Thirty years since Mexico’s default, Greece must break this sadistic debt spiral

We must retake control of our economies from the banks.

As Greece’s leaders pay down the latest multi-billion euro instalment on their debt, they would do well to take notice that tomorrow is the anniversary of an event of great resonance.

On 20 August 1982, Mexico declared a debt moratorium - effectively defaulting on its massive debts. Although debts in many Latin American countries had caused suffering for a number of years, this was the moment the leaders of the West were forced to confront what came to be called the ‘Third World Debt Crisis’.

Mexico owed over $50 billion, 90% to foreign private creditors - primarily US, Japanese and British banks. These banks had gone on a lending binge during the 1970s using the profits oil exporting countries had deposited with them from the oil spike. American overspending, notably on the Vietnam War, was recycled as debt to the rest of the world and, to help this, controls on international movements of money were dismantled.

Just as in our current financial crisis, bank loans to Third World countries had tended to be organised through syndicates: loans were packaged up together and then lent on in one go. This bundling meant many banks felt no need to conduct their own risk assessment. Four of the fifteen largest lenders to Latin America by 1982 were British banks: Lloyds, Midland, Barclays, and Natwest. American lenders included Citicorp, Bank of America, and Chase Manhattan.

At the end of the 1970s the US Federal Reserve sprung the trap, massively hiking interest rates in order to save their banks from inflation. The costs for this move were pushed onto Third World countries like Mexico. Two years later, the inevitable happened.

Now US and British banks faced a crisis. If loans from Mexico and other Latin American countries were not paid, they could go bankrupt. The banks stopped lending to Latin America, pushing more countries closer to default, and lobbied the US government to get them out of their mess. The US responded by getting the International Monetary Fund, and later the World Bank, to provide bailout loans to Latin American governments.

In 1982 the IMF lent Mexico $4 billion, which went straight back out of the country to pay western banks - a perfect mirror of what is happening with so-called bail-outs to Greece and other Eurozone countries today. At the same time, the IMF insisted Mexico introduce radical austerity and liberalisation. There were cuts in every area of government spending.

The economy collapsed and stagnated, many industries shut down, with the loss of at least 800,000 workers altogether. By 1989, the Mexican economy was still 11% smaller than 1981. Meanwhile, the debt doubled from 30% of GDP in 1982 to 60% by 1987.

The same story was repeated across Latin America. In 1990 Latin American economies were on average 8% smaller than they had been in 1980, and the number of people living in poverty increased from 144 million to 211 million. Former Colombian Finance Minister Jose Antonio Ocampo calls the bail-out responses "an excellent way to deal with the US banking crisis, and an awful way to deal with the Latin American debt crisis".

Meanwhile, government external debt more than doubled (from an average of 17% in 1982 to 44% by 1988). Just as in Greece today, the bailouts had nothing to do with long-term sustainable finances - they were bailing out reckless lenders who had over-stretched themselves.  

In fact, the banks gradually wrote-down the ‘book value’ of how much they regarded the debts to be worth, even while they were being repaid. They were allowed to set these theoretical losses off against profit for tax reasons, greatly reducing the tax bill of US and British banks. In 1987 alone, Barclays, Midland, Lloyds and Natwest received a tax relief subsidy of up to $1.75bn across the four banks. Then campaign organiser for War on Want John Denham accused the Thatcher government of "joining in the banks' attempts to have the burden of repayment pushed onto taxpayers."

The policies of bailout and austerity went on to be practiced across the world in the years that followed the Latin American catastrophe. That experience forced dozens of countries through two lost decades of development and enthroned the financiers as the new masters of the universe.

Today Greece, as well as other European countries, can share in the experience of Latin America from the 1980s. Then as now, bailout money was used to repay reckless banks, whilst austerity has served only to shrink economies and increase the relative size of the debt. Since 2010 the Greek government’s external debt has increased from 118% of GDP to 150% in 2012. The economy has shrunk by 15% since the start of 2010 and unemployment has reached 19%.

To repeat such failed policies is more than carelessness. The future of Europe’s economy, indeed the world economy, will be decided by a battle between the financial masters on the one side, and the peoples of the most indebted states in Europe on the other - Greece first. We either retake control of our economy from the banks, or we deepen an economic experiment which has had an incalculable cost in terms of the lives and livelihoods of millions of people. 

Nick Dearden is the director of the Jubilee Debt Campaign

Employees of Greece's ATEbank shout anti government slogans on August 3 in Athens. Photo: Getty
Photo: Getty
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Lowering the voting age is the best way to protect the franchise we've fought so hard for

Empowering young people is the best way to renew civic and political engagement.

Too many believe that politics isn’t working for them. That those who make decisions are not acting in their interests. And too often, narrow interests win over the wider public interest. Our economy isn’t working either. It never will until we repair our fragile politics.

When I was leader of Oldham Council I recognised that to reform, it must open up. It needed to bring forward ideas and challenges from all those who are affected by decisions taken in their name.

We gave constitutional rights for the youth council to move motions and reports at our full council meeting. We opened up our meetings with live web-streaming and questions from all residents. And we embraced social media, combined with instant comments, which were shown in the chamber during debates.

It opened up democracy and gave councillors an insight into issues which affect young people. But two things stood out. The first was that many of these issues are the same ones which affect the wider public. But they are affected in different ways by decisions or the lack of action by government. Second, and most importantly, while we were engaging young people they had no say over who was making decisions on their behalf.

So of crucial importance to me is how we bolster democracy to weather the challenges it faces today and in the future. Recent events at home and abroad have convinced me of the importance of this. There are two separate approaches that parliament must take. Firstly, we must devolve more power from central government to local communities. And secondly, we must at all costs renew civic and political engagement here in the UK. I’ve come to believe that getting more and more young people engaged in politics is fundamental to realising this second point. And I see lowering the voting age as key to cementing this.

I hear the arguments against this loud and clear. Eighteen is the official age of independence. Eighteen is when someone forms their world view. And 18 is when reasoned, judgemental thought suddenly kicks in. On that basis, the years preceding that are presumably some kind of wilderness of rational thinking and opinion forming. Someone even tweeted at me this week to inform me that under-18s don’t know what they want for dinner, let alone how to vote.

Needless to say, I find all these points unconvincing and in some cases dismissive and patronising.

I speak with people even younger than 16 who have coherent views on politics, often a match for any adult. They even know what they want for dinner! And I am of the strong belief that empowering young people through a wider enfranchisement will speed up this development. Even better if votes at 16 is accompanied by compulsory political education in the preceding years.

So if your argument is that young people are too immature, that they lack political knowledge to be given the vote, or that they aren’t responsible enough – then I say to you, bring on lowering the voting age! As my argument is that empowering young people to vote will help overcome these challenges where they exist.

But where do other countries sit on lowering the voting age? Admittedly, among western democracies, the UK would be taking a bold step-forward. In Europe, it’s only Austria where all 16-year-olds can vote. There are some patchwork exceptions to this closer to home. For example, the voting age on the Isle of Man is 16. And this week we heard that the Welsh Assembly is considering lowering the voting age to 16 for local elections.

Outside of these scant examples, there is little precedent for change. However, we shouldn’t find ourselves cowed by this. Our past is littered with bold actions, proud speeches and even lives lost to win and defend the right to vote.

200 years ago on Tandle Hill in Royton hundreds of protestors, who had travelled from nearby mill towns like Oldham and Rochdale, gathered together. They were preparing to march on Peters Field in Manchester on a summer’s day in August 1819. What was at stake was a greater say in parliamentary decisions, at a time of famine and widespread poverty. Non-land-owning workers were entirely excluded from the franchise. By the end of the day, government cavalry had cut down 14 protesters, and injured hundreds more. In 1832 only men renting or owning valuable land were given the vote. And it wasn’t until 1918 that all men were included in the franchise.

This month we remember the 100-year anniversary of the Battle of Passchendaele. The sacrifices made during the First World War by our working-class men and boys, 250,000 of whom were under 18, was a catalyst for extending the vote to all men.

Next year we celebrate 100 years since the start of women’s suffrage. In Oldham, Annie Kenney and Emmeline Pankhurst fought tirelessly. They would both be arrested before seeing that privilege granted to only some women in 1918. Today it is sobering to think that women didn’t have the vote before 1918.

And it was only in 1970 that the voting age was lowered from 21 to 18, allowing teenagers to vote for the first time in the UK. Prevalent then were exactly the same arguments that stop 16- and 17-year-olds voting today.

While we recognise the fight of others, we fail in our duty if we believe the fight for democracy is settled.

So I draw inspiration from how the franchise has steadily grown throughout our history. And I reflect on the acts of courage, grit and determination that have won us that change. With the extension of the franchise have come the liberties, freedoms and values that make our society what it is today. It hasn’t happened of its own accord. Lives have been lost and bold steps have been taken for us to enjoy placing that cross alongside the candidate of our choosing.

This cannot be seen as a way to shift the political debate to young voters either. Many older voters, including many of my friends and family, feel that politics isn’t working for them either. Reducing the voting age isn’t the silver bullet to address that disconnect, but it is vital to strengthening connect between decision makers and those who pay taxes.

I welcome the debate on lowering the voting age. A debate about once again spreading the freedoms and responsibilities of our society to many more people. And I’ll match arguments against this every step of the way. Because I am clear in my mind that defending the franchise and extending the franchise are two sides of the same coin.

Jim McMahon is the Labour MP for Oldham West and Royton.

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