# The Specter of Debt Revolt Is Haunting Europe: Why Iceland and Latvia Won't (and Can't) Pay for the Kleptocrats' Ripoffs



## somnambulist (Aug 18, 2009)

By Michael Hudson

In the wake of the world crash populations are asking not only whether debts should be paid, but whether they can be paid! If they can’t be, then trying to pay will only shrink economics further, preventing them from becoming viable. This is what has led past structural adjustment programs to fail.

For the past decade Iceland has been a kind of controlled experiment, an extreme test case of neoliberal free-market ideology. What has been tested has been whether there is a limit to how far a population can be pushed into debt-dependency. Is there a limit, a point at which government will draw a line against by taking on public responsibility for private debts beyond any reasonable capacity to pay without drastically slashing public spending on education, health care and other basic services?

The problem for the post-Soviet economies such as Latvia is that independence in 1991 did not bring the hoped-for Western living standards. Like Iceland, these countries remain dependent on imports for their consumer goods and capital equipment. Their trade deficits have been financed by the global property bubble – borrowing in foreign currency against property that was free of debt at the time of independence. Now these assets are fully “loaned up,” the bubble has burst and payback time has arrived. No more credit is flowing to the Baltics from Swedish banks, to Hungary from Austrian banks, or to Iceland from Britain and the Netherlands. Unemployment is rising and governments are slashing healthcare and education budgets. The resulting economic shrinkage is leaving large swaths of real estate with negative equity.

Can Iceland and Latvia pay the foreign debts run up by a fairly narrow layer of their population? The European Union and International Monetary Fund have told them to replace private debts with public obligations, and to pay by raising taxes, slashing public spending and obliging citizens to deplete their savings. Resentment is growing not only toward those who ran up these debts – Iceland’s bankrupt Kaupthing and Landsbanki with its Icesave accounts, and heavily debt-leveraged property owners and privatizers in the Baltics and Central Europe – but also toward the neoliberal foreign advisors and creditors who pressured these governments to sell off the banks and public infrastructure to insiders. Support in Iceland for joining the EU has fallen to just over a third of the population, while Latvia’s Harmony Center party, the first since independence to include a large segment of the Russian-speaking population, has gained a majority in Riga and is becoming the most popular national party. Popular protests in both countries have triggered rising political pressure to limit the debt burden to a reasonable ability to pay.

This political pressure came to a head over the weekend in Reykjavik’s Parliament. The Althing agreed a deal, expected to be formalized today, which would severely restrict payments to the UK and Netherlands in compensation for their cost in bailing out their domestic Icesave depositors.

This agreement is, so far as I am aware, the first since the 1920s to subordinate foreign debt to the country’s ability to pay. Iceland’s payments will be limited to 6 per cent of growth in gross domestic product as of 2008. If creditors take actions that stifle the Icelandic economy with austerity and if emigration continues at current rates to escape from the debt-ridden economy, there will be no growth and they will not get paid.

A similar problem was debated eighty years ago over Germany’s World War I reparations. But policy makers are still confused over the distinction between squeezing out a domestic fiscal surplus and the ability to pay foreign debts. No matter how much a government may tax its economy, there is a problem of turning the money into foreign currency. As John Maynard Keynes explained, unless debtor countries can export more, they must pay either by borrowing (German states and municipalities borrowed dollars in New York and cashed them in for domestic currency with the Reichsbank, which paid the dollars to the Allies) or by selling off domestic assets. Iceland has rejected these self-destructive policies.

Η συνέχεια εδώ.


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## drsiebenmal (Aug 18, 2009)

Πολύ ενδιαφέρον άρθρο! Και ιδιαίτερα ενδιαφέρουσα η αντίδραση της Ισλανδίας, όπου δεν είναι εύκολο να ανατραπεί ολόκληρη βουλή για να αντικατασταθεί από μια πιο βολική --ή μήπως όχι;


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## Costas (Aug 19, 2009)

Σ' εμάς, πάντως, ο Κωστάκης απλώς θα επιβάλει τέλος 12 (+ΦΠΑ = 14,3) τοις εκατό στα καρτοκινητά.


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## drsiebenmal (Aug 28, 2009)

Iceland to pay back Icesave cash (σήμερα από το BBC). Εγώ καταλαβαίνω ότι ουσιαστικά πέρασε των Ισλανδών. Άλλωστε, ουκ αν λάβοις...


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## anef (Aug 28, 2009)

Ο σύνδεσμος για τη συνέχεια βγάζει σε ένα άρθρο για τις αρκούδες:). Το άρθρο για την Ισλανδία είναι αριστερά, κάτω από την ημερομηνία August 18, 2009.


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## drsiebenmal (Aug 28, 2009)

anef said:


> Ο σύνδεσμος για τη συνέχεια βγάζει σε ένα άρθρο για τις αρκούδες:). Το άρθρο για την Ισλανδία είναι αριστερά, κάτω από την ημερομηνία August 18, 2009.



Η συνέχεια για το αρχικό άρθρο --το λινκ για το πιο πάνω σημερινό του BBC λειτουργεί κανονικά


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