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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.