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
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Boris Johnson isn't risking his political life over Heathrow

The anti-Heathrow campaigner was never a committed environmentalist. 

A government announcement on expanding London’s airports is expected today, and while opposition forces have been rallying against the expected outcome - a third runway at Heathrow - the decision could also be a divisive one for the ruling Conservative party. A long consultation period will allow these divisions to fester. 

Reports suggest that up to 60 Conservative MPs are against expansion at the Heathrow site. The Prime Minister’s own constituents are threatening legal action, and the former London mayoral candidate, Zac Goldsmith, has promised to step down as MP for Richmond rather than let the airport develop.

But what of Boris Johnson? The politician long synonymous with Heathrow opposition - including a threat to lie down “in front of those bulldozers” - is expected to call the decision a mistake. But for a man unafraid to dangle from a zipwire, he has become unusually reticent on the subject.

The reticence has partly been imposed upon him. In a letter to her cabinet ministers, Theresa May has granted them freedom from the usual rules of collective responsibility (under which cabinet ministers are required to support government positions). But she has also requested that they refrain from speaking out in the Commons, from “actively” campaigning against her position, and from calling “into question the decision making process itself”.  

Johnson is not about to start cheering for Heathrow. But unlike Goldsmith, he is no committed environmentalist - and he's certainly a committed politician.  

Boris’s objections to the expansion at Heathrow have all too often only extended as far as the lives of his London constituents. These local impacts are not to be belittled – in his role of mayor of London, he rightly pointed to the extreme health risks of increased noise and air pollution. And his charisma and profile have also boosted community campaigns around these issues. 

But when it comes to reducing emissions, Johnson is complacent. He may have come a long way since a 2013 Telegraph article in which he questioned whether global warming was real. Yet his plan to build an alternative “hub” airport in the Thames Estuary would have left the question of cutting UK aviation emissions worryingly un-resolved. This lack of curiosity is alarming considering his current job as foreign secretary. 

And there are reasons to be concerned. According to Cait Hewitt at the Aviation Environment Federation, the UK fails to meet its targets for CO2 reduction. And the recent UN deal on aviation emission mitigation doesn’t even meet the commitments of the UK’s own Climate Change Act, let alone the more stringent demands of the Paris Agreement. “Deciding that we’re going to do something that we know is going to make a problem worse, before we’ve got an answer, is the wrong move”, said Hewitt.

There is a local environmental argument too. Donnachadh McCarthy, a spokesperson from the activist group “Rising Up”, says the pollution could affect Londoners' health: "With 70 per cent of flights taken just by 15 per cent of the UK's population... this is just not acceptable in a civilised democracy.”

The way Johnson tells it, his reason for staying in government is a pragmatic one. “I think I'd be better off staying in parliament to fight the case, frankly," he told LBC Radio in 2015. And he's right that, whatever the government’s position, the new “national policy statement” to authorise the project will likely face a year-long public consultation before a parliamentary vote in late 2017 or early 2018. Even then the application will still face a lengthy planning policy stage and possible judicial review. 

But if the foreign secretary does fight this quietly, in the back rooms of power, it is not just a loss to his constituents. It means the wider inconsistencies of his position can be brushed aside - rather than exposed and explored, and safely brought down to ground. 

India Bourke is an environment writer and editorial assistant at the New Statesman.