Download Citizens` initiative for the audit of public debt

Citizens’ initiative for the audit of public debt - Portugal
Notes by Isabel Castro
Workshop: “Who owes whom? Citizens’ initiatives for the audit of public debt” 10.05.2013, Madrid
1. Background:
2008: The United States of America is the epicentre of financial and economic tsunamis that would
soon engulf Europe.
2008: States decide to save the global banking system with massive injections of capital and to
socialise losses and damages. In other words, states decide to play the role of insurance companies
and to impose the cost of the banks’ risky speculation on citizens.
By the year 2008 public debt in Portugal represented 68% of GDP (quite similar to that of France,
Germany, Austria and the Netherlands but much lower than Greece, Italy or Belgium). However
external debt was a problem, being above the EU average, with only Greece and Italy in a worse
position.
Thus far, Europe’s policy responses have been disastrous! The strategy of weakening social
protection and focusing the cuts on the most vulnerable proved to be a social disaster, an economic
mistake and a political risk.
After March 2010 when the first austerity measures (the Stability Growth Programme) were adopted
by the minority government in Portugal (in line with their new economic governance strategies and
the European Council resolutions) public debt started to increase even faster.
In 2011, the rejection of the new austerity package (PEC IV) by all parliamentary parties led to the
resignation of the minority Socialist Party government. Under increasing pressure from the European
Central Bank, EU institutions and bankers, the recently-dismissed government was forced to ask for
international assistance and to sign, together with conservative parties, the Troika’s Memorandum
of Understanding, at which point public debt had already reached 110% of GDP, approximately
190bn Euro. Austerity was now official, as was recession.
As a result, cuts to the most basic of the state’s social functions have been justified on the basis of
the necessity of financing payment of public debt. The austerity measures and structural adjustment
policies inscribed in the Memorandum of Understanding started to affect people’s living conditions,
limiting their access to healthcare, education, social protection, housing and culture. The streets
were gripped by protest.
2. Citizens’ audit for the public debt initiative. Lisbon Convention, December 2011
Something has to be done! A group of citizens took the initiative. We demand transparency,
democracy, independence, citizens’ control and participation.
We decided to address the challenge: we launched a citizen-led public debt audit to verify the
dimensions, characteristics, origins, legitimacy and sustainability of the compromises undertaken in
our name. The state, in making these commitments, gave priority to the financial system instead of
honouring its contract with its citizens; a decision which put in danger not only our future, but that
of Europe.
A diverse group of volunteers began to work together: citizens from different generations and
religions, many academics, some people from political parties, activists from NGOs and people from
the new movements and organisations born of the crisis (the Indignados, the Precarios and M12M –
the latter was the first public protest in Europe on March 12, 2011 in which more than a million
citizens took part, organised with social networking sites with neither parties nor unions being
involved).
In December 2011 a call for a public convention organised through social networking sites got more
than 2,000 signatures and led us, in that same month, to a convention in Lisbon, attended by 700.
The purpose of the convention was to promote the citizens debt audit initiative; 44 people were
mandated to launch the audit and to commit to publicly presenting the results. Our motto was: We
don’t owe! We won’t pay!
What was important for us was to know. To know to act. To act for change, since this was not a
financial crisis, but a political crisis indicative of the collapse of a model of organisation of society.
3. The first steps
The audit took the form of two different, but complementary, approaches. The first technical, the
second based on citizenship and awareness. The guiding principles were: cooperation with
organisations and people; making information regularly available to the public; clear objectives so
as to maintain clarity and focus.
In technical terms, working groups were created, including experts and academics, which focused on
the areas we identified as most important for understanding the situation: the process of becoming
indebted; the impact of the architecture of the Euro on the economy and on debt (private and
public); the Public-Private Partnership (PPP) process used for infrastructure and the road and health
sectors); the rent system; the financial sector (bank processes and the current criminal investigation
into the Banco Portugues de Negocios (Portuguese Business Bank).
On the other hand, we invested in a citizen approach to achieve a better understanding of the
mechanisms behind the origin of debt, the dynamics behind it, the political context and the ethical
and human rights conflicts surrounding austerity and debt.
A demanding intervention was necessary to counterbalance the lethal weapon of the fear, ignorance
or disinterest that some groups in society still lived in; a state encouraged by shameful propaganda
and supported by lies such as: we live beyond our means; the debt is our own fault (the famous
Schuld the Germans used to talk so much about); southern people are lazy or that we must just
simply honour our debts (as if were talking about bank money, obtained by means of hard work).
In order to achieve these goals, specific groups were created: a technical one; another for
communications (website, video, document creation, article publication, evaluations; another to
create and coordinate all kinds of initiatives (training sessions for unions and NGOs, debates, public
sessions, cinema showings, themed discussions, etc.). Also a further small group for investigating
international affairs—an important part of our learning process and intervention model—allowing us
to learn and share our experiences as well as to regularly cooperate with other platforms,
movements and networks and the local, national and European level.
4. Citizens’ debt audit agenda
We wanted to keep citizens informed and answer the key questions. Why do we have so much
public debt? Who holds our public debt? Can the debt be paid? Should it be paid?
1. Why do we have so much public debt?
Firstly, public debt is not a problem created by the Portuguese, the Spanish, the Irish or any other
European country. Debts exists because institutions, governments and political power are beholden
to the financial system.
Public debt exists because states gave priority to banks and decided to cover the losses and damages
which the financial system racked up over years as a result of their speculation, greed and even
criminal activities.
As a result of the under-democratic architecture of the Euro and the lack of solidarity among EU
countries, they have brought Europe to the brink of collapse.
The result of the EU’s inappropriate response to the crisis: a new system of economic governance
was imposed (by treaty and law) to implement an authoritarian austerity agenda. Because austerity
destroys jobs, society and democracy it aggravates the crisis instead of resolving it. This brings
inequality to an extreme level, acts against human rights and increases the power of finance.
In our case, we are in our current situation for three related reasons:
1) The existence of a process of indebtedness since the 2000s as a result of certain EU policies
(originating in the destruction of important sectors such as fishing and agriculture), the Euro
architecture, the changes which occurred in the World Trade Organisation.
2) The negative impact of the architecture of the Euro, with no mechanisms to balance the
different structures of different economies; i.e. a Euro designed not for Europe as a whole,
but for the benefit of those countries with stronger economies and currencies.
3) A Eurozone that did not take into consideration the specific characteristics and structural
fragilities of other European economies, such as the peripheral, Portuguese, Irish, Greek or
even Spanish ones who had lost control over their mechanisms of devaluation and debt
control
As an example of political responsibility, I would like to underline the following, some of which
reflect corruption and the too-close relationship between politics and finance:
No efficient intervention and regulation on the banking or financial system;
The scandals in the banking sector, obliging in one case the ECB to rescue the bank, costing
the taxpayer more than 6bn Euro;
Useless public infrastructure investments, e.g. roads;
Adoption of unfair partnerships, involving banks and the private sector.
In short, our current public debt situation because of the international crisis, European policies
and national errors.
2. Who holds Portuguese public debt?
International assistance from the Troika, the EU, the ECB and the IMF provided 78bn Euro to the
Portuguese state in 2011 when the bailout occurred. But this is not the entire picture as 34bn were,
in fact, paid to the Troika to make up for interest rates and commissions and another 13bn were for
capitalising banks.
At the end of 2007, 70% of Portuguese public debt was in the hands of bankers and other
international investors (private creditors) but by the middle of 2012 (after the bailout) this had fallen
to 20% while, in the meantime, the public debt held by the Troika (official creditors) rose from 0% to
40%.
In December of 2011, 32% of Portuguese public debt was held by the EU, ECB and the IMF; 22% by
international financiers; 18% by international banks and a mere 7% by families.
Two years later, however, the situation has changed and the Troika (the official creditors) hold the
majority of our debt – almost 70%!
What happened, and why? The reasons lies in the perverse mechanism on which all processes of
indebtedness are based.
In fact, each time the Troika “helps us”, by which I mean, lends us money, it is lending us money only
to help us repay our old debts to them, to help us to pay for European investment funds, to help
lend more capital to banks and finally to help them pay back the interest rates on their loans – this is
the essential part of this business and there is no room here for solidarity!
In fact, this is the logic inherent to the debt mechanism – take on new debt to pay off the old! This is
a trap we need to escape from.
3. Can we pay the debt?
The mechanism of indebtedness shows that it is impossible to pay off the debt, due to the austerity
and structural adjustment policies (as well as previous packages) which are all justified by the need
to reduce public debt but are exactly those same policies that destroy jobs, the economy, reduce
growth and exacerbate the spiral of recession; i.e. policies that increase debt. If Europe continues
with such insanity it will simply aggravate the current situation. Portuguese public debt is not
sustainable.
This conclusion is quite clear if we look at the Troika’s projections, which are constantly changing.
Correction after correction (six in only two years) disguise their permanent failure in unemployment
projections, tax revenues, decline in the economy, recession evaluation, exports, debt reduction,
expected deficit, or whichever measure you choose to examine. The economic recession has
deepened. Social conditions have deteriorated. The failure is complete, as are there persistent
errors.
Some examples: in August 2012, the government estimated that public debt by the end of the year
would stand at 106% of GDP. Two months later this was corrected to 110%, by December the Troika
would adjust this figure to 116% of GDP. Public debt is always increasing because the wealth
produced (GDP) is always declining as a result of austerity.
The last few months are a dramatic example of the total lack of control. In September, the Troika
announced that public debt would reach 120% of GDP, in December this was corrected to 123% and
by the end of March it was declared to have reached 126% of GDP.
Portuguese debt is not sustainable not only in spite of the enormous sacrifices imposed, but rather
precisely as a result of them.
A recession is predicted for 2013;
the UN’s human development indicators fell by two points last year;
there has been a strong reduction in consumption, with consequences in the international
market, resulting in less taxes being collected than anticipated;
the number of firms (mostly small) going bankrupt is increasing year on year (with increases
of more than 12% in 2011 and more than 45% in 2012);
the unemployment rate in 2000 was 4.5% and has continuously increased to 8.% in 2008. In
the first quarter of 2012 it stood at 15.6%. During the first three months of 2012 it stood at
18%. It looks as if it will keep increasing more next year, with more than a million people
without work, 55% of which have no public support. Half of those who do work are in
insecure unemployment;
young people have no hope. More than 40% of them belong to the most well-educated
generation yet have no jobs and no future;
in terms of emigration, more than 120,000 have been leaving each year since 2010 – such
heights have not been seen since the 60s, when there was a colonial war and the
authoritarian rule of Prime Minister Salazar led to many youths fleeing the country;
salaries are 20% lower whilst work has increased (from 35 to 40 hours a week in the public
sector);
social benefits have been permanently curtailed. The number of those covered by a
minimum income has decreased; access has been limited to the public support system,
which has particularly affected pensioners and retired persons;
25% of the Portuguese population is living below the poverty line;
In schools thousands of children are hungry;
Rent market deregulation is forcing entire families onto the streets or crammed into their
families’ apartments;
The suicide rate has increased;
Examples of some of the ecological consequences of austerity:
More than 100 mining operations are currently underway for gold, silver, rare earths, gas,
iron, tungsten, etc. without any kind of environmental regulations;
Water services are being privatised;
Land use changes without any environmental impact evaluations.
The public debt will never be paid off by continuing in this way. This is a neoliberal Troika agenda,
served by a government in which former Goldman Sachs employees, under the pretext of solving the
public debt problem are profiting from the implementation of a privatisation programme from which
nothing can escape.
When analysing the results of all the dramatic social cuts and austerity we are forced to conclude
that they have been a spectacular failure. In six years the public debt has almost doubled from
108bn in 2006 to 194bn in 2012. Between 2007 and 2009 the debt increased by €22m a day. From
2010 to 2012 it increased by €56m a day.
4. Should we pay off the public debt?
No debt which violates our human rights should be paid. No debt should be paid which requires the
state not to honour its contract with its citizens to ensure education, health care, protection in old
age—built up through generations of activism by citizens.
No debt should be paid if it means ignoring democratic procedures, and does not allow for citizen
participation in the decision-making process.
These are questions that citizens understand. These are questions that have been at the centre of
debates over the last few years in different international fora such as the United Nations, the Council
of Europe and human rights organisations.
When we realise the sort of unbearable social costs of paying this public debt it is clear that we
should not pay, especially not in this way, nor for all of this public debt.
Our demands are:
A fair and sustainable solution to the public debt problem at the European level, as we
consider it to be a problem for Europe as a whole.
We consider that the Portuguese state should take the initiative to launch a process to
restructure the public debt to eliminate its illegitimate components (including the interest
rates).
Stop austerity politics. There must be a renegotiation of interest rates (this year they
represent as much as the 2013 national budget for health or education), of debt maturity
terms and of payment criteria in order to bring them into line with what is financially
sustainable and so as to free resources for economic activity and employment to ensure the
Portugal’s development.
It would be useful to establish a moratorium on interest rate payments during the
negotiation process.
Publicly available information and citizen participation must be guaranteed during this
process. For that purpose we, in collaboration with other organisations and individuals, are
about to launch a citizens’ initiative campaign in order to present our demands to
Parliament.
Furthermore:
We consider that the Portuguese government should accept the incompatibility of present
politics and procedures in order to initiate a negotiation on the changing of rules.
The financial sector must be brought under control, a tax should be imposed on financial
transactions and Eurozone governments should act in solidarity with one another.
Austerity policies should be reversed and the fiscal compact removed.
New resources should urgently be invested in a programme for a transition to an ecological
society.
The financial system should be radically downsized, including the introduction of a financial
transaction tax, limitations on speculative finance and capital movements.
The taxation system must be reformed in order to achieve the redistribution of income and
wealth.
The control of the economy must be withdrawn from the financial sector and returned to
the state and citizens. It must serve the common good and eco-social development.
European citizens need to launch a serious discussion about the future of Europe. Because there is a
debt, a social debt, and it needs to be taken care of before it’s too late.