Debt problems continue to burden countries on both sides of the Atlantic. Argentina has just agreed the highest ever International Monetary Fund (IMF) loan and risk premiums for Italian bonds have surged. This is the backdrop for a new report by the Euro-Latin American Parliamentary Assembly (EuroLat – a forum that brings together 150 parliamentarians from the two regions). The report joins growing demands for better institutions to help prevent and resolve debt crises.
Among the report’s recommendations, EuroLat is calling for the creation of an international debt restructuring mechanism, and a European Debt Conference to address the debt restructuring needs of a whole currency area. The EuroLat parliamentarians stress that it is their role to protect democracy and human rights – especially in times of crisis.
Urgent need to address debt crises risks
The spectre of debt crises continues to haunt states around the world. While Greece has not featured much in the headlines in recent months, Italy has emerged as the new epicentre of a potential Eurozone debt crisis. It is a challenging case, as the financing needs of such a large country exceed the firepower of the financial safety net made up of the IMF and its larger European sister, the European Stability Mechanism (ESM).
On the other side of the Atlantic, the IMF has just agreed a whopping US$57.1 billion loan to Argentina. This bailout protects Argentina’s creditors from write-offs, for now, while the country’s population – already reeling from harsh austerity measures introduced to fend of the economic crisis (unsuccessfully) – will feel the impact of the conditions attached to the loan. Parliamentarians are now starting to think about alternatives to this defective and unjust bailout regime.
Parliamentarians stepping in to protect democracy and human rights
Recently, there has been no lack of warnings by the staff of international organisations that better institutions are needed to tackle the new wave of debt crises. However, governments have been reluctant to make a move. Now, legislative branches are increasingly waking up to the challenges ahead while where executive branches continue to sleepwalk. They have good reason to do so, given the track record of debt crisis management as we know it to undermine democracy in affected countries and the human rights of their citizens.
EuroLat’s report criticises the conventional way of managing debt crises as applied internationally by the IMF and, in the Eurozone, by the Troika: “the challenge of restoring the sustainability of sovereign debt in the event of a crisis should not be approached exclusively on the basis of macro-economic variables but … must be compatible with promoting and respecting democracy and human rights”. The parliamentarians stress that countries need to put the rights of their citizens first: “Parliaments must guarantee that the burden of debt crises is spread fairly, preserving the provision of essential public services and protecting the rights of their citizens.”
Better institutions to manage debt crises
On governance reform, EuroLat welcomes the nine Basic Principles on Sovereign Debt Restructuring Processes that were adopted by the United Nations in 2015. While following the principles would already represent a step forward compared to the way sovereign debt restructurings are currently handled, EuroLat also sees them as a step towards a fully-fledged multilateral legal framework to guide restructurings. The report also “reiterates the need to work towards setting up an agreed international sovereign debt restructuring mechanism”.
EuroLat is also calling for progress towards a legal framework simply for the Eurozone, within the context of ongoing reform of the European Monetary Union. This is a key issue that could be discussed and agreed at the European Debt Conference, which EuroLat would like to see.
The report has now been submitted to the Council of the European Union and the European Commission in order to initiate further steps. We look forward to progress at the institutional level and expect that the debt justice issues highlighted by EuroLat will play a crucial role in the run up to the European Parliament elections being held next May.