EU/IMF Revolt - Greece, Iceland, Latvia May Lead the Way

Total financial collapse, once a problem only forhave sold their souls to the devil" and "We are
developing countries, has now come to Europe.against poverty." In the Iceland Parliament, the
The International Monetary Fund is imposing itsIceSave debate had been going on for over 140
"austerity measures" on the outer circle of thehours at last report, a new record; and a growing
European Union, with Greece, Iceland and Latviaportion of the population opposes underwriting a
the hardest hit. But these are not your ordinarydebt they believe the government does not owe.
third world debtor supplicants. Historically, theIn a December 3 article in The Daily Mail titled
Vikings of Iceland successfully invaded Britain;"What Iceland Can Teach the Tories," Mary Ellen
Latvian tribes repulsed the Vikings; and theSynon wrote that ever since the Icelandic
Greeks conquered the whole Persian empire. Ifeconomy collapsed last year, "the empire builders
anyone can stand up to the IMF, these stalwartof Brussels have been confident that the
European warriors can.bankrupt and frightened Icelanders must finally be
Dozens of countries have defaulted on their debtsready to exchange their independence for the
in recent decades, the most recent being Dubai,'stability' of EU membership." But last month, an
which declared a debt moratorium on Novemberopinion poll showed that 54 percent of all
26, 2009. If the once lavishly-rich Arab emirateIcelanders oppose membership, with just 29
can default, more desperate countries can; andpercent in favor.
when the alternative is to destroy the localIceland, Latvia and Greece are all in a position to
economy, it is hard to argue that they shouldn't.call the bluff of the IMF and EU. In an October 1
That is particularly true when the creditors arearticle called "Latvia - the Insanity Continues,"
largely responsible for the debtor's troubles, andMarshall Auerback maintained that Latvia's debt
there are good grounds for arguing the debts areproblem could be fixed over a weekend, by a list
not owed. Greece's troubles originated when lowof measures including (1) not answering the phone
interest rates that were inappropriate for Greecewhen foreign creditors call the government; (2)
were maintained to rescue Germany from andeclaring the banks insolvent, converting their
economic slump. And Iceland and Latvia haveexternal debt to equity, and having them reopen
been saddled with responsibility for privatewith full deposit insurance guaranteed in local
obligations to which they were not parties.currency; and (3) offering "a local currency
THE DYSFUNCTIONAL EU: WHERE A COMMONminimum wage job that includes healthcare to
CURRENCY FAILSanyone willing and able to work as was done in
Greece may be the first in the EU outer circle toArgentina after the Kirchner regime repudiated
revolt. According to Ambrose Evans-Pritchard inthe IMF's toxic package of debt repayment."
Sunday's Daily Telegraph, "Greece has becomeEvans-Pritchard suggested a similar remedy for
the first country on the distressed fringes ofGreece, which he said could break out of its death
Europe's monetary union to defy Brussels andloop by following the lead of Argentina. It could
reject the Dark Age leech-cure of wagerestore its currency, devalue, pass a law switching
deflation." Prime Minister George Papandreou saidinternal euro debt into the local currency, and
on Friday, "Salaried workers will not pay for this"restructure" foreign contracts.
situation: we will not proceed with wage freezesTHE ROAD LESS TRAVELED: SAYING NO TO
or cuts. We did not come to power to tear downTHE IMF
the social state."Standing up to the IMF is not a well-worn path,
Evans-Pritchard says Mr Papandreou has goodbut Argentina forged the trail. In the face of dire
reason to throw the gauntlet at Europe's feet.predictions that the economy would collapse
Greece is being told to adopt an IMF-stylewithout foreign credit, in 2001 it defied its
austerity package, without the devaluation socreditors and simply walked away from its debts.
central to IMF plans. "The prescription is ruinousBy the fall of 2004, three years after a record
and patently self-defeating."default on a debt of more than $100 billion, the
The currency cannot be devalued because thecountry was well on the road to recovery; and it
same Euro is used by all. That means that whileachieved this feat without foreign help. The
the country's ability to repay is being crippled byeconomy grew by 8 percent for 2 consecutive
austerity measures, there is no way to lower theyears. Exports increased, the currency was
cost of the debt. Evans-Pritchard concludes, "Thestable, investors were returning, and
deeper truth that few in Euroland are willing tounemployment had eased. "This is a remarkable
discuss is that EMU is inherently dysfunctional - forhistorical event, one that challenges 25 years of
Greece, for Germany, for everybody."failed policies," said economist Mark Weisbrot in a
Which is all the more reason that Iceland, which is2004 interview quoted in The New York Times.
not yet a member of the EU, might want to"While other countries are just limping along,
reconsider its position. Iceland is being required asArgentina is experiencing very healthy growth
a condition of EU membership to endorse anwith no sign that it is unsustainable, and they've
agreement in which it would reimburse Dutch anddone it without having to make any concessions
British depositors who lost money in the collapseto get foreign capital inflows."
of IceSave, an offshore division of Iceland'sWeisbrot is co-director of a Washington-based
leading private bank. Eva Joly, a Norwegian-Frenchthink tank called the Center for Economic and
magistrate hired to investigate the Icelandic bankPolicy Research, which put out a study in October
collapse, calls it blackmail. She warns that2009 of 41 IMF debtor countries. The study found
succumbing to the EU's demands will drain Icelandthat the austere policies imposed by the IMF,
of its resources and its people, who are beingincluding cutting spending and tightening monetary
forced to emigrate to find work.policy, were more likely to damage than help
In Latvia, meanwhile, the EU and IMF have toldthose economies.
the government to borrow foreign currency toThat was also the conclusion of a study released
stabilize the exchange rate, in order to helplast February by Yonca Özdemir from the
borrowers pay mortgages taken out in foreignMiddle East Technical University in Ankara,
currencies from foreign banks. As a condition ofcomparing IMF assistance in Argentina and
IMF funding, the usual government cutbacks areTurkey. Both emerging markets faced severe
also being required. In November, the Latvianeconomic crises in 2001, but where Argentina
government adopted its harshest budget ofbroke ranks with the IMF, Turkey followed its
recent years, with cuts of nearly 11%. Theadvice at every turn. The end result was that
government had already raised taxes, slashedArgentina bounced back, while Turkey is still in
public spending and government wages, and shutfinancial crisis. Argentina chose to direct its
dozens of schools and hospitals. As a result, theresources inward, developing its domestic
national bank forecasts a 17.5% decline in theeconomy.
economy this year, just when it needs aTo find the money for this development,
productive economy to get back on its feet.Argentina did not need foreign investors. It issued
In Iceland, the economy contracted by 7.2%its own money and credit through its own central
during the third quarter, the biggest fall on record.bank. Earlier, when the national currency collapsed
As in other countries squeezed by neo-liberalcompletely in 1995 and again after 2000,
tourniquets on productivity, employment andArgentine local governments issued local bonds
output are being crippled, bringing thesethat traded as currency. Provinces paid their
economies to their knees.employees with paper receipts called
The cynical view is that that may have been the"Debt-Cancelling Bonds" that were in currency
intent. Instead of helping post-Soviet nationsunits equivalent to the Argentine Peso. The bonds
develop self-reliant economies, writes Marshallcanceled the provinces' debts to their employees
Auerback, "the West has viewed them asand could be spent in the community. The
economic oysters to be broken up to indebtprovinces had actually "monetized" their debts,
them in order to extract interest charges andturning their bonds into legal tender.
capital gains, leaving them empty shells."Issuing and lending currency is the sovereign right
But the people are not submitting quietly to all this.of governments, and it is a right that Iceland and
In Latvia last week, while the Parliament debatedLatvia will lose if they join the EU. Argentina is a
what to do about the nation's debt, thousands oflarge country with more resources than Iceland,
demonstrating students and teachers filled theLatvia or Greece, but new technologies are now
streets, protesting the closing of a hundredavailable that could make even small countries
schools and reductions in teacher salaries of up toself-sufficient. See David Blume, "Alcohol Can Be a
60%. Demonstrators held signs saying, "TheyGas.