As the world economy contracts, global debt surges. The IMF have said it will increase by 13 per cent to reach 96.4 per cent of GDP this year. Global debts are the highest they have been since WWII, at a staggering $250 trillion.
That debt takes many different forms: some of it, like UK Government bonds, attracts an interest rate so low right now that it really shouldn’t be a worry. But that’s not true for all countries, especially the poorest ones. Many governments in the global south are spending more on debt repayments than on annual healthcare budgets, and half of that is going to commercial creditors, mainly based in the west. Some of these debts appeared serviceable until suddenly the hot flows of global investment into ’emerging markets’ turned cold as Covid-19 took hold. The movement of money out of the global south has been the largest in the post-war era, with over £100 billion of investments disappearing in the space of six weeks, probably down a tax haven shaped hole. The bounty of globalisation suddenly looks like quick-sand, and as always its those with least who get sucked under first.
Calls for debt amnesties or suspensions for the global south are mounting. It is likely that some sort of restructuring will be done, as otherwise many creditors will face the prospect of countries taking it upon themselves to default entirely, meaning they could get nothing. Argentina has been battling with the creditors for decades, and last week it decided to postpone any further payments on $10 billion of dollar-denominated debt. One bondholder of Argentinian debt told Reuters yesterday that Argentina was using Covid-19 as an “excuse” not to make more budget cuts to pay the debt. How dare the Argentinians try to put saving lives before their debt repayments!?
The same financial institutions demanding the global south honours pre-existing agreements have no problem taking bailout money hand over fist from their own governments and central banks. The Federal Reserve has offered US finance almost unlimited protection in this crisis, they call it “QE infinity”: the Central Bank simply creates new dollars to plug the financial holes of the bankers. Debt is about power, but that also takes a moral form of guilt: the debtor feels obliged to pay. But if US creditors have no genuine liabilities because they will always be bailed out by their Central Bank, then why do the debtors need to keep paying?
Imagine if that thought – that perhaps we shouldn’t pay – was extended not just to governments in the global south, but across the economy as a whole. The debt economist Michael Hudson has written about how before the Romans, it was common that when the imbalance between creditor and debtor grew too great, the debts would be cancelled.
“So from the time that the Roman oligarchy overthrew the last king in 509 BC down to the time when Julius Caesar was killed in 44 BC, you had five centuries of debt revolts,” Hudson says. “The plebeians in Rome, like many Greeks, demanded the debts be cancelled.”
In Scotland, Council Tax debt has never been higher, and is overwhelmingly owed by those least able to pay, hence why they fall into the debt trap in the first place. The 10 per cent charge on Council Tax debt is steep. Aberdeen City Council has suspended council tax debt collection during this crisis, perhaps an example for other Councils to follow.
The late classicist Moses Finley wrote that in the time of the ancient world, all revolutionary movements had the same slogan: “Cancel the debts and redistribute the land”. Is it time to take a leaf out of their book?
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