a result of the military dictatorship depressing public spending below the European norm, infrastructure needed to be rebuilt – and this required budget deficits. The only way to avoid running them would have been to make the rich pay the taxes they were supposed to. But squeezing public spending to the level that wealthy Greeks were willing to pay in taxes did not seem politically feasible. (Since the 1980s almost no country has enacted Progressive Era tax policies.) The 3 per cent Maastricht limit on budget deficits refused to count capital spending by government as capital formation, on the ideological assumption that all government spending is deadweight waste and only private investment is productive.

The path of least resistance was to engage in fiscal deception. Wall Street bankers helped the “conservative” (that is, fiscally regressive and financially profligate) parties conceal the extent of the public debt with the kind of junk accounting that financial engineers had pioneered for Enron. And as usual when financial deception in search of fees and profits is concerned, Goldman Sachs was in the middle. In February 2010, the German magazine Der Spiegel exposed how the firm had helped Greece conceal the rise in public debt, by mortgaging assets in a convoluted derivatives deal – legal but with the covert intent of circumventing the Maastricht limitation on deficits. “Eurostat’s reporting rules don’t comprehensively record transactions involving financial derivatives,” so Greece’s obligation appeared as a cross-currency swap rather than as a debt. The government used off-balance-sheet entities and derivatives similar to what Icelandic and Irish banks later would use to indulge in fictitious debt disappearance and an illusion of financial solvency.

The reality, of course, was a virtual debt. The government was obligated to pay Wall Street billions of euros out of future airport landing fees and the national lottery as “the so-called cross currency swaps … mature, and swell the country’s already bloated deficit.” (Beat Balzli, “How Goldman Sachs Helped Greece to Mask its True Debt,” Der Spiegel, February 8, 2010. The report adds: “One time, gigantic military expenditures were left out, and another time billions in hospital debt.” Translated into straightforward terms, the deal left Greece’s public-sector budget deficit at 12 percent of GDP, four times the Maastricht limit.

Using derivatives to engineer Enron-style accounting enabled Greece to mask a debt as a market swap based on foreign currency options, to be unwound over ten to fifteen years. Goldman was paid some $300 million in fees and commissions for its aid orchestrating the 2001 scheme. “A similar deal in 2000 called Ariadne devoured the revenue that the government collected from its national lottery. Greece, however, classified those transactions as sales, not loans.” JPMorgan Chase and other banks helped orchestrate similar deals across Europe, providing “cash upfront in return for government payments in the future, with those liabilities then left off the books.”

The financial sector has an interest in understating the debt burden – first, by using “mark to model” junk accounting, and second, by pretending that the debt burden can be paid without disrupting economic life. Financial spokesmen from Tim Geithner in the United States to Dominique Strauss-Kahn at the IMF claimed that the post-2008 debt crisis is merely a short-term “liquidity problem” (lack of “confidence”), not insolvency reflecting an underlying inability to pay. Banks promise that everything will be all right when the economy “returns to normal” – if only the government will buy their junk mortgages and bad loans (“sound long-term investments”) for ready cash.

The intellectual deception at work

Financial lobbyists seek to distract voters and policy makers from realizing that “normalcy” cannot be restored without wiping out the debts that have made the economy abnormal. The larger the debt burden grows, the more economy-wide austerity is required to pay debts to banks and bondholders instead of investing in capital formation and real growth.

Austerity makes the problem worse, by intensifying debt deflation. To pretend that austerity helps economies rather than destroys them, bank lobbyists claim that shrinking markets will lower wage rates and “make the economy more competitive” by “squeezing out the fat.” But the actual “fat” is the debt overhead – the interest, amortization, financial fees and penalties built into the cost of doing business, the cost of living and the cost of government.

When difficulty arises in paying debts, the path of least resistance is to provide more credit – to enable debtors to pay. This keeps the system solvent by increasing the debt overhead – seemingly an oxymoron. As financial institutions see the point approaching where debts cannot be paid, they try to get “senior creditors” – the ECB and IMF – to lend governments enough money to pay, and ideally to shift risky debts onto the government (“taxpayers”). This gets them off the books of banks and other large financial institutions that otherwise would have to take losses on Greek government bonds, Irish bank obligations bonds, etc., just as these institutions lost on their holdings of junk mortgages. The banks use the resulting breathing room to try and dump their bond holdings and bad bets on the proverbial “greater fool.”

In the end the debts cannot be paid. For the economy’s high-financial managers the problem is how to postpone defaults for as long as possible – and then to bail out, leaving governments (“taxpayers”) holding the bag, taking over the obligations of insolvent debtors (such as A.I.G. in the United States). But to do this in the face of popular opposition, it is necessary to override democratic politics. So the divestment by erstwhile financial losers requires that economic policy be taken out of the hands of elected government bodies and transferred to those of financial planners. This is how financial oligarchy replaces democracy.

Paying higher interest for higher risk, while protecting banks from losses

The role of the ECB, IMF and other financial oversight agencies has been to make sure that bankers got paid. As the past decade of fiscal laxity and deceptive accounting came to light, bankers and speculators made fortunes jacking up the interest rate that Greece had to pay for its increasing risk of default. To make sure they did not lose, bankers shifted the risk onto the European “troika” empowered to demand payment from Greek taxpayers.

Banks that lent to the public sector (at above-market interest rates reflecting the risk), were to be bailed out at public expense. Demanding that Greece not impose a “haircut” on creditors, the ECB and related EU bureaucracy demanded a better deal for European bondholders than creditors received from the Brady bonds that resolved Latin American and Third World debts in the 1980s. In an interview with the Financial Times, ECB executive board member Lorenzo Bini Smaghi insisted that:

First, the Brady bonds solution was a solution for American banks, which were basically allowed not to ‘mark to market’ the restructured bonds. There was regulatory forbearance, which was possible in the 1980 but would not be possible today.

Second, the Latin American crisis was a foreign debt crisis. The main problem in the Greek crisis is Greece, its banks and its own financial system. Latin America had borrowed in dollars and the lines of credit were mainly with foreigners. Here, a large part of the debt is with Greeks. If Greece defaulted, the Greek banking system would collapse. It would then need a huge recapitalization - but where would the money come from?

Third, after default the Latin American countries still had central banks that could print money to pay for civil servants’ wages, pensions. They did this and created inflation. So they got out [of the crisis] through inflation, depreciation and so forth. In Greece you would not have a central bank that could finance the government, and it would have to partly shut down some of its operations, like the health system.

Bini Smaghi threatened that Europe would destroy the Greek economy if the latter tried to scale back its debts or even stretch out maturities to reflect the ability to pay. Greece’s choice was between or anarchy. Restructuring would not benefit “the Greek people. It would entail a major economic, social and even humanitarian disaster, within Europe. Orderly implies things go smoothly, but if you wipe out the banking system, how can it be smooth?” The ECB’s “position [is] based on principle ... In the euro area debts have to be repaid and countries have to be solvent. That has to be the principle of a market-based economy.” (Ralph Atkins, “Transcript: Lorenzo Bini Smaghi,” Financial Times, May 30, 2011. The interview took place on May 27.)

A creditor-oriented economy is not really a market-based, of course. The banks destroyed the market by their own central financial planning -- using debt leverage to leave Greece with a bare choice: Either it would permit EU officials to come in and carve up its economy, selling its major tourist sites and monopolistic rent-extracting opportunities to foreign creditors in a gigantic national foreclosure movement, or it could bite the bullet and withdraw from the Eurozone. That was the deal Bini Smaghi offered: “if there are sufficient privatizations, and so forth – then the IMF can disburse and the Europeans will do their share. But the key lies in Athens, not elsewhere. The key element for the return of Greece to the market is to stop discussions about restructuring.”

One way or another, Greece would lose, he explained: “default or restructuring would not help solve the problems of the Greek economy, problems that can be solved only by adopting the kind of structural reforms and fiscal adjustment measures included in the program. On the contrary it would push Greece into a major economic and social depression.” This leverage demanding to be paid or destroying the economy’s savings and monetary system is what central bankers call a “rescue,” or “restoring market forces.” Bankers claim that austerity will revive growth. But to accept as a realistic democratic alternative would be self-immolation.

Unless Greece signed onto this nonsense, neither the ECB nor the IMF would extend loans to save its banking system from insolvency. On May 31, 2011, Europe agreed to provide $86 billion in euros if Greece “puts off for the time being a restructuring, hard or soft, of Greece’s huge debt burden.” The pretense was a “hope that in another two years Greece will be in a better position to repay its debts in full.” Anticipation of the faux rescue led the euro to rebound against foreign currencies, and European stocks to jump by 2 per cent. Yields on Greek 10-year bonds fell to “only” a 15.7 percent distress level, down one percentage point from the previous week’s high of 16.8 percent when a Greek official made the threatening announcement that “Restructuring is off the table. For now it is all about growth, growth, growth.”

How can austerity be about growth? This idea never has worked, but the pretense was on. The EU would provide enough money for the Greek government to save bondholders from having to suffer losses. The financial sector supports heavy taxpayer expense as long as the burden does not fall on itself or its main customers in the real estate sector or the infrastructure monopolies being privatized.

The loan-for-privatization tradeoff was called “aiding Greece” rather than bailing out German, French and other bondholders. But financial investors knew better. “Since the crisis began, 60 billion euros in deposits have been withdrawn from Greek banks, about a quarter of the country’s output.” (Atkins, FT.) These withdrawals, which were gaining momentum, were the precise size of the loan being offered!

Meanwhile, the shift of 60 billion euros off the balance sheets of banks onto the private sector threatened to raise the ratio of public debt to GDP over 150 per cent. There was talk that another 100 billion euros would be needed to “socialize the losses” that otherwise would be suffered by German, French and other European bankers who had their eyes set on a windfall if heavily discounted Greek bonds were made risk-free by carving up Greece in much the same way that the Versailles Treaty did to Germany after World War I.

The Greek population certainly saw that the world was at financial war. Increasingly large crowds gathered each day to protest in Syntagma Square in front of the Parliament, much as Icelandic crowds had done earlier under similar threats by their Social Democrats to sell out the nation to European creditors. And just as Iceland’s Prime Minister Sigurdardottir held on arrogantly against public opinion, so did Greek Socialist Prime Minister George Papandreou. This prompted EU Fisheries Commissioner Maria Damanaki “to ‘speak openly’ about the dilemma facing her country,” warning: “The scenario of Greece’s exit from the euro is now on the table, as are ways to do this. Either we agree with our creditors on a program of tough sacrifices and results ... or we return to the drachma. Everything else is of secondary importance.” And former Dutch Finance Minister Willem Vermeend wrote in De Telegraaf that ‘Greece should leave the euro,’ given that it will never be able to pay back its debt.”

As in Iceland, the Greek austerity measures are to be put to a national referendum – with polls reporting that some 85 percent of Greeks reject the bank-bailout-cum-austerity plan. Its government is paying twice as much for credit as the Germans, despite seemingly having no foreign-exchange risk (using the euro). The upshot may be to help drive Greece out of the eurozone, not only by forcing default (the revenue is not there to pay) but by Newton’s Third Law of Political Motion: Every action creates an equal and opposite reaction. The ECB’s attempt to make Greek labor –(“taxpayers”) pay foreign bondholders is leading to pressure for outright repudiation and the domestic “I won’t pay” movement. Greece’s labor movement always has been strong, and the debt crisis is further radicalizing it.

The aim of commercial banks is to replace governments in creating money, making the economy entirely dependent on them, with public borrowing creating an enormous risk-free “market” for interest-bearing loans. It was to overcome this situation that the Bank of England was created in 1694 – to free the country from reliance on Italian and Dutch credit. Likewise the U.S. Federal Reserve, for all its limitations, was founded to enable the government to create its own money. But European banks have hog-tied their governments, replacing Parliamentary democracy with dictatorship by the ECB, which is blocked constitutionally from creating credit for governments – until German and French banks found it in their own interest for it to do so. As Uuniversity of Missouri-Kansas City Professor Bill Black summarizes the situation:

“A nation that gives up its sovereign currency by joining the euro gives up the three most effective means of responding to a recession. It cannot devalue its currency to make its exports more competitive. It cannot undertake an expansive monetary policy. It does not have any monetary policy and the EU periphery nations have no meaningful influence on the ECB’s monetary policies. It cannot mount an appropriately expansive fiscal policy because of the restrictions of the EU’s growth and stability pact. The pact is a double oxymoron – preventing effective counter-cyclical fiscal policies harms growth and stability throughout the Eurozone.”

Financial politics are now dominated by the drive to replace debt defaults by running a fiscal surplus to pay bankers and bondholders. The financial system wants to be paid. But mathematically this is impossible, because the “magic of compound interest” outruns the economy’s ability to pay – unless central banks flood asset markets with new bubble credit, as U.S. policy has done since 2008. When debtors cannot pay, and when the banks in turn cannot pay their depositors and other counterparties, the financial system turns to the government to extract the revenue from “taxpayers” (not the financial sector itself). The policy bails out insolvent banks by plunging domestic economies into debt deflation, making taxpayers bear the cost of banks gone bad.

These financial claims are virtually a demand for tribute. And since 2010 they have been applied to the PIIGS countries. The problem is that revenue used to pay creditors is not available for spending within the economy. So investment and employment shrink, and defaults spread. Something must give, politically as well as economically as society is brought back to the “Copernican problem”: Will the “real” economy of production and consumption revolve around finance, or will financial demands for interest devour the economic surplus and begin to eat into the economy?

Technological determinists believe that technology drives. If this were so, rising productivity would have made everybody in Europe and the United States wealthy by now, rich enough to be out of debt. But there is a Chicago School inquisition insisting that today’s needless suffering is perfectly natural and even necessary to rescue economies by saving their banks and debt overhead – as if all this is the economic core, not wrapped around the core.

Meanwhile, economies are falling deeper into debt, despite rising productivity measures. The seeming riddle has been explained many times, but is so counter-intuitive that it elicits a wall of cognitive dissonance. The natural view is to think that the world shouldn’t be this way, letting credit creation load down economies with debt without financing the means to pay it off. But this imbalance is the key dynamic defining whether economies will grow or shrink.

John Kenneth Galbraith explained that banking and credit creation is so simple a principle that the mind rejects it – because it is something for nothing, the proverbial free lunch stemming from the principle of banks creating deposits by making loans. Just as nature abhors a vacuum, so most people abhor the idea that there is such a thing as a free lunch. But the financial free lunchers have taken over the political system.

They can hold onto their privilege and avert a debt write-down only as long as they can prevent widespread moral objection to the idea that the economy is all about saving creditor claims from being scaled back to the economy’s ability to pay – by claiming that the financial brake is actually the key to growth, not a free transfer payment.
The upcoming Greek referendum poses this question just as did Iceland’s earlier this spring. As Yves Smith recently commented regarding the ECB’s game of chicken as to whether Greece’s government would accept or reject its hard terms:

“This is what debt slavery looks like on a national level. … Greece looks to be on its way to be under the boot of bankers just as formerly free small Southern farmers were turned into “debtcroppers” after the US Civil War. Deflationary policies had left many with mortgage payments that were increasingly difficult to service. Many fell into ‘crop lien’ peonage. Farmers were cash starved and pledged their crops to merchants who then acted in an abusive parental role, being given lists of goods needed to operate the farm and maintain the farmer’s family and doling out as they saw fit. The merchants not only applied interest to the loans, but further sold the goods to farmers at 30 per cent or higher markups over cash prices. The system was operated, by design, so that the farmer’s crop would never pay him out of his debts (the merchant as the contracted buyer could pay whatever he felt like for the crop; the farmer could not market it to third parties). This debt servitude eventually led to rebellion in the form of the populist movement. (Yves Smith, “Will Greeks Defy Rape and Pillage By Barbarians Bankers? An E-Mail from Athens,” Naked Capitalism, May 30, 2011.)

One would expect a similar political movement today. And as in the late 19th century, academic economics will be mobilized to reject it. Subsidized by the financial sector, today’s economic orthodoxy finds it natural to channel productivity gains to the finance, insurance and real estate (FIRE) sector and monopolies rather than to raise wages and living standards. Neoliberal lobbyists and their academic mascots dismiss sharing productivity gains with labor as being unproductive and not conducive to “wealth creation” financial style.

Making governments pay creditors when banks run aground

At issue is not only whether bank debts should be paid by taking them onto the public balance sheet at taxpayer expense, but whether they can reasonably be paid. If they cannot be, then trying to pay them will shrink economies further, making them even less viable. Many countries already have passed this financial limit. What is now in question is a political step – whether there is a limit to how much further creditor interests can push national populations into debt-dependency. Future generations may look back on our epoch as a great Social Experiment on how far the point may be deferred at which government – or parliaments – will draw a line against taking on public liability for debts beyond any reasonable capacity to pay without drastically slashing public spending on education, health care and other basic services?

Is a government – or economy – be said to be solvent as long as it has enough land and buildings, roads, railroads, phone systems and other infrastructure to sell off to pay interest on debts mounting exponentially? Or should we think of solvency as existing under existing proportions in our mixed public/private economies? If populations can be convinced of the latter definition – as those of the former Soviet Union were, and as the ECB, EU and IMF are now demanding – then the financial sector will proceed with buyouts and foreclosures until it possesses all the assets in the world, all the hitherto public assets, corporate assets and those of individuals and partnerships.

This is what today’s financial War is about. And it is what the Greeks gathering in Syntagma Square are demonstrating about. At issue is the relationship between the financial sector and the “real” economy. >From the perspective of the “real” economy, the proper role of credit – that is, debt – is to fund productive capital investment and economic growth. After all, it is out of the economic surplus that interest is to be paid.

This requires a tax system and financial regulatory system to maximize the growth. But that is precisely the fiscal policy that today’s financial sector is fighting against. It demands tax-deductibility for interest, encouraging debt financing rather than equity. It has disabled truth-in-lending laws and regulation keeping prices (the interest rate and fees) in line with costs of production. And it blocks governments from having central banks to freely finance their own operations and provide economies with money.
Banks and their financial lobbyists have not shown much interest in economy-wide wellbeing. It is easier and quicker to make money by being extractive and predatory.

Fraud and crime pay, if you can disable the police and regulatory agencies. So that has become the financial agenda, eagerly endorsed by academic spokesmen and media ideologues who applaud bank managers and subprime mortgage brokers, corporate raiders and their bondholders, and the new breed of privatizers, using the one-dimensional measure of how much revenue can be squeezed out and capitalized into debt service. From this neoliberal perspective, an economy’s wealth is measured by the magnitude of debt obligations – mortgages, bonds and packaged bank loans – that capitalize income and even hoped-for capital gains at the going rate of interest.

Iceland belatedly decided that it was wrong to turn over its banking to a few domestic oligarchs without any real oversight or regulation over their self-dealing. From the vantage point of economic theory, was it not madness to imagine that Adam Smith’s quip about not relying on the benevolence of the butcher, brewer or baker for their products, but on their self-interest is applicable to bankers? Their “product” is not a tangible consumption good, but interest-bearing debt. These debts are a claim on output, revenue and wealth; they do not constitute real wealth.

This is what pro-financial neoliberals fail to understand. For them, debt creation is “wealth creation” (Alan Greenspan’s favorite euphemism) when credit – that is, debt – bids up prices for property, stocks and bonds and thus enhances financial balance sheets. The “equilibrium theory” that underlies academic orthodoxy treats asset prices (financialized wealth) as reflecting a capitalization of expected income. But in today’s Bubble Economy, asset prices reflect whatever bankers will lend. Rather than being based on rational calculation, their loans are based on what investment bankers are able to package and sell to frequently gullible financial institutions. This logic leads to attempts to pay pensions out of a “wealth creating” process that runs economies into debt.

It is not hard to statistically illustrate this. The amount of debt that an economy can pay is limited by the size of its surplus, defined as corporate profits and personal income for the private sector, and net fiscal revenue paid to the public sector. But neither today’s financial theory nor global practice recognize a capacity-to-pay constraint. So debt service has been permitted to eat into capital formation and reduce living standards – and now, to demand privatization sell-offs.

As an alternative is to such financial demands, Iceland has provided a model for what Greece may do. Responding to British and Dutch demands that its government guarantee payment of the Icesave bailout, the Althing recently asserted the principle of sovereign debt:

“The preconditions for the extension of government guarantee according to this Act are:

1. That … account shall be taken of the difficult and unprecedented circumstances with which Iceland is faced with and the necessity of deciding on measures which enable it to reconstruct its financial and economic system.

This implies among other things that the contracting parties will agree to a reasoned and objective request by Iceland for a review of the agreements in accordance with their provisions.

2. That Iceland’s position as a sovereign state precludes legal process against its assets which are necessary for it to discharge in an acceptable manner its functions as a sovereign state.”

Instead of imposing the kind of austerity programs that devastated Third World countries from the 1970s to the 1990s and led them to avoid the IMF like a plague, the Althing is changing the rules of the financial system. It is subordinating Iceland’s reimbursement of Britain and Holland to the ability of Iceland’s economy to pay:
“In evaluating the preconditions for a review of the agreements, account shall also be taken to the position of the national economy and government finances at any given time and the prospects in this respect, with special attention being given to foreign exchange issues, exchange rate developments and the balance on current account, economic growth and changes in gross domestic product as well as developments with respect to the size of the population and job market participation.”

This is the Althing proposal to settle its Icesave bank claims that Britain and the Netherlands rejected so passionately as “unthinkable.” So Iceland said, “No, take us to court.” And that is where matters stand right now.

Greece is not in court. But there is talk of a “higher law,” much as was discussed in the United States before the Civil War regarding slavery. At issue today is the financial analogue, debt peonage.

Will it be enough to change the world’s financial environment? For the first time since the 1920s (as far as I know), Iceland made the capacity-to-pay principle the explicit legal basis for international debt service. The amount to be paid is to be limited to a specific proportion of the growth in its GDP (on the admittedly tenuous assumption that this can indeed be converted into export earnings). After Iceland recovers, the Treasury offered to guarantee payment for Britain for the period 2017-2023 up to 4 per cent of the growth of GDP after 2008, plus another 2 per cent for the Dutch. If there is no growth in GDP, there will be no debt service. This meant that if creditors took punitive actions whose effect is to strangle Iceland’s economy, they wouldn’t get paid.

No wonder the EU bureaucracy reacted with such anger. It was a would-be slave rebellion. Returning to the applicable of Newton’s Third Law of motion to politics and economics, it was natural enough for Iceland, as the most thoroughly neoliberalized disaster area, to be the first economy to push back.

The past two years have seen its status plunge from having the West’s highest living standards (debt-financed, as matters turn out) to the most deeply debt-leveraged. In such circumstances it is natural for a population and its elected officials to experience a culture shock – in this case, an awareness of the destructive ideology of neoliberal “free market” euphemisms that led to privatization of the nation’s banks and the ensuing debt binge.

The Greeks gathering in Syntagma Square seem to need no culture shock to reject their Socialist government’s cave-in to European bankers. It looks like they may follow Iceland in leading the ideological pendulum back toward a classical awareness that in practice, this rhetoric turns out to be a junk economics favorable to banks and global creditors. Interest-bearing debt is the “product” that banks sell, after all. What seemed at first blush to be “wealth creation” was more accurately debt-creation, in which banks took no responsibility for the ability to pay. The resulting crash led the financial sector to suddenly believe that it did love centralized government control after all – to the extent of demanding public-sector bailouts that would reduce indebted economies to a generation of fiscal debt peonage and the resulting economic shrinkage.

As far as I am aware, this agreement is the first since the Young Plan for Germany’s reparations debt to subordinate international debt obligations to the capacity-to-pay principle. The Althing’s proposal spells this out in clear terms as an alternative to the neoliberal idea that economies must pay willy-nilly (as Keynes would say), sacrificing their future and driving their population to emigrate in a vain attempt to pay debts that, in the end, can’t be paid but merely leave debtor economies hopelessly dependent on their creditors. In the end, democratic nations are not willing to relinquish political planning authority to an emerging financial oligarchy.

No doubt the post-Soviet countries are watching, along with Latin American, African and other sovereign debtors whose growth has been stunted by predatory austerity programs imposed by IMF, World Bank and EU neoliberals in recent decades. We should all hope that the post-Bretton Woods era is over. But it won’t be until the Greek population follows that of Iceland in saying no – and Ireland finally wakes up.

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website,

Portugese Communist Election Results

Statement by Jerónimo de Sousa, general secretary of Portuguese Communist Party June 5, 2011
1 – The result obtained by the CDU [Portuguese Communist Party –Green Ecologist Party electoral coalition] is an unequivocal consolidation of the electoral expression which the CDU has been registering in the past few years, election after election. The result obtained by the CDU, reflected in an increase in its electoral percentage and in the number of elected MPs, with the election of one more MP in the Faro District for the first time in 20 years, is of undeniable significance, reflecting a broader recognition of its activity, of the proposals and role of the PCP, of the Ecologist The Greens Party and of the Democratic Intervention, in the country’s political life. This is a result which encourages and strengthens this force, which is the most solid, coherent and steadfast reference in the defense of the interests of the workers, of young people and of the people The result achieved by the CDU, with the hundreds of thousand voters expressing their confidence in the CDU, is all the more important and noteworthy, since obtaining this result – in a media context which was marked by the silencing and disregard for our message – implied overcoming resignation and fear; defeating the lies and dissimulation of those who, up to the very last moment of the electoral campaign, never disclosed their true programs and political intentions; defeating the artificial bipolarizations and the false disputes which sought to illude that these were elections in which the Portuguese people would elect 230 MPs, and not this or that Prime Minister. The unparalleled action of clarification and mobilization which the CDU built during this election campaign, mobilized wills and determination, unleashed energies, contributed to a widespread perception and awareness about the country’s real problems, about those who are responsible for the current situation and, above all, contributed to assert a patriotic and alternative left-wing policy, which will live on in the future activity and struggle which the workers and the people will be called upon to wage.

2 – The result obtained by the PSD, far from results which this party has obtained in other occasions, is a direct expression of the discredit accumulated by the Socialist Party [PS] but, above all, it is the direct result of a clever campaign which sought to dissimulate [that Party's] responsabilities for the country’s situation, to illude its own identification and the common responsibilities for all the worst decisions of the PS Government. This was an election campaign where the PSD concealed its real intentions, which are contained in the Programme of aggression and submission which it signed, arm-in-arm with the other Parties of the right-wing policies. PSD and CDS may well insist tonight and in the coming hours on verbal exchanges about the future government, the posts and Ministries that each of them will demand, but this will only illude the predictable understandings on that which unites them, and will unite them: the defense of the economic and financial groups’ interests; the materialization of a programme, a pact with the IMF, the EU and the ECB, which is a true declaration of war against the rights and living standards of the workers and the people. This is the programme which all together and each on their own, they hid from the Portuguese people. The result of these elections are essentially a direct expression of an electoral support resulting from the promises and intentions which the PSD, CDS and PS have sowed, always eluding the fact that the Memorandum which they signed with the IMF and the EU is, in fact, their only true programme of action. The votes that PSD and CDS, but also the PS, have now obtained, may be presented as the result of their false promises. But they cannot in any way be invoked to legitimize the programme of foreign interference which they concealed, and which was therefore not scrutinized. Nor [can they be used] to justify measures of further exploitation of the working people, of greater injustice, of the impoverishment and decline of the country.

3. Difficult times lie ahead for the workers, the people and the country. Not just because Portugal’s situation presents serious and grave problems, but above all because the intentions of the right-wing policies and of those who are getting ready to carry it out, are those of compressing even further the living standards of the Portuguese people, of those who have less and are more vulnerable, at the same time as they hand out benefits and profits to capital. But these are also times of confidence, which the CDU’s result inspires. Confidence in the struggle and the resistance of millions of Portuguese – even of those who have now voted for the Parties of the troika, but who will quickly join us in defense of their rights – to confront and defeat the anti-patriotic projects and measures which they are trying to impose upon us. Confidence in the determination of the workers, the youth and the people, in resisting and defeating each of the measures which will have to be adopted by the Government or in Parliament. Confidence that, in this struggle, they can count on the presence, the coherence and the militancy of the PCP and PEV MPs, but also on our strength and determination to defend, with them, our rights and jobs, to fight against precariousness, to increase wages and retirement pensions, to value domestic production, to support small and medium farmers and businesspeople, to make the banks, the big economic groups and the big fortunes pay the price of the crisis which they, themselves, have created. The PCP, honouring its pledges, will present in the beginning of the parliamentary session, a draft resolution to immediately open up a process of renegotiating the national public debt. This is the only real alternative that can avoid irreparably jeopardizing for many decades to come, the country’s future, its sovereignty and any prospect for its development. We will also present initiatives to value wages and pensions, ensure the struggle against precarious jobs, to defend workers’ rights and to valur public services. Aware of the difficulties and dangers which threaten the country’s near-term future, the CDU reaffirms its conviction that the patriotic and left-wing policies which we propose, in order to confront and overcome the country’s problems, will emerge in the near future as the only solid and safe way forward, which can block the path of national decline and impoverishment to which the right-wing policies – regardless of the line-ups that will emerge in the next few days – wants to lead the country.

4. We greet the thousands of candidates, activists and members of the PCP, PEV and ID, of the CDU Youth and the many independents which, with their generous dedication and their activity, contributed to clarify, to mobilize and to build this CDU result. The CDU also greets all those who gave us their support and their vote, and in particular the many thousands who did so for the first time, reaffirming to you our strongest pledge that, in your action, you will find a force that does not just remain true to its word, but that corresponds to your yearnings and aspirations. A support and confidence that is a solid factor of encouragement for the everyday struggle, and which will tomorrow continue, in order to achieve a new, patriotic and left-wing policy, in defense of the interests of the workers and the people, to assert Portugal as a sovereign and independent nation.hi

Repudiate the Debt Kilkenny

Hope and Defiance11th - 19th June

Kilkenny Repudiates
As part of the week of action of Hope and Defiance. A group of people will be collecting signatures calling for a referendum on the debt and handing out leaflets in Kilkenny, Saturday, June18th. between 11am. and 2 pm. The Tholsel, High Street, Kilkenny.
If you are in the city or live nearby drop along and give a hand out.

Follow Kilkenny's lead.Come on follow their example and organise your own event no matter how small. Get a couple of friends to help organise a few people and have a picnic during next week and plan for something bigger next month. The more events the better. Its all about consciousness raising.