Jul 182017
 

By Michael Nevradakis, 99GetSmart

Originally published at MintPressNews

Ancient Greece is perhaps best known for its contributions to mankind in the areas of philosophy, architecture, and science. But a modern-day economist suggests that some of the economic practices that were used in ancient times could help to solve Greece’s current debt crisis.

A man waves a Greek flag in front of the Greek Parliament during a rally against new austerity measures in Athens, May 18, 2017. (AP/Yorgos Karahalis)

A man waves a Greek flag in front of the Greek Parliament during a rally against new austerity measures in Athens, May 18, 2017. (AP/Yorgos Karahalis)

ATHENS (Interview) — Closing in on a full decade in duration, the Greek economic crisis is unprecedented in the modern history of economically-developed nations. During this period, Greece’s GDP has declined by over a quarter, unemployment has skyrocketed to record levels, salaries and pensions have been decimated and a significant percentage of Greece’s population, particularly its young university graduates, have migrated abroad.

Four separate memorandum packages that allegedly “bailed out” Greece have instead squeezed the economy to its limits through the imposition of harsh austerity measures, cuts, and privatizations even of profitable public assets. Meanwhile, most of the “bailout” funds, which are actually monies that have been loaned to Greece, have been routed right back to European banks, with very little of that money actually entering the Greek economy.

MintPress News recently spoke with economist and author Spiros Lavdiotis in an interview that initially aired on Dialogos Radio in two parts in May and June. Lavdiotis is a former analyst for the Bank of Canada and has written several books and articles on the Greek economic situation during the crisis. He has also extensively researched the economics of ancient Greece and the connections of ancient philosophy with modern-day economic challenges.

In this interview, Lavdiotis discusses austerity, the present-day Greek economic situation, the reasons why he believes Greece must exit the eurozone and the manner in which it can do so, while also explaining what ancient Greece can teach us about dealing with debt today.

MintPress News (MPN): Share with us a few words about austerity as an economic doctrine, and how this doctrine developed.

Spiros Lavdiotis (SL): The modern form of austerity developed in the meeting of Toronto of the G20 [in 2010]. There was a split in the opinion, in that high-level meeting. The Americans espoused the principles of Keynesianism in trying to recover from the financial crisis of 2008, when the whole of the financial system collapsed, particularly after the bankruptcy of Lehman Brothers in September 2008. Together with the United States in espousing the principles of Keynes were India, Russia, and China. At the same time, the Europeans split from this idea. They thought that in order to save their own weak financial system, that austerity is the only way to do it.

The crisis that started in the United States with the subprime loans and developed in a snowball fashion, to a great extent it disseminated its waves to the European system, which was weaker than the U.S. system. [The fact is] that the eurozone does not have and is not built on sound principles. It is a legal construction which is incomplete because there is no political union, banking union, or financial union. There is no such thing, it was simply a “reverse creation,” starting from a legal structure of the monetary union, and then trying to instigate a political union. It’s very unusual, it’s never happened in the history of civilization.

As a result, when the crisis came, everything fell apart. They didn’t know what to do. In a bulletin which was issued by the European Central Bank (ECB) in May 2010, they admitted that they were in a state of complete collapse. They didn’t have any mechanism, nothing. So they tried to save themselves—particularly the Germans, who had the biggest exposure to the system, the German and the French banks. They decided not to apply Keynesian principles and to follow austerity.

Greek Prime Minister George Papandreou, right, welcomes the head of the International Monetary Fund Dominique Strauss-Kahn at his office in Athens on Dec. 7, 2010. Strauss-Kahn was in Greece to negotiate terms of the repayment of the three-year euro110 billion ($150 billion) bailout loan intended to saved the debt-ridden country from default. (AP/Thanassis Stavrakis)

Greek Prime Minister George Papandreou, right, welcomes the head of the International Monetary Fund Dominique Strauss-Kahn at his office in Athens on Dec. 7, 2010. Strauss-Kahn was in Greece to negotiate terms of the repayment of the three-year euro110 billion ($150 billion) bailout loan intended to saved the debt-ridden country from default. (AP/Thanassis Stavrakis)

Austerity is a dangerous policy because it means that a country has financial problems due to the budget and due to deficits in the foreign exchange, in other words in the balance of payments. In order to alleviate itself, it has to impose austerity measures. How does this work? The theory says, through “confidence.” What does “confidence” mean? The theory says that when people and investors see that there is stability and the country can be saved, then “confidence” is going to build. These are unbelievable things. That’s why the measures of austerity were called “friendly to growth” measures. There is no such thing! These things never work.

In Greece, they miscalculated the “multiplier effects” of the policies which they imposed on debt and incomes. As a result, the Greek economy collapsed completely. In the second year of the imposition of the austerity measures, in 2011, GDP collapsed by 7 percent. All these measures were called “reforms,” but were not reforms. They killed the economy, salaries, pensions.

I remind you that in Greece, 50 percent of the national income arises from pensions. It was a total catastrophe. The unemployment rate, from 7.8 percent, shot up to 28 percent, and it is still measured artificially at 23 percent. This is a dismal situation. People have no hope about finding jobs, and they immigrate. The immigration rate has surpassed more than 600,000 people, from which 250,000 are educated people with degrees who are unable to find anything decent [in Greece].

Overall, the GDP from 2008 until now has fallen by 28 percent. This is the longest, in time and magnitude, drop in growth in economic terms of any developed country. This has never happened before. Even in the Great Depression in the United States, unemployment reached 25 percent and it took only three years to start recovering.

MPN: Why is there such a great insistence on economic austerity, such as in the case of Greece, and are there any examples that you can identify where any country was able to emerge from a financial crisis and return to growth as a result of austerity?

SL: Not to my knowledge. Herbert Hoover tried to impose austerity, and in two years the situation was very severe. There is no such example in the history of economics. I do not know how they developed this type of “friendly to growth” austerity. This is unbelievable, this is a myth, there is no such thing. They have tried to save the financial system of Europe, which was collapsing, and at the same time Germany went ahead and accepted this because it wants to keep the European free trade zone intact.

As you know, there are only nine EU countries which do not participate in the eurozone. The main thing was for Germany to maintain the primacy of its export power. In order to do that in this modern era, you have to maintain the financial system following the principles of free trade, the three basic principles of the Maastricht Treaty: freedom of commerce, freedom of services, and freedom of labor, and of course that presupposes the freedom of capital.

The euro is based on irrevocable exchange. In other words, it’s not like the Bretton Woods agreement, [based on] the gold standard. If a country was in a fundamental disequilibrium, they could devalue up to 10 percent and get out more easily from the predicament. Now with the euro, you cannot. As long as you entered with an exchange that was determined then, that’s it, there’s nothing you can do. It’s like an iron chain, and if you cannot fit from the very beginning—as was the case in Greece—but the European Union knew that, that the Greeks were cooking the numbers.

But the Germans wanted to sell frigates and planes to Greece, the same with the French, and therefore they closed their eyes. They wanted to have Greece there, due to the fact that they could expand their own markets to Greece, due to the different economic and industrial development of the country while at the same time not having to be afraid of devaluation. That was the main goal of Germany.

At the beginning, Germany was exporting two-thirds of their products to European countries. Then it shifted and started exporting to Asia, with its biggest market being China. But just remember that even now, exports constitute 46 percent of Germany’s GDP. They had the power to institute this policy, and the Greek politicians decided to protect the banks. This was a mistake. There were always interlocking interests between the politicians and the banking system in Greece, but I think it was also ignorance, they didn’t know the extent of that relationship in passing the losses of the banking system to the Greek taxpayer.

The amounts are tremendous. They involve a sum of 240-plus billion euros. [By comparison], Greece has a GDP of 175 billion euros. You have a small economy producing 175 billion euros [of economic activity] and you transfer 240 billion in banking system losses that have nothing to do with the Greek economy, this is close to 150 percent of GDP. This would be the same as a $25 trillion bank recapitalization in the United States.

The United States can still print money though, but in the eurozone, all the countries have to give up their monetary sovereignty. It was given to the EU, where in effect you had only one institution, the ECB, and therefore you are transferring all the rights of creating money to one institution which then, in order for you to have money, they will [fund] you by charging interest, but not directly to the member-states, only to the banking systems. The state, to finance its expenditures and the coverage of all programs for health and for welfare and whatever expenses were necessary for the state, had to borrow.

And to borrow from whom? Because the ECB does not directly lend to states, it had to borrow from the private sector, and the private sector had to borrow the funds from the ECB, which was charging interest. The commercial banks then had to charge extra interest to lend money to the Greek state. What happened then? The Greek state had to charge taxpayers with higher taxes to cover these expenditures. Greece entered the European Monetary Union in 2002. By 2008 we were already bankrupt, but they simply did not announce it to the public.

Internationally they did not know that the problem of the Greek state was mostly the banking system. They were talking about “corrupt Greeks.” Yes, there were corrupt Greeks, and the politicians are very corrupt in Greece, this is acknowledged, but the politicians never behaved in placing the common good ahead of themselves.

Right now we are faced, according to the latest budget, with more than 563 billion euros—which is the sum of all of the debt that occurred due to all the banking losses which entered the Greek budget—because there is no fiscal union in Europe.

MPN: “Seisachtheia” is a concept that many are not familiar with. It is also the topic of one of your books. Tell us about this ancient Greek concept and what it may teach us about debt today.

SL: There are a lot of similarities with what happened then, in the 6th century BC, in ancient Athens, with what is happening now. Back then, ancient Athens was in a great economic ordeal due to the fact that the wealth of the city was accumulated among the richest people, and the richest people of that period were landowners. They charged interest between 16 and 36 percent for those who did not have money and wanted to borrow money.

If an agrarian wanted to cultivate the fields, which were all owned by the landowners, they either had to pay one-sixth of the gross cultivation to them as a rent, or they had to go and borrow at the aforementioned rates. Eventually, it was impossible. If there was a bad crop one year, how could they give the one-sixth to the landowner? Therefore they had to borrow and they were going bankrupt.

In this Feb. 2, 2016 photo farmers stand behind a makeshift fire in front of tractors, near Kerdilia, Greece. Combine a rapidly aging population, a depleted work force and leaky finances and any country’s pension system would be in trouble. For debt-hobbled, unemployment-plagued Greece, it’s a nightmare.(AP/Giannis Papanikos)

In this Feb. 2, 2016 photo farmers stand behind a makeshift fire in front of tractors, near Kerdilia, Greece. Combine a rapidly aging population, a depleted work force and leaky finances and any country’s pension system would be in trouble. For debt-hobbled, unemployment-plagued Greece, it’s a nightmare.(AP/Giannis Papanikos)

At that time in history, it was not instituted to give land or other items as collateral. You were placing as collateral your own body, your wife, and your children. So if you were unable to pay, the debtor was given the right by law—not only in Greece but in all ancient regions, including Asia Minor, Sumeria, and Iraq—to be captured and sold as a slave. A famous site for slave exchanges at that time was the island of Aegina, just outside the port of Piraeus.

Solon was the highest official elected by the Athenians to solve this problem, because they were evacuating, just like right now the Greeks are evacuating Greece because they cannot find jobs. This is a very serious situation here in Greece because there isn’t even unemployment insurance. They say there is, but right now there are more than 1,200,000 people officially unemployed, and they pay unemployment insurance for less than 10 percent. And what kind of unemployment insurance? Its 260 euros per month, and only 10 percent [of the unemployed], or 117,000 people, get unemployment insurance.

This is the European system, which exists because there is no law or regulation or principle within the EU, particularly in the eurozone, which gives a right to work. While in the United States the Federal Reserve law says that all monetary policy will be in accordance to maximum employment, price stability and low long-term interest rates. The constitution, according to the Maastricht treaty, of the ECB says there is only one goal, and that goal is price stability. That’s it. Nothing about employment, they don’t even care about it.

This is why Greeks have to immigrate because at the same time there is no law to determine the minimum wage rate, which is the level at which a human being can survive decently. There is now a law which determines that the minimum wage rate for unskilled labor is 486 euros per month. Just think about all of you who are living in Canada or in the United States or Australia and you visit Greece. Is it possible, with 486 euros per month, for a person to live decently?

No, they cannot. You’re reduced to a pauper. It is undeclared slavery. And even the salaries, even as a civil servant, the monthly salaries are lower than that in many instances. As the minister of labor in Greece has announced, about 125,000 people are employed with a salary of fewer than 100 euros per month.

I say this because the situation in Greece is really very severe, and it’s not an accident that recently a report released by the Cologne Institute of Economic Research has said that Greece is in last place of all EU nations in terms of its poverty level, which has reached 40 percent. That’s not far from what the International Monetary Fund (IMF) acknowledged with the data of 2015, [showing] the poverty level in Greece then as 36 percent.

However, people think this is not important, particularly academics who completely dismiss all these things and say that we must remain in the eurozone, without taking into consideration the severe economic situation and the predicament that many people are in and the suffering that keeps going.

[In ancient Greece], Solon resolved those problems. The Athenians were deserting Athens and the fields were uncultivated. As a result, even the rich people said that a solution had to be found. The city was on the verge of civil war. So they elected Solon because he was famous for his integrity and knowledge and because he was middle class, not rich and not poor. Therefore, the rich trusted him and the poor also trusted him, because when he was young he showed characteristics of patriotism.

Solon enacted the “seisachtheia,” and this word remained for centuries, and even now as a word it is extremely powerful. It means “I remove the weight of debts.” It was the first macroeconomic plan that was instituted in the history of civilization. The first thing that Solon thing was institute laws which abolished lending by placing your body as collateral. That was the first time such a law was established in the history of humanity. That’s why Solon’s name remains today as such a significant light in the development of human civilization.

The next thing that he did was to devalue the Athenian currency at the time, which was the Greek drachma. He devalued the Greek drachma to make the foreign trade of Athens more competitive. At the same time, he created incentives for people to come and work in Athens, from other cities that were highly developed, promising to issue Athenian citizenship.

He tried to augment or develop foreign trade in the context that the exports of the city had to be equalized with imports. Solon was the person who instituted the principle that, in order for a country to have self-sufficiency and to be an independent nation, the revenues achieved from exports have to be equalized with the revenues given to imports. This was something that no Greek state politicians have achieved since Greece became an independent nation.

Solon was the person who instituted the “church of the demos,” meaning direct democracy. Officials were directly elected by the people, and Solon was elected as an archon of Athens for 21 years continuously because back then you were elected for one year. This was enough time for him to take [Athens] out of its economic morass and to develop its place as one of the highest civilized nations of the ancient period.

MPN: How and in what way could Greece denounce its public debt, and what does international law and international legal precedent foresee for the issue of its debt?

SL: It is very difficult to really try to eliminate the debt legally, because there is no international law which establishes the principles between creditors and debtors when nations are involved. International law, and every state have bankruptcy laws that concern companies and individuals, but in terms of international law, there are no specific principles [for nations]. This is why a national delegation, the debtor, has to sit down with creditors and determine bilaterally how they’re going to resolve this issue, because nobody can benefit by squeezing the other, like what is happening right now to Greece.

Protesting hospital staff sit in front of a wall that they built at the entrance of the Greek Finance Ministry with a banner depicting Greek Prime Minister Alexis Thipras , Deputy Health Minister Pavlos Polakis and Greek Finance Minister Euclid Tsakalotos wearing ties reading in Greek ''Ministry of broken promises" and " We drown in debt and bailouts" in central Athens. (AP/Petros Giannakouris)

Protesting hospital staff sit in front of a wall that they built at the entrance of the Greek Finance Ministry with a banner depicting Greek Prime Minister Alexis Thipras , Deputy Health Minister Pavlos Polakis and Greek Finance Minister Euclid Tsakalotos wearing ties reading in Greek ”Ministry of broken promises” and ” We drown in debt and bailouts” in central Athens, June 16, 2017. (AP/Petros Giannakouris)

Greeks have nothing to do with the losses of the banks. They’re responsible for about 70 billion [euros] due to corrupt politicians, but 70 billion is manageable because it is less than 50 percent of GDP. Why does the Greek taxpayer have to pay because of irregularities and anomalies in the eurozone, due to the fact that this is a legal institution and is not a political or fiscal union? Why do the Greek people have to pay for all these losses?

There is no international law that can resolve this issue, and this is one of the reasons why we have a big advantage, legally and ethically, to tell them that we’re stopping payments because our country is impoverished, we’re in a humanitarian crisis, why should we pay unilaterally? When you make a deal of lending and borrowing, you have two parties. Why do banks get excluded and the borrower has to carry all the weight? It’s unbelievable.

The banks did all this damage because they invested in toxic bonds in various futures markets, in securitized products which they didn’t even understand, and they carried enormous losses, hundreds of billions, and they’ve placed it on the shoulders of a small country with a GDP of 175 billion euros. What type of justice is this? With the Greek situation and the suffering imposed on all Greeks, who are not all crooks, why should they be destroyed economically?

This is going to take more a generation, to put Greece back where it was. And probably not even that because right now, Greece’s national income and GDP growth are below 2003 levels. Greece has lost about 15 years. But in terms of moral values and general values, they’ve been completely demoralized. Only 3 percent of the public now believes in politicians. This is why this situation is not going to go away either. It’s the biggest economic crime that has ever been committed.

How is it possible for all these losses, which involve not just the Greek banks but also the German banks, the French banks, the Dutch banks, to have been passed only to Greece? The international system is connected, through the euro, which creates an international platform for capital to move freely from one country to another. At any time, any money can be transferred from Athens to Berlin, from Berlin to Frankfurt, from Frankfurt to Paris. All of these losses were in the end sustained by the Greeks because the politicians accepted this. This is why it’s going to be an issue that’s going to last, because the sums are huge.

According to the [Greek] national budget, which was voted and passed in December 2016, it has receipts from credit money—in other words, borrowed money—of 563 billion euros. The total budget of the Greek state, in other words, is 614 billion euros, while the revenues of the Greek state are 50 billion euros, of which 46 billion comes from taxes. This is 320 percent more than the GDP of Greece, and it’s signed by the Greek president and by the minister of finance! How is it possible to claim that Greece is benefiting from this money while at the same time the economy has collapsed by more than 28 percent?

You can understand here, the impasse and the unfairness and what has happened to the Greek state. A lot of people outside [Greece] have realized this. They are talking about the looting of Greece, because now in order to [pay the debt], they are saying to Greece that it has to sell all the public assets. Now we have to sell what our fathers and our ancestors tried to create. They fought for this land, now they have to sell it to pay interest upon interest which has already been paid.

Since we have entered the memorandums, we have paid over 60 billion euros [in interest], and they call this “solidarity.” And according to the new calculations, the payments the Greek state [is responsible for] up to 2030 total 160 billion euros just in interest. This is usury! This is one of the most extreme forms of usury. How is it possible to survive? Everything is going to fall apart.

If in the epoch of Solon they were escaping Athens to save their skins and not to be sold as slaves, here [in Greece] no decent person can remain. This is the situation of the eurozone, the legal laws that were passed creating this union which have nothing to do with humanity. It’s simply an interest scheme, a payment scheme for those countries that are richer. And the countries that are richer are the countries of northern Europe. This is why southern Europe has almost collapsed, and we’ll see this year whether Italy can save their own banking system.

MPN: Would it be correct to say that Greece would be able to undertake unilateral action to declare a stoppage of payments or to denounce or write down the debt once it leaves the eurozone and returns to a national domestic currency?

SL: We should remember that we [Greece] are a member of the eurozone. In other words, we cannot take unilateral action. The de jure bankruptcy of the nation will take place while the country is still a member of the eurozone. In other words, the government can declare a moratorium, a temporary stoppage of payments of six months to foreign lenders. At the same time, the government can immediately start negotiations with the European authorities: the European Commission and the ECB.

The main problem of the Greek debt is that the Greek debt that has been accumulated, [placed] in the budget of 2016, having the signature of the Greek state, amounts to 563 billion euros, which are credit receipts. The lenders forced the Greek government to pass all future debt of the Greek state [into the budget], and the problem, the time schedule of the Greek debt [repayment] is stretched to 2060. The ratio of debt to GDP exceeds 320 percent.

This amount, most of it—about 95 percent—has not accumulated due to the extravagance and excesses of the Greek state. Ninety-five percent of it is debt which has been incurred by the banking system as a whole, not just Greek banks, but also the whole eurozone system, involving mainly German and French banks who have lent to the Greek banks. Therefore, these payments are related to the whole eurozone system and not to the Greek state alone. Yet the taxpayers of the Greek state [are on the hook].

For that reason, we [can] expose all of the official records through a task force appointed by experts from other states—an international task force—that will verify what was published recently, one year ago by the Technical University of Berlin, which determined that the two initial memorandums, involving amounts [totaling] 240 billion euros that were given to the Greek state and named “bailouts,” weren’t given to bail out Greece. They were given to bail out the banking system!

According to this study, less than 5 percent has gone to the Greek economy, and the rest, about 95.5 percent, went for the repayment of the debt and losses of the banking system of Europe as a whole. That’s the problem that was created due to the inflexibility of the euro system. Because the euro has an irrevocable exchange rate, and after the global crisis in 2008, which was actually a financial crisis, it was impossible for the eurozone to cope with this.

For some reason, politicians accepted this, for the losses of the entire euro system to be taken by Greece, to be paid by the Greek taxpayers, while these losses involved the whole system, because the eurozone system is a system which is very incomplete, has many faults. It’s a creation where they put the carriage in front and the horse in the back.

MPN: What happens in the event that Greece does not find that the Europeans are willing to negotiate on the issue of the debt?

SL: In my view that would be almost impossible and it would be irresponsible, because Greece represents a huge bomb of debt. If they do not accept [a write-down], they’re going to expose the whole system to great dangers, due to the systemic risk that is involved in the banking system. The European banks are not only connected with the Greek banks, which are bankrupt, but also with the American banks – which according to certain financial analysts are exposed to a tune of more than 3 trillion euros to the European banks. Therefore, some analysts say that the Greek case is like Lehman Brothers squared.

This is why it’s so dangerous. This actually explains the political stance of previous governments in joining hands with the European authorities, for Greeks to bear this huge burden that doesn’t belong to them. As I said, 95 percent of the loans [given to Greece] are to save the banks and not the Greek state.

MPN: Recently, we have again begun to hear murmurs about the possibility of “Grexit,” as well as statements from various sources, such as the Hellenic Federation of Enterprises, and a joint statement by 14 Greek economists who are based outside of Greece, about the many “dangers” and “perils” of a Greek exit from the eurozone, and the economic “catastrophe” that would follow. How do you respond to these claims, and to this fear that is being repeatedly expressed?

SL: That’s why they don’t want Greece to get out from the eurozone, precisely for their own benefit. Greece holds a huge bomb of debt. Most of it, the Greek public was not responsible for. There were losses due to the imperfections in the architecture of the European system, and these losses have to be divided and shared by the other countries, not only by Greece. Greece and the Greek taxpayer are not responsible to pay taxes, a 24-percent value-added tax (VAT) and enormous prices for gasoline. Now we pay more than 1.50 euros for a liter of gasoline. How is it possible for this country to develop? It cannot.

Everybody is terrified of a Greek exit, but Greece has to exit in order to save itself. But Germany doesn’t want that. Why? Because of the domino effect, because of the systemic risk of the banking system. Germany wants to save their own system, a banking system which is also in terrible shape. [Germany] wants to maintain its status and the benefits that it gets from the eurozone.

The eurozone is a platform where all countries give up their monetary sovereignty and there is no convertibility of the euro. It is an irrevocable exchange, and therefore Germany has a uniform platform to export its own goods, to mobilize its great exporting machine, without having to fear a country devaluing. Since, from the very beginning, it was the net exporter, it was obvious that through time, all the wealth would be accumulated [in] Germany.

Right now, Germany sits on hundreds of billions of euros of net surpluses. Germany is following a neo-mercantalist model and has a tremendous benefit by exporting those goods. The other countries that have deficits, eventually they have to borrow the funds from the German surpluses. But Germany doesn’t do that. It makes direct investments in other countries, like Greece.

FILE - In this Sunday, Oct. 18, 2015 file photo, a man walks past street art depicting Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel in Athens, Greece. Tsipras' decision to sign off on a bailout led to many in his left-wing Syriza party to quit in protest.

A man walks past street art depicting Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel in Athens, Greece. Tsipras’ decision to sign off on a bailout led to many in his left-wing Syriza party to quit in protest.

Right now, OTE [the formerly state-owned telecommunications company of Greece] doesn’t belong to Greece. Greece doesn’t have even 1 percent of shares in OTE. The majority of OTE now belongs to Deutsche Telekom, and the rest belongs to other international funds. Greece has no position there. Can you imagine if [there is a national emergency], what happens?

It is a fact that they call this “privatization,” but Deutsche Telekom is not a private company. It belongs to the German Federation. It’s a public institution. Similarly, [Greece] recently sold 14 airports to a German company [Fraport] that belongs to the German state, it’s not a private company. The [Athens international airport] Eleftherios Venizelos was sold initially to Germans, to Hochtief. Forty percent remains with the Greek state, but this [is also up for privatization]. But we already sold 14 airports. Why were they sold? Because we have to pay interest on the loans that have been imposed on us.

This is a situation where, I think, a decent politician with integrity can go ahead and try to tell the creditors “enough is enough, we have to settle this issue,” not to accept all these conditions just because Germany doesn’t want to resolve the issue because it has [upcoming] elections and because [German finance minister] Schäuble says that “debt is debt” and that it must be repaid. No, debt is not debt in this particular case, because [Greece] did not create that debt! You created it and passed it to us!

That’s why the banks are bankrupt, because the central bank decided, in order to fight the Greek people and to humiliate them, [prior to] the referendum of July 2015, to close the Greek banks. There is not even a legal definition to give the ECB the power to close the banks. Similarly, they closed the banks because they tried to affect the vote of the electorate. It was so obvious to close the banks and destroy all of the accounts, and nothing was said internationally!

The stocks of the banking issues in the Athens Stock Exchange had three “limit downs” consecutively, [a loss of] 30 percent. They lost 90 percent of their value, people were destroyed, firms were closed, and nobody said anything, people were waiting in line at ATMs to get money, [feeling] threatened and [worried] that they would be unable to feed themselves. They internationally humiliated the Greeks. Why did this happen? To frighten [the public] in order to [stay in] the eurozone.

The same tactic [is being used] now. Even though we have defaulted before, such as with the phony “PSI” [a “haircut” on Greek bonds enacted in late 2011 and early 2012] that supposedly “saved” Greece. By doing that, [this brought] the second memorandum, a loan of 130 billion euros. This did not save Greece. This money went, again, to recapitalize banks and to pay the debts that the Greek banks had from borrowed funds from the French and the German banks.

The creditor has a responsibility when lending money and therefore must accept losses from the borrower. But unfortunately this is not the story, and this is why “Grexit” is so important.

MPN: One option that we have been hearing about from analysts is the possibility of introducing a dual or parallel currency in Greece. What is the distinction between a dual or parallel currency on the one hand, and a national domestic currency on the other hand? And what would be the consequences of introducing a dual or parallel currency?

SL: First of all, a dual or parallel currency in Greece doesn’t solve the problem. This is simply a gimmick. The ECB has the monopoly power and according to the laws of the ECB, there is no such law or ordinance which allows nations to create a second currency. That would violate the principles of the treaty. That’s why the ECB [designed this system], to have control over the issue of money. For them, they have only one goal: price stability. Therefore, how would it be possible to give Greece the right to create a parallel currency when, at the same time, Italy is almost ready to default?

The debt-for-GDP [in Italy] now exceeds 132 percent, but at the same time, because Italy is a huge economy—it exceeds 2.3 trillion euros in debt—if something happens to Italy, the whole system is finished. It finishes because this is actually what they have developed in the eurozone with this primary purpose of the ECB to have the absolute control of money. It’s like creating another gold standard, and the gold standard died because it created so many anomalies and irregularities in the international system, and wealth inequalities.

Given this experience and given the fact that the eurozone is built on a gold standard—[one] based on fiat currency, which gives the right to the ECB to create unlimited money, like right now with the quantitative easing, it has already purchased one trillion-plus euros in securities. But Greece is not allowed [to participate in the quantitative easing program]. Why? Because they want to subjugate this nation in the form of “reforms.” These are not reforms! Simply, they didn’t purchase the Greek securities, just to make Greece pay the interest [to the ECB], and to subjugate and demoralize Greece, to not be able to provide resistance.

All this talk of dual currencies, all this is just to create a sundry understanding of the situation, providing false expectations that this can save the situation. It cannot save the situation. Nothing can really be saved or be improved by introducing this type of [dual or parallel currency] system, but I don’t think it will be introduced.

The only solution is the national currency, because then you are going to take back the power of creating your own money, and together with this, taking back the freedom of your country and getting out from this system, like England [with Brexit]. England has established the existing monetary system. That system is called the British model, where at the top of this system is the Bank of England. Now they see that system is collapsing and they’re leaving [the EU], because they created that system.

At that time [when this system was created], England prevailed globally because it established the gold standard. Having an advanced industrial [and shipping] sector, they were able to control other nations economically. At the same time, as with India, taking surplus value from India to England, and establishing the gold standard in a position to control deficit nations and [be paid] interest, because they did not have gold, like Greece.

Remember John Maynard Keynes. Interest reproduces so fast. “Tokos” [the Greek word for “interest”] means “to bring something into existence.” Aristotle said that it was hated by the whole society, because it creates [wealth] with no effort. The same thing has been instituted now. The Greek state gave the power to the ECB, and this ECB, through usury mechanisms, lends to the Greek state, but the Greek state pays double interest to the ECB and to the commercial banks because the ECB is not a lender of last resort! This abolishes the basic principle of central banks. That’s a function of a central bank, to be a provider of last resort funds if something goes wrong in the system. The ECB does the opposite!

The Cyprus situation shows exactly what I’m trying to say. This is why it’s crazy to talk about parallel currencies. What happened in Cyprus? One day, because [the ECB] did not properly supervise the banking system—which is one of the duties of the central bank, to have good supervision—and there were certain irregularities with certain banks, like Marfin Bank and the Bank of Cyprus. Instead of helping [Cyprus] alleviate the problem, the [ECB] went and did the so-called “bail-in.” A “bail-in” means “to capture,” to go and take money out of accounts. Whoever had their money in Cyprus banks, above 100,000 euros, lost money.

This is the situation, the banking institution that Greece wants? This is extraction, an extraction mechanism! This is like the old tyrants of Syracuse, which if you did not obey his order—and I mention this because Plato went there to educate him, and he didn’t like what Plato was saying, so he wanted to kill him. His supervisors intervened and he was sold as a slave in Aegina, and since then he was recovered from an old student and he was saved. The same thing [exists] in the eurozone.

I think all of these plans [for a dual or parallel currency] were publicized more to confuse the public.

MPN: Describe the steps that Greece could follow in order to depart from the eurozone in an orderly fashion, to transition to a national domestic currency and to avoid the dangers that many believe Greece would face, such as devaluation, high inflation or difficulty importing goods.

SL: A number of these things are a creation of imagination. Let me provide the basic steps of the exit of Greece from the eurozone and the adaptation of a national currency, based on two fundamental premises. First, that democratic institutions are maintained, and the constitution of the country, and second, that there is political will. Now, [those] are very important, fundamental assumptions, which right now do not exist. This is the system of exit for Greece, under the assumption that a light finally comes to the brains of the Greek politicians. If that happens, these are the steps that should be taken.

The country is declared in a “state of necessity,” and Article 44 of the Greek constitution is implemented, which means that after the suggestion of the council of ministers, which the prime minister presides over, power is transferred to the president of the nation. This declaration of the “state of necessity” is not required to be passed through the current representative assembly.

Then, the president declares a temporary stoppage of payments, an international moratorium. That moratorium is going to take a period of six months. During these six months, there is a plan for the reconstruction of the country—because it will be a reconstruction, it is economic devastation. So, at the same time when you declare a stoppage of payments—and this is going to be only for the foreign lenders, internally everything is going to be okay—this saves about six billion euros that are being paid in interest at this time, but also we stop payments of capital.

Therefore, we’ll have the ability to feed the nation and also to maintain salaries and pensions at the same level, because at this particular stage there is a slight surplus in the national accounts. Then we’ll have the benefit that we save six billion euros in interest payments, which would go directly to the reconstruction of the country and programs of employment.

This is what’s most important, to alleviate poverty and unemployment. That’s the primary thing, and that requires, of course, great coordination, to employ the people and to stop or to minimize the scourge of [outward] immigration. We need our educated people. This country cannot survive with old people, which continuously this is the case. It’s an aging population in Greece.

Then at the same time, we establish various capital controls, because we need the capital to remain here and not be exported abroad. Those are the major steps that should be taken simultaneously with a declaration of the nation in a “state of necessity.” It should not frighten [anybody], it’s a normal procedure which is [a result of] the extraordinary crisis taking place right now in Greece. Also it gives you the power to [declare] illegal all the measures that were taken through the austerity measures, which were based not on law, not on humanity, not anything, they were just horizontal measures [impacting] everybody without taking into consideration the principles of justice.

By placing the country in a “state of necessity,” immediately you can re-institute laws which would completely determine the unacceptability or the illegality of the existing laws of the memorandums, including the first memorandum of May 2010, the second memorandum of 2012, and the third memorandum of 2015, a total of 236 billion euros. Out of this sum, only 5 percent went to the Greek economy and for reducing poverty. Ninety-five percent went to payments. Those are known facts.

The third step after this is that you [create] a commission. We have to institute an agency which will go on to audit the Greek debt and to be confirmed officially, through the help of a task force of international [experts], to be a completely objective commission to determine which is the lawful debt and which is the unethical, unacceptable and odious debt.

In the meantime, the country, through its own people—Greek officials—start negotiations with the European authorities, whether this is the European Commission, the Eurogroup or the ECB. Of course, all those discussions have to take place when, first, the Bank of Greece is completely nationalized. This is important, because the Bank of Greece is a company and 92 percent of the shareholders are not yet known to the Greek public. This is an offense to the democratic spirit of the Greek people.

At the same time, things are not so straight, they are highly complicated because of the collapse of the Greek banks, the ECB has lent about 73 billion to “save” the banks after the fact, meaning that initially it was not accepting Greek state bonds as collateral. As a result, the banks could not really find funds to finance growth or to finance projects for businesses. [The ECB] did that, again, just to indicate that they are the power and they determine all political consequences in Greece. They decided to do so when the international public was misled that SYRIZA was a “radical left” party.

[Soon after SYRIZA] was elected on Jan. 25, 2015, the ECB, on Feb. 4, went and declared unilaterally that Greek bonds, the bonds of the Greek state, are not acceptable, they are junk bonds. That meant that they were not accepted as collateral. So the banks would not be borrowing money from the ECB, and therefore the loan activity in Greece has fallen apart, going into [negative territory]. That further aggravated the situation.

Therefore, this situation should be taken into consideration, and that’s why the banks, initially, should go to a bank holiday. It’s a necessary thing that has to be done. The banking system is going to be closed, because you need to protect whatever savings there are.

This is the situation, and I’m sure that this is inconceivable to all of you living abroad, that this is the European model of a monetary system, but it’s not a monetary system. It’s an extractive system that lives on the blood of small and [minimally-]industrialized countries.

The next step after the banks are placed on a necessary bank holiday is the nationalization of the Bank of Greece, like the Bank of England, [which was] nationalized in 1946 and the Bank of Canada was nationalized in 1938. It’s to the benefit of all the parties to agree on this, [since] this whole situation is explosive. Why is it explosive? Because that huge amount that is owned by Greece, that exists 560 billion euros, it is something that can trigger like a bomb and the whole monetary system can collapse.

It would be another situation like the great global financial crisis of 2008, and the reason is that the U.S. system is interconnected with the European system. According to the latest reports, the U.S. banks have exposures of more than $3 trillion in European banks.

That’s the situation, that’s why it’s very important, that’s why everybody is talking about the Greek exit, because if Greece decides to pull the trigger then there’s going to be a very dangerous situation around the European, the Italian banking system. Italy has exposure of more than 2.3 trillion euros. If something happened there, then the whole European monetary system is going to collapse. We have power, in other words.

If one considers the benefits of this nation and the people that live in Greece, then we can achieve tremendous results. At the same time, in order to avoid this chaotic situation which a lot of people and particularly the academics are [predicting] but which is not going to be chaotic, but a normal situation after so many years in another currency, simply we will establish a three-month freeze of salaries and prices, so as not to have the problem of inflation.

Let me tell you how we’re going to determine the first exchange rate between the drachma and the euro. The initial exchange rate is introduced at parity, one new drachma equals one euro. This is the conversion [rate] for all accounts. All the loans now would be paid in Greek new drachmas, and whatever accounts remain in the banks, in the form of accounting—in other words, electronic money—those remain in euros, but simply whatever money is [withdrawn] is paid in new drachmas.

In other words, what you do is you stamp the existing euros with an indication that this is a new drachma. All the money, therefore, that is circulating outside the banks, [becomes] new drachmas, until the new currency is ready. So there is no problem with changing the existing banking system in Greece or the ATM system. Everything remains the same, we simply stamp the existing euros into a new currency. So a 10-euro bill becomes 10 drachmas. Salaries, again, are frozen, the same for prices, for a three-month period.

People queue in front of a bank for an ATM as a man lies on the ground begging for change, in Athens. (AP/Thanassis Stavrakis)

People queue in front of a bank for an ATM as a man lies on the ground begging for change, in Athens. (AP/Thanassis Stavrakis)

This is not something new. President Nixon did this in 1971 when he decided to get out of the fixed relationship of the dollar with gold. Then, the relationship was that one ounce of gold equaled 35 dollars. This was the beginning of the collapse of the Bretton Woods agreement, as he let the dollar be exchanged in the free markets. This was very successful, because the U.S. had problems at that time because it lost the Vietnam War and they were experiencing deficits, like Greece.

All these myths that a vacuum will follow, this is nonsense, because at this stage, the Greek trade balance account is balanced, because the imports are equal to the exports. We export 25 billion euros’ worth, we import about 40 [billion euros], but the difference is covered by services, and the services are tourism and the shipping fleet that Greece has, one of the greatest shipping fleets in the world. Knowing from Solon that the expenses of imports are covered by exports, this means that we have currency, foreign currency to pay [for our imports].

Again, we should remember [that during] the bankruptcy, we are still in the eurozone. You don’t go to the drachma [immediately]. This is a six-month period [of transition]. At the same time, you have the money to feed your people and to buy medicine, to buy oil, to buy whatever items are needed and are not produced in Greece.

And in the meantime, you save the six billion euros [in interest payments]. We don’t pay them any capital for the repayment of debt, and according to the Bank of Greece’s latest report, we still have foreign exchange funds right now, which are mostly in gold—about 5 billion euros. Therefore, from where does all this fear arise?

It’s going to take two or three months until the first newly-produced drachmas are placed in the market. Don’t think it’s a huge amount of money, cash, that is floating in the market. It’s about 20 billion euros. It’s enough, this money, to be circulating around, because multiplied by the velocity effect of money, it’s enough to start motivating the Greek economy. Here we do not have that either, everything is collapsing, the velocity is collapsing, because they’re taking out [money] by taxes.

Taxes destroy money, they do not create money. Paying the unfair interest to the Europeans that they call “solidarity,” six billion euros is an enormous amount with the multiplier effect. So simply, it requires guts. Freedom requires to be courageous and to be just, and I would add to this, to really work hard to achieve this objective.

Those are the most important measures. Just to add: in order for the new drachma to get validity, immediately you institute a law through which only the Greek drachma is acceptable as a payment to the Greek tax authorities. This is something that was said by Aristotle, [who] said that money is the creation of the law. That’s why it’s called “nomisma,” from “nomos” [the Greek word for “law”]. Itis a product of law and not of nature.

All these are myths that there’s going to be a collapse, that [the new currency] will not be accepted. Why won’t be accepted if the tax office accepts the money at the same rate as one euro? As long as it’s accepted at [a ratio of] one for one, why is the market not going to accept it?

One of the benefits during this period is that we will be able to lower tax rates. This is very important, to bring out the necessary steps for motivating foreign capital, but also the growth and development of businesses, because you are going to print the money to recapitalize.

All this ideological bias, that the euro is the only solution for Greece, is completely disastrous. It’s no solution. It’s the only catastrophic element for the complete elimination of the Greek state eventually. This is an extraction mechanism and a mechanism where all the loans, if you are not able to pay them, you are going to pay them by selling the public assets of the country.

Those are the basic steps. As long as it’s understood that it’s going to take a couple of months before the new national currency is cut, in Greece from Holargos [location of Greece’s mint], and still has the old machines through which the drachma was circulated. It’s going to take some time, but as long as there is patience and a belief that our freedom and future prosperity is based on reacquiring the capacity to create our own money, then the last necessary thing is that we and the European authorities understand that we have to find, together, a solution. Otherwise, it’s going to be a situation where everybody loses.

I conclude with the hope that finally, a light comes to the brains of the Greek politicians.

michael-120x120ABOUT THE AUTHOR
Michael Nevradakis

Michael Nevradakis is a Ph D candidate in media studies at the University of Texas at Austin and a US Fulbright Scholar presently based in Athens, Greece.

Apr 042017
 

By Eric Toussaint, 99GetSmart

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Mexico is the only former colony which, in the 19th and the first half of the 20th century, won decisive victories over its creditors through its own determination. In 1861 Mexico repudiated a portion of the external and internal debt being demanded of the country and in 1867 overcame a large French expeditionary force. Under the pressure of an authentic popular revolution, starting in 1914 and for more than thirty years, Mexico once again suspended repayment of its debt. During that period, with popular mobilization and social progress reaching high and low points, profound economic and social reforms were put in place, and after the Second World War Mexico’s economy gained in strength. This little-known history deserves to be put into the spotlight because it should serve as inspiration for today. It shows that determined struggle by a country under the domination of the major powers and international finance can make major social advances. It also proves that no victory is definitive and irreversible, a fortiori if those who govern fail to defend it.

This study devoted to Mexico during the period from the early 19th century to the Second World War demonstrates how a peripheral State can successfully repudiate a debt even if its collectors are backed by the imperial powers and their gunboat diplomacy.

This article is the sixth in the series “Debt: The Subordination of Latin America.” The first two articles are: “How the South paid for the Northern crises and for its own subjugation” http://www.cadtm.org/How-the-South-paid-for-the, “How Debt and Free Trade Subordinated Independent Latin America” http://www.cadtm.org/How-Debt-and-Free-Trade. “What other countries can learn from Costa Rica’s debt repudiation”, http://www.cadtm.org/What-other-countries-can-learn; The USA’s repudiation of the debt demanded by Spain from Cuba in 1898, http://www.cadtm.org/The-USA-s-repudiation-of-the-debt; “History: the Policies of the United States toward its Neighbours in the Americas in the 19th and early 20th Centuries,” http://www.cadtm.org/History-the-Policies-of-the-United. To these should be added an article devoted to “Three Waves of Public-Debt Repudiations in the USA during the 19th Century,” http://www.cadtm.org/Three-Waves-of-Public-Debt

The series devoted to the Americas complements five earlier articles on the Mediterranean: “Newly Independent Greece had an Odious Debt round her Neck” http://www.cadtm.org/Newly-Independent-Greece-had-an, “Greece: Continued debt slavery from the late 19th century to the Second World War” http://www.cadtm.org/Greece-Continued-debt-slavery-from, “Debt as an instrument of the colonial conquest of Egypt” http://www.cadtm.org/Debt-as-an-instrument-of-the, “Debt: how France appropriated Tunisia” http://www.cadtm.org/Debt-how-France-appropriated.

The local dominant classes lent to the colonial Spanish State

Spain conquered Mexico with fire and sword beginning in 1519. |1| Madrid called its colony “New Spain.” The war of independence began in 1810 and ended in victory for independence in 1821. At the end of the 18th century, the local dominant classes, including the clergy, were lending to the colonial State and also to the home country at a rate of 5%. Mine owners, big landowners, rich Spanish merchants established in Mexico, and the Mexican clergy lent large sums to Madrid at an interest rate that varied between 5% and 6%. These loans, which financed Spain’s European wars, were raised by selling Spanish bonds to Mexico’s ruling classes to contribute to Spain’s war against England in 1782 and against revolutionary France in 1793-94. When Mexico’s war of independence began in 1810-11, the ruling classes cut off credit to the Spanish government in Mexico City and Madrid. The risks were too high. |2| Only the Spanish merchants residing in Mexico were still lending money to the colonial government in Mexico City in 1813, at a rate of 5%, |3| since they had every interest in seeing the independence movement defeated and because they were convinced that should the Spanish camp be defeated, they would be compensated by Madrid.

The struggle for independence was conducted, with a few exceptions, by well-off sectors of the population who were of European origin and who, following the example of the rest of Latin America, wanted to rid themselves of the colonial yoke. |4| As throughout the continent at that period, the movement was led by “creoles” – sons and daughters of parents of European origin born in the Spanish colonies. The leaders of the independence movement had little regard for the indigenous populations, who accounted for some 80% of Mexico’s six million inhabitants. |5| Following independence in 1821, Agustín de Iturbide, the new head of State, questioned whether or not the debt of the former colonial regime should be repaid. He envisaged three options: primo, repudiate the debt, since it was accumulated in the interests of the colonial power that had exploited the country; secundo, confiscate the Church’s property and sell it to repay the debt; tertio, issue bonds in London in order to pay off old debts. |6| In order to avoid conflict with the local ruling classes, who were the holders of a large portion of colonial debt, the President decided against repudiation. Similarly, to reassure the powerful clergy, he decided not to nationalize Church property.

Iturbide with the Trigarante Army in the capital on 27th of September (1821)

Iturbide with the Trigarante Army in the capital on 27th of September (1821)

So, against the interests of the people, Iturbide opted to borrow in London and devote a significant part of the proceeds from the bond issue to repaying colonial debt. Mexico’s ruling classes, or a large part thereof, had an interest in their country taking on foreign debt. The article “How Debt and Free Trade Subordinated Independent Latin America”, http://www.cadtm.org/How-Debt-and-Free-Trade, gives a brief analysis of Mexico’s bond issues in London in 1824-25. They set off a chain of events that were to unfold over the entire 19th century and strongly affect the country’s history in its relations with foreign powers. The terms of the loans were clearly abusive, as was their management.

In February 1824, Mexico issued bonds in London through the intermediary of the bank Goldsmith and Company. The conditions were harsh in that they gave Goldsmith abusive advantages. Whereas Mexico issued debt worth the equivalent of 16 million Mexican pesos (3.2 million pounds sterling – NB: hereinafter, pounds sterling = £), the country actually received only 5.7 million pesos or approximately, £1.14 million), or a mere 35% of the amount borrowed. Taking into account the interest to be paid whereas it actually received 5.7 million pesos, Mexico committed to repaying 40 million pesos (16 million pesos in capital and another 24 million pesos in interest, since the rate was fixed at 5%) over a period of 30 years. To express it simply, Mexico received 1 and had to pay back 7. Even at the time of the bond issue, Goldsmith made enormous profits.

In 1825, Mexico borrowed the same amount (16 million pesos or £3.2 million) from another financial firm, Barclay and Company, |7| and actually received 6.5 million pesos (£1.3 million). Again, over 30 years, Mexico committed to repaying 44.8 million pesos (16 million pesos in capital plus 28.8 million pesos in interest, since the rate was set at 6%).

Despite what the official narrative claims, the suspension of debt repayment by Mexico and other Latin America countries (and also Greece) beginning in 1827 was not the cause of the London financial-market crisis. It was the consequence. Neither was it caused by the upheavals which have continued to affect Latin America and other countries, such as Greece, until this day.

The crisis broke out suddenly in London in December 1825 as a result of the bursting of the speculative financial bubble that had swelled over the preceding years and mainly affected domestic British activities. In addition, egged on by the speculative fever, London bankers massively granted credits to countries waging independence struggles (the decisive battles fought by Simón Bolívar took place in Latin America in 1824, the Greek separatists were in a fragile position in their conflict with the Ottoman Empire, etc.) When the crisis started in London, the Latin American countries and Greece were repaying their external debts as normal.

In Mexico’s case, the two financial firms Goldsmith and Barclay that had issued Mexican bonds in 1824-25 had made considerable profits at the country’s expense. It should also be pointed out that Goldsmith had skimmed off the interest and the repayment of the capital corresponding to the years 1824-25 from the 1824 issue. But in addition, a quarter of the amount of the 1825 issue, made through Barclay, was used to repay Goldsmith for the year 1826! Goldsmith speculated on the Mexican bonds: whereas the bank had purchased them from Mexico at 50 % of their nominal value, it sold a great number to third parties at 58 % of their value. Later, in early 1825 when the market euphoria was at its height, the firm was selling them at 83% of their face value. |8| However, the firm of Goldsmith went bankrupt in London in February 1826, and Barclay and co. failed in August 1826. |9| Clearly, Mexico was not responsible for the failures; rather it was one of the victims. Due to Barclay’s failure, Mexico lost £304,000 that had been skimmed off by the firm to prepay the interest and the beginning of repayment of capital for the entire year 1826 and part of 1827.

The payment default of Mexico and many other countries that occurred on 1 October 1827 was caused by the sudden shut-off of credit that happened in December 1825. Up to then, through 1824-25, access to credit in London had been largely unimpeded. Mexico however, like the other debtor countries, had been counting on further credits from London in order to repay the preceding ones. The conditions the countries had agreed to on the loans made it impossible for them to continue repayment without new loans. In other words, the credit conditions of 1824-25 were so unfavourable to the newly independent debtor countries that they were unable to repay without further borrowing.

In the early 1830s, Lorenzo de Zavala, Mexico’s Minister of Finance, |10| stated that Mexico should have refrained from seeking credit in London because Mexico’s economic resources were sufficient. |11| Zavala, it should be noted, was president of the Constitutional Congress at the time of the bond issues of 1824-25. Lucas Alaman, who was minister in 1824, also recognized a posteriori, in 1852, that the London issue had been disastrous. |12| José Mariano Michelena, who replaced Borja Migoni, who had negotiated the 1824 and 1825 loans, in London in 1825 condemned the usurious rates. |13| And yet an author such as Jan Bazant, in a work published in 1968 and considered authoritative in academic circles, wrongly states that Mexico’s borrowing on the London market was a good choice and that, all things considered, the credit conditions were not so disastrous after all. |14| Bazant’s main argument consists of pointing out that other countries accepted conditions that were just as unfavourable. It is not a convincing argument. Objective criteria such as the issuance price, the actual interest rate, and the commissions paid must be considered. Mexico agreed to conditions it should have refused to accept. But in any event the 1824 Goldsmith loan was by far the most abusive of all those granted to Latin American countries during the 1820s. |15| That other governments accepted loans on conditions that were against the interests of their countries does not make those entered into by Mexico any more legitimate. Moreover countries like Paraguay and Egypt refused to resort to foreign borrowing during this same period, and managed very well without. It was when Egypt eventually did agree to massive foreign loans, in the 1850s, that its situation became disastrous. |16|

The close link between domestic and foreign debt 

In contrast with the loans they granted to the Spanish colonial State at rates of 5 to 6%, the local ruling classes extracted usurious rates (12% to 30%, and even more |17|) from the new Mexican State, with foreign loans serving in part to repay the domestic debt. The rich Mexicans (big landowners – latifundistas –, powerful merchants, or owners of mines) who lent to the State had every interest in seeing the Mexican authorities continue to seek foreign loans. These loans were then used in large part to repay internal debt; and they had other advantages: they were a source of profit for Mexico’s ruling classes, who themselves purchased the Mexican bonds abroad. They were a source of the foreign hard currency needed by Mexican capitalists for importing foreign products (capital goods, consumer goods, armaments, etc.)

By financing a whole range of the State’s activities through borrowing, the Mexico authorities avoided increasing the taxes paid by those same wealthy citizens.

The use to which the two bond issues of 1824-1825 were put is a good illustration of this: 25% of the total amount went to repay internal debt; 15% was used for arms purchases in London; 8% went to purchase tobacco from major Mexican producers (the tobacco was then re-sold by the State); and 52% was used to pay the State’s current expenditures (payment of back wages, pensions, administrative expenditure). |18| This means that 0% was used for investments in development or for social expenditure.

The example of Mexico is very interesting from the following point of view: Mexican capitalists took on English or French citizenship to avail themselves of the protection of the London or Paris governments. The pretext used by France, Britain and Spain to justify invading Mexico in late 1861 was precisely the necessity of securing repayment of the debts owed by Mexico to French, British or Spanish citizens. Yet in fact some of those citizens were in reality rich Mexicans residing in Mexico but who had adopted a European nationality to obtain the support of the European powers in their conflict against their own State. In the literal sense, they were what is called in Spanish “vende patria” (“those who sell out their country”).

The debt restructurings of 1830 and 1840

As pointed out above, Mexico suspended repayment of its foreign debt (the Goldsmith and Barclay loans in October 1827) and its government attempted to make use of internal debt by agreeing, in 1828, to extremely high interest rates – the local ruling classes were very demanding: on 1 June 1828, the Mexican capitalist Manuel Lizardi granted a loan at an annual rate of 536%; on 23 July 1828, Angel González lent at 232%. |19| We should add that nine years later, in London, Lizardi’s financial firm served as intermediary between the Mexican government and the holders of Goldsmith and Barclay securities, pocketing substantial commissions (see below). |20|

The country entered into negotiations with London creditors who in 1829 had created a Mexican bondholders committee. In 1831, the Mexican authorities made enormous concessions to creditors. Whereas the arrears of interest for the period between October 1827 and April 1831 amounted to £1.1 million, they agreed to that interest being turned into a debt of £1.6 million (this is called capitalization of interest or transformation of unpaid interest into outstanding capital).

How did things stand after the 1831 agreement between Mexico and the creditors? In 1824-25 Mexico received approximately £2.44 million, and repaid £2 million in the form of interest and capital repayment between 1824 and 1827, receiving no further funds until 1831, and found itself with a debt that had increased from £6.4 million to £6.85 million. In the case of the Goldsmith loan of 1824, between February 1824 and July 1827 Mexico paid back £1.57 million whereas it had received only £1.13 million in all. |21| Mexico should have repudiated the loan due to the unconscionable nature of the contract, especially since the Goldsmith firm went bankrupt in 1826. Yet in 1831 Mexico recognized an outstanding debt of £2.76 million on the Goldsmith loan. |22|

In 1831, Mexico resumed foreign-debt repayments for a period of one year. In 1837, whereas it had received no further external loans, Mexico struck a new agreement with the creditors in London. The debt grew yet again – from £6.85 million to £9.3 million. Mexico made interest and capital repayments from 1842 to 1844. New negotiations took place in 1846, during which Manuel Lizardi reaped considerable – and fraudulent – profits from his country for the benefit of the bondholders’ committee. Despite the payments made in 1842-44, Mexico’s debt increased from £9.3 million to a little over £10 million, without the slightest additional credit being granted. This was purely an accounting trick that increased the outstanding debt for the creditors’ benefit while giving Mexico some semblance of relief. The additional commission that went to Manuel Lizardi totalled £876,000. After pocketing that sum, Lizardi dissolved his financial firm in order to escape future litigation.

In 1847, the USA made war on Mexico in order to annexe an enormous portion of its territory. The USA took half of Mexico, annexing what are today the States of Nevada, Utah, Colorado, New Mexico, Arizona and California. Troops occupied the capital, Mexico City, for a time.

Territories lost by Mexico in favor of the United States in 1848

Territories lost by Mexico in favor of the United States in 1848

After the war, Washington paid compensation for the annexed territories (15 million Mexican pesos, or approximately £3 million). A large part of that amount then went to repay the internal debt to the local ruling classes and to resume repayment of foreign debt between 1851 and 1853 (still in repayment of the 1824-25 loans). |23|

The disastrous international conventions signed by Mexico between 1851 and 1853 with Britain, France and Spain

In December 1851, Mexico agreed to sign an international convention with Britain under which it recognized a debt and declared that it was ready to indemnify British subjects and firms who had suffered losses in the past when the Mexican authorities had suspended repayments on internal debt that had been bought up by British firms. This convention was imposed by coercion: if Mexico wanted to issue new bonds in London, it had to sign this international treaty. If it refused, Mexico faced British military intervention on the pretext of obtaining justice for its subjects. Apart from the fact that this convention was weighted in favour of British subjects and companies, granting them excessively high repayments, it contained a measure that was even more harmful and scandalous and which deserves a brief explanation: a firm owned by a Mexican capitalist had obtained, using this convention, the guarantee of a large compensatory payment on the grounds that its owner, Martinez del Rio, had acquired British citizenship in 1843. The Mexican firm that had purchased Mexican internal-debt bonds succeeded in internationalizing that debt through the naturalization of its owner. |24|

The same year, Mexico signed a similar convention with Spain. Two others were to follow during 1852-53 |25| ; and between 1851 and 1853, Mexico entered into three such conventions with France. |26| According to Jan Bazant, half of the debt recognized by Mexico by virtue of these international conventions was in reality held by Mexican capitalists who had acquired British or Spanish nationality.

Britain, France and Spain, in forcing these conventions on Mexico, created an international instrument of coercion. By signing, Mexico relinquished part of its sovereignty and gave the foreign powers an argument for declaring war over unpaid debts. Until then the Mexican courts had refused claims by British, Spanish or French subjects concerning internal debt. And foreign courts did not deal with claims from their own citizens and firms if they involved the internal debt of a sovereign nation like Mexico. In agreeing to sign these conventions, Mexico was agreeing that its internal debt be turned into external debt, and that foreign States represent private citizens. As explained above, Mexico also agreed to allow Mexican subjects (capitalists, as it happens) who had acquired foreign nationality to have their interests defended by foreign powers.

Concretely, the domestic debts were replaced by Mexican government bonds that had international value and were repaid using customs revenues. The new external debt inherited from these conventions amounted to 14.2 million pesos (or a little less than £3 million). It’s important to make it clear that that amount does not correspond to any payment of funds to Mexico from foreign sources. Once again, it was simply a piece of accounting sleight of hand that transformed an internal debt into external debt. External debt, which before the conventions stood at 52.7 million pesos (a little more than £10 million) |27| corresponding to the unconscionable Goldsmith and Barclay loan of 1824-1825, increased by 14.2 million pesos to 66.9 million pesos. |28|

Clearly, in signing these conventions the Mexican authorities –comprised of representatives of the local ruling classes – acted against the interests of their country and of Mexico’s people.

We will see what advantages the foreign powers sought to gain from these conventions in the 1860s. Ten years later, the threat dramatically took concrete form when Mexican capitalists, beginning in 1861-1862, supported the French, British and Spanish invasion and backed France’s imposing of an Austrian prince as Emperor of Mexico. To permanently avoid the trap of international debt recognition conventions and the accompanying abandonment of sovereignty, the Mexican Congress adopted a decree prohibiting them in 1883 (see below).

The Revolution of Ayutla and the struggle between Liberals and Conservatives

In 1855, the dictatorship of the conservative Santa Anna was overthrown by the Revolution of Ayutla and the Liberal Party came to power.

On the right, Juan Álvarez, named by the Plan of Ayutla as one of the 3 leaders of the forces of the liberation

On the right, Juan Álvarez, named by the Plan of Ayutla as one of the 3 leaders of the forces of the liberation

In order to promote the development of a capitalist bourgeoisie in Mexico, the Liberals wanted to expropriate land belonging to the clergy and the indigenous communities. |29| The laws passed to this effect are referred to as the Reform, and were reaffirmed in the Constitution of 1857. In reaction, the Conservative Party, representing the interests of the clergy and large landowners, launched the War of the Reform against the Liberals in power, with the support of Pope Pius IX. The Liberal Benito Juárez, who had become president in 1858, was overthrown by Conservative generals. General Zuloaga, commander of the military garrison in the capital, usurped the presidency. Benito Juárez was forced to leave Mexico City and organized armed resistance against the usurpers from the North, while enjoying support from all over the country. Between 1858 and 1 January 1861, two governments coexisted – the Conservative government, which remained in Mexico City, and the Liberal one, whose seat moved about according to the needs of the war.

The scandal of the Jecker bonds issued by General Zuloaga, the usurper president

In 1858, the Finance Minister of the Conservative president of the period attempted to conduct a major operation to restructure/convert the internal debt for a total of 57 million pesos. The new bonds began to sell at 5% of their nominal value, after which the price fell to 0.5%! Mexico indebted itself to the tune of 57 million pesos and in return received only 443,000 pesos (less than 1% of the nominal value of the issue!) and some older bonds. It was a total fiasco for the treasury, but a gold mine for the bond purchasers. And in particular for the Swiss banker Jean-Baptiste Jecker, |30| established in Mexico City since 1835. A large shareholder in silver mines (the Taxco and Mineral Catorze mines), he had purchased a large number of bonds at between 0.5% and 5% of their value. One year later, Mexico issued more bonds internally using Jecker’s services. Jecker acquired bonds for a total value of 15 million pesos, and in exchange paid Mexico’s public treasury 618,927 pesos (approximately 4% of the value of the bonds) and bonds issued the previous year with a nominal value of 14.4 million pesos but which he had bought for next to nothing. The total cost of the operation for Jecker was 1.5 million pesos (that is, the purchase of a large part of the bonds issued in 1858 and the new 15-million-peso issue of Jecker bonds).

On 3 November 1858 Benito Juárez issued a decree from the city of Veracruz, revealed to the citizens of Mexico City by the clandestine press, which said:

Benito Juárez

                  Benito Juárez

“Benito Juárez,

Constitutional interim President of the United States of Mexico, hereby informs all inhabitants of the Republic that: By virtue of the powers vested in me, I deem it appropriate to decree the following: Any person who, directly or indirectly, shall give aid to the individuals who have refused obedience to the supreme Constitutional government by supplying money, food, ammunition or horses, shall through that act alone forfeit the full value of the amounts or the goods that shall have been delivered to them, and will in addition be liable to pay the Treasury a fine amounting to twice the amount of money, or twice the value of the goods that shall have been supplied.

Issued at the Palace of the General Government at Veracruz, 3 November, 1858.” |31|

Jecker and the local capitalists who were financing the illegal government had been warned.

Repudiation of the internal debt and suspension of payment of the external debt in 1861

Having defeated the Conservatives’ army, Benito Juarez triumphantly entered the capital on New Year’s Day 1861. Juárez and his government repudiated the internal loans contracted by the usurpers between 1858 and the end of 1860.

Nevertheless, he offered to compensate Jecker for the amount he had actually spent, or 1.5 million pesos. Jecker refused and sought the support of France in order to guarantee maximum profit. Emperor Napoleon III was looking for a pretext for launching new colonial conquests: he wanted to take possession of Mexico (whose territory was three times bigger than France) and its silver mines. The French government demanded that Mexico repay the bonds held by Jecker (who, remember, was a Swiss national) and Mexican bonds held by French citizens at face value. The fallacious nature of the argument they used becomes even more obvious when we learn that France granted French citizenship to Jecker in March 1862, whereas the invasion had already begun three months earlier, in early January of 1862 (see below).

France had already attacked Mexico in 1839

France had already used the pretext of damages caused to its citizens in Mexico to obtain trade advantages. In the chaotic post-independence period, French merchants in Mexico suffered losses, and some had even been killed during the disturbances.

In September 1838, the pastry shop of a Frenchman, Remontel, was looted in Tacubaya. Louis-Philippe’s France demanded 600,000 pesos (3 million francs) for damages and in compensation for “forced loans.” When the Mexican authorities refused, France sent in a squadron which took possession of San Juan de Ulúa and destroyed the port of Veracruz. The Mexicans referred to this intervention as the Guerra de los pasteles (Pastry War) to show the disproportion between the pretext and the effects.

Indeed the war did have consequences for Mexico, who had to rebuild the port of Veracruz and lost customs revenue while the port was out of service. It was forced to sign the Treaty of Veracruz, in March 1839, under which it agreed to pay the 600,000 pesos being demanded, but above all granted trade advantages to France, in particular for importation of fabrics and luxury products.

Jecker went bankrupt in May 1860, and among his assets the liquidators found Mexican bonds from 1858 and 1859 for an amount of 68 million pesos, which means that Jecker had only sold a small number of them, despite what he claimed. |32| This brings to mind what the French banker Erlanger did regarding the Tunisian bonds issued in Paris in 1863, (see http://www.cadtm.org/Debt-how-France-appropriated). It should also be pointed out that the Duke of Morny, Napoleon III’s half-brother and President of the National Assembly, later acquired 30% of the Jecker bonds. |33|

As indicated earlier, Benito Juárez, after emerging victorious from the power struggle between Liberals and Conservatives in late 1860, attempted to restore order to the country’s finances. Britain recognized him as President in February 1861 with the hope that his government would resume repayment of the debt stemming from the Goldsmith (1824) and Barclay (1825) loans, honour the convention of 1851, and take on the debts contracted since then by the successors. |34| But in May 1861, Benito Juárez decided to suspend repayment of the debt outstanding from the Goldsmith and Barclay loans for one year. In July 1861, he extended the suspension of payment to two years. No payments were made to Britain, France or Spain, who had backed the usurping Conservative presidents between 1858 and 1860.

The French invasion and occupation of Mexico (1862-1867)

On 31 October 1861, Britain, France and Spain entered into an international convention under which the three colonial powers agreed to use force against Mexico to obtain payment of its debts. |35| The conventions signed by Mexico between 1851 and 1853 were cited as justification for the aggression. The US executive attempted mediation: Washington offered to lend Mexico the money it needed to resume payments to Britain, France and Spain. But the US Senate finally rejected that proposal |36| and preparations for invasion continued. The Spanish landed in December 1861, the British on 4 January 1862, and the French four days later. The French expeditionary corps was by far the largest. In the end, only France pursued the invasion. Britain and Spain were opposed to France’s plan to conquer Mexico, abolish the Republic, and install a monarchy. The British and Spanish officially objected to France’s totally disproportionate demands and declared the convention of October 1861 null and void.

Maximilien 1st, emperor of Mexico.

Maximilien 1st, emperor of Mexico.

The British and Spanish withdrew from Mexico in April 1862. The French troops took a year to reach the Capital and occupy it to install – with the support of part of the local ruling classes – a Catholic monarchy. Prince Maximilian of Austria was proclaimed Emperor. During his reign, which lasted until 1867, he unsuccessfully sought popular support by launching certain social reforms.

Maximilian of Austria was clearly a puppet emperor serving France’s interests. Recognition of the Jecker debts contracted by the Conservative presidents in 1858-1860 was among his first acts. Another consisted in issuing a new international loan in Paris and London for 200 million French francs (40 million pesos, or £8 million). |37|

The new loan was successful only in Paris, where it was managed by two banks, the Crédit Mobilier and Fould-Oppenheim & Cie. The Crédit Mobilier had been founded in 1852 and benefited from the protection of Bonaparte. |38| The Fould-Oppenheim & Cie bank was directly tied to Napoleon III’s Finance Minister Achille Fould, who was the brother of the bank’s owner. The conditions of issuance were similar to those of the Goldsmith loan of 1824. Whereas Mexico indebted itself for 200 million francs, the sale of the bonds brought in only 100 million francs, a large part of which remained in France. Maximilian of Austria issued a second loan in Paris in April 1864 for 110 million francs (22 million pesos). The entirety of that amount remained in France. |39|Maximilian sought a final loan in early 1865 for 250 million francs (50 million pesos). |40| Of the total debt of 560 million francs contracted by Mexico, only 34 million francs actually arrived in Mexico. |41| More than half of the amount borrowed went directly to the French ministry of Finance. As for Jecker, he received 12.6 million francs.

The international military expedition sent by Napoleon III ended in bitter defeat; the French troops withdrew in February 1867. |42| During his brief reign, Maximilian, acting entirely as France’s surrogate, tripled Mexico’s foreign debt. Once Benito Juárez returned to the presidential palace in Mexico City and permanently ended the occupation, he repudiated all debts contracted by Maximilian of Austria and had him executed in June 1867. He also reaffirmed the repudiation of the interior debt contracted between late 1857 and late 1860 by the Conservative presidents Zuloaga and Miramon.

During the struggle against French occupation, in 1865 the government of Benito Juárez had contracted a debt with the United States amounting to 3 million pesos. That debt was honoured. Clearly the regime of Benito Juárez needed Washington’s support against the other colonial powers. It is also clear that Washington again adopted an imperialistic policy toward Mexico once the War of Secession was ended. As we shall see further on, the strategy used took the form of a policy of investments, in particular in railways. Later, Washington again resorted to military intervention after the Mexican Revolution broke out in 1910.

After Benito Juárez returned to power, Britain pressured him to resume repayment of the former foreign debt stemming from the convention of 1851. Mexico answered that this convention was no longer valid, since in the interim Britain had participated in a military expedition against Mexico in 1862 and then recognized the occupying regime of Maximilian of Austria. |43|

As for the outstanding debts corresponding to the Goldsmith (1824) and Barclay (1825) loans, Mexico did not repudiate them but made no payments until 1886.

And regarding the convention of 1852-53 with France, Mexico held that it was no longer valid in light of the invasion. Note that France eventually accepted Mexico’s position, and that diplomatic relations were fully restored between the two countries in 1880 without France demanding that former debts be recognized. This constitutes an important victory for Mexico. France did not want to lose the possibility of investing in Mexico and understood that to persist in making unacceptable demands on Mexico would get it nowhere.

We shall see that the government of Porfirio Díaz later adopted a policy toward France and other powers that was against the country’s interests where external debt was concerned.

The Porfirio Díaz regime (1876-1910) and the return to massive indebtedness

Young Porfirio Diaz

Young Porfirio Diaz

A new period in Mexico’s history began in 1876 when General Porfirio Díaz (a Liberal who had served under Benito Juárez) violently overthrew the Liberal government of Sebastián Lerdo de Tejada, who had succeeded Benito Juárez in 1872. This was the beginning of the Porfiriato, an authoritarian Liberal regime that would “modernize” the country by opening it much more to foreign capital, encouraging the accumulation of capital by a national bourgeoisie through expropriation and the accelerated development of capitalist relations of production, without completely ending pre-capitalist forms of exploitation.

The Porfiriato extended the Liberal reforms begun by Benito Juárez using even more authoritarian methods. |44| From that point of view, there was continuity. |45| On the other hand, whereas Juárez and Mexico had defied creditors’ demands for repayment of internal and external public debt, Porfirio Díaz adopted a policy that favoured the creditors. His government recognized old debts, including some that had been repudiated by Congress and by the Juárez government.

Mexico in 1880

Mexico in 1880

Between 1880 and 1884, Díaz handed power to General Manuel González, a faithful collaborator. During this period major debt restructuring was conducted, leading to a new cycle of massive indebtedness. The Porfiriato lasted until the Revolution of 1910. Between 1888 (the date of the first international bond issue during the Porfiriato) and 1910, Mexico’s external debt was multiplied by a factor of 8.5, increasing from 52.5 million to 441.4 million pesos, and internal public debt doubled.

A most edifying calculation

In 1883, when Mexico’s Congress adopted the law establishing the limits of the debt to be renegotiated with the creditors, it came to approximately 100 million pesos. Between 1888 and 1911, Mexico paid approximately 200 million pesos in interest and capital repayment and its total public debt (external and internal) reached 578 million pesos. |46| In other words, Mexico paid back twice what it owed and ended up six times more indebted. The amount actually received by Mexico was extremely small, because the increase in the debt was essentially the result of juggling accounts during successive restructurings. In addition, the funds actually received were very badly spent, generally in the form of subsidies to capitalist railway owners (see below).

Despite this catastrophic bottom line, several authors considered to be authorities on debt have praised the Porfiriato. William Wynne writes: “The advent of President Díaz to power in 1877 marked the commencement of an era of peace and strong government, and in 1885-86, a definitive and workable settlement of the early loans was embodied in a comprehensive scheme of financial readjustment. With this accomplished, a new chapter began to be written in the country’s foreign debt history, indeed, in the whole social and economic life of the nation. A succession of new loans was contracted and applied in a fair measure to the building of railways and public works, while foreign capital in considerable amounts was employed privately in the exploitation of the rich natural resources.” (p. 3-4) |47|

Jan Bazant, in the conclusion of his book on debt in Mexico, writes: “During the Porfiriato, material progress could not be attained by other methods than those employed – methods which consisted in considerable growth of foreign debt and foreign investments, as in other countries.” (p. 240) |48|

These two citations clearly demonstrate their authors’ bias. They do not hesitate to embellish the Porfiriato and the regime’s policies of indebtedness, which in reality were catastrophic for the country and its population.

Caught again in the machinery of debt 

Mexico ceased repayments of foreign debt in 1861 from Benito Juárez’s arrival in Mexico City and through 1888. |49| Note that the Juárez government, in the late 1860s, had the good sense to buy back a large quantity of the bonds affected by the conventions entered into with Britain in the early 1850s |50| at 10% of their value. For one thing, the cost of repurchase was low, and also, since the operation removed the bonds from circulation, the country saved money on interest payments and avoided future claims.

Porfirio Diaz in 1902

Porfirio Diaz in 1902

After he took power, General Porfirio Díaz sought to restructure the old debts in order to enrich the Mexican capitalists who held a large share of them and to improve relations with the major foreign powers. This he managed to do in 1888.

Since the Mexican Constitution did not allow him to be re-elected indefinitely, he passed on the presidency to General Manuel González between 1880 and 1884. González furthered negotiations with the creditors. In 1883, he succeeded in persuading the Mexican Congress to allow the government to negotiate new loans while acknowledging part of the old foreign debt – in particular that part related to the outstanding amounts of the Goldsmith (1824) and Barclay (1825) loans. The decree adopted by the Congress on 14 June 1883 |51| clearly repudiated the following debts: all debts contracted by the illegitimate (usurper) governments, those contracted by General Zuloaga and his successor, Miramon, between 17 December 1857 and 24 December 1860, and those contracted or renegotiated by Maximilian of Austria. |52|

One very important provision of the decree was that regardless of the origin of the credit and the nationality of the creditors, the debt must remain within Mexican jurisdiction, without the possibility of being granted any international dimension nor any revenue of the State being furnished to repay it. In including this provision, Congress wanted to deny the foreign powers the possibility of attacking Mexico under the pretext of forcing compliance with an international convention on external debt. Declaring that the debt must remain Mexican meant that in case of litigation with creditors, foreign or domestic, the only competent jurisdiction was Mexico’s. Declaring that no particular revenue of the State could be seized in repayment of debt protected Mexico’s right to make repayments only if it considered that it had the resources to do so. The limitations set by the law clearly show that for the majority of Congress members and Mexican public opinion, it was inconceivable to resume repayment of certain debts that were deemed “illegitimate” or “impure,” in the terms used in public debate by the main protagonists of the period.

The Decree of 14 June 1883, then, has twofold significance: on the one hand, it authorized the government of Manuel González to renegotiate old foreign debt; on the other, the legislature established constraints, limiting the concessions the government could make in meeting creditors’ demands.

On 1 June 1884, the government of Manuel González violated the Decree of 14 June 1883 by entering into an agreement with the international creditors in order to repay debts stemming from the conventions signed with Britain in the early 1850s. |53| The agreement with the creditors was finally submitted to Congress for ratification in November 1884. This caused major disturbances among parliamentarians and in the streets. |54| The members of Congress who opposed the agreement demanded a prior audit of the debts in order to determine their validity and legitimacy and decide what should be repudiated. The government attempted to force the agreement through Congress, causing major protests. Students led the demonstrations, and the repression resulted in one death. The debate in Congress was suspended, but that did not stop the González government, and then that of Porfirio Díaz, from entering into an agreement with the London Convention creditors, compensating them at a highly favourable rate and within a very short time. |55| As we have seen, at least half of the so-called “London” debt was held by Mexican capitalists. It is highly probable that 30 to 50% of the London bonds were held by Manuel González himself and by his brother-in-law, Ramon Fernandez, Mexico’s ambassador to France. |56|

The difficulties González encountered in Congress at the end of his term of office and the street demonstrations, all echoed by the press of the period, clearly show that debt was a central element in the national debate and that the orientation adopted by the government was rejected by a large part of the population.

Following these major incidents, Porfirio Díaz began his second term on 1 December 1884 and further reinforced the budgetary policy aimed at repaying the debt and seeking new loans.

In 1888, the restructuring of debt inherited from the Goldsmith and Barclay loans

Finally, Mexico issued new foreign debt in 1888, two thirds of the proceeds of which went to repay the balance of the Goldsmith and Barclay debt, by then more than 60 years old.

Let us bear in mind that in 1824 and 1825, Mexico had received £2.7 million (approximately 13.5 million pesos) from the Goldsmith and Barclay loans. Subsequently, it repaid £5.1 million (more than twice the amount actually received), including £4 million in payment of interest and £1.1 million in repayment of capital.

In 1888, Mexico used £5.4 million (27 million pesos) to repay the balance of the Goldsmith and Barclay debt. This was an out-and-out swindle. It went against the interests of the nation and served the narrow interests of the Mexican capitalists who held part of the old bonds. |57| Of course, foreign bondholders also benefited. And it was all at the expense of the Mexican Exchequer.

The 1888 bond issue, according to many major authors such as Jan Bazant, put an end to the 1824-25 debts, whereas in reality that old debt was replaced by a new debt of 34 million pesos |58| which Mexico was forced to repay until 1910, and whose balance was included in the debt renegotiations that took place between 1922 and 1942.

We can in no way agree with Bazant’s assessment, to wit: “With the 1888 loan the chapter of the 1824 and 1825 loans is closed. […] We can conclude that despite the many complications these loans had brought about for the country, in the final analysis they were a beneficial operation.” |59|

The 1824-1825 loans, restructured for the last time in 1888 (bearing in mind that they had already been restructured four times between 1830 and 1850 |60|) were a terrible yoke borne by the Mexican people.

Consequences of the Porfiriato debt policies

During the Porfiriato, the government imposed budgetary measures in order to produce sufficient financial leeway to cover debt repayments. Austerity measures included lowering public sector wages, increasing taxes and refusing any social spending.

Seven bond issues were made. The first one, in 1888, was essentially, as we have seen, to cover the reimbursement of previous bond issues. Those of 1899 and 1910 were again for similar repayments. That of 1893 was for general government costs. The 1889, 1890 and 1904 borrowing went straight to funding Mexican and foreign investors building railways.

By observing the nationalities, the localities and the names of the foreign banks providing the Porfiriato loans, we can trace the rise of big capital and the newly developing international financial centres. While the 1824-1825 issues were made in London by English bankers, or in Paris by French bankers the 1888, 1893, 1899 agreements were made in Berlin with German bankers (Bleichroeder, Deutsche Bank, Dresdner Bank). As of 1899 American banks make their presence felt, notably JP Morgan (now the biggest bank in the US) and in 1910 the French came back in force, under the banner of the Banque de Paris et des Pays-Bas (today the biggest bank in France: BNP Paribas). |61|

What is also striking is that the return of Mexico to the European Financial markets in 1888 as a borrower coincides with a general rise in European bank lending to Latin American countries. Since 1873, and into the 1880s, European financial markets had been through a crisis that cut the flows of credit and were only just finding a renewed interest in lending to peripheral countries. They were particularly drawn to feverish Latin American railway investments, whether in Argentina, Brazil, Uruguay or Mexico.

Mexican indebtedness furnished regular, juicy incomes to Mexican and foreign capitalists holding Mexican debt which, as we shall see, was used to lavish gifts on big private railway companies. These companies, after having furnished their owners with quick profits, were at their own request, nationalized at great cost to the State. To cover these costs the State resorted to more borrowing.

Contrary to affirmations that the State’s foreign borrowing was beneficial, enabling the economy to open up and assuring the construction of infrastructures, there are convincing arguments that it would have been possible to financially stimulate real development useful to the population without resorting to borrowings rife with extortion, fraud and embezzlement. Old illegitimate debts should have been cancelled. (In this case the first two loans would have been unnecessary and so would the second two – taken on to service the first two). The private railway companies that built the infrastructure should not have been subsidized. Rather, it should have been built as a public service project with other priorities than the exportation of commodities and the importation of finished products from Europe or the US. Taxes could have been levied on the incomes and fortunes of the richest and on the profits of the mining companies in order to avoid, as far as possible, recourse to borrowing. What should have been done is organize agrarian reform, stimulate domestic industrial production, promote the domestic market and develop the educational system.

The Porfiriato agricultural policy

Under the Porfiriato, grabbing the land of the Campesinos, villages and indigenous peoples was institutionalized by surveying companies charged with establishing the boundaries of unclaimed lands. The government sold the lands to the bourgeoisie and paid the surveying companies for their work with stretches of the land that they had themselves delineated. But these lands were rarely unused; they were usually common property. The bourgeoisie, with the help of the vast repressive means of the State and private militias, waged a fierce war against the poorly armed peasantry, who possessing only their land and access to water, fought desperately. Peasant rebellions were put down and the haciendas of the big landowners spread over ever greater territories in spoliation of the villages. The process permitted, at the same time, to dispossess the population of its common property and to create a class of peasantry possessing only their labour which they were soon forced to sell to Capitalists to gain their livelihoods. |62|

Adolfo Gilly said of these violent spoliations: “This accelerated process of accumulation dependent on precapitalist economic structures coincided with a worldwide phase of capitalist expansion, which distinguished it from the classic primitive accumulation process. From this aspect the phenomenon showed certain resemblances with the extermination of the Indians in the US, and other resemblances with imperialist countries’ colonial wars; it was in fact a colonial war waged by a bourgeois government against its own people.” |63|

In a society that was still largely agricultural, Mexican capitalism developed primarily around the haciendas, vast agricultural properties formed around a walled-in central structure containing the owner’s villa, employees’ quarters and other buildings necessary for the functioning of the domain (administration block, church, granaries etc.). While the hacienda was brought to Mexico by the Spanish colonists, it considerably spread under the Porfiriato. According to Adolfo Gilly, because of its capacity to use and occupy neighbouring lands, the hacienda “is remarkably adaptable to produce or labour market changes, able to contract into a certain self-sufficiency or expand to exterior markets depending on the economic conjuncture.” |64| It employs workers of different kinds such as peones, indentured peasants bound to the hacienda by debts, and day labourers taken on as needed. As well as this combination of different social relations of production, the political power in the hacienda is held by the ruling class, which completes the strong central power of the Porfiriato at a local level.

As a good demonstration of the catastrophic nature of the Porfiriato agricultural policy, from the point of view of the general population: corn is the Mexican staple diet and local growers know very well how to produce it, but in 1891-92, Mexico had to import vast quantities of corn from the US to avoid famine. |65| The problem was that the big land owners preferred to use the land intensively for other uses such as cattle, sugar, coffee, tobacco and sisal.

A 19th century Mexican historian, Francisco Bulnes, denounced the government’s 28 favourites to whom they sold 50 million hectares (235 million acres) of land that were then sold on to foreign companies. Bulnes claims that half of the State of Lower California was sold to an American capitalist of German origin for next to nothing. Three million hectares (7.4 million acres) of excellent land in the state of Chihuahua were made over to a certain Hearst. The Rockefellers and the Aldriches are said to have obtained enormous amounts of land in the State of Cohuila. |66|

In 1910 land ownership was highly concentrated. Mexico had a population of a little over 15 million inhabitants in a territory of 197 million hectares (486 million acres). 834 land owners between them possessed nearly 168 million hectares (415 million acres) of that. |67|

The railways

General Ulysses S. Grant, former President of the United States and holder of a concession to build a railroad line from Mexico City to Oaxaca, declared in 1880:

“The Mexicans have a country of vast resources, and these [rail-] roads will develop them to the mutual benefit of both republics. We are now buying […] sugar, coffee, tobacco and numerous other articles from countries […] where they are largely produced by slave labor. We are constantly paying into their treasuries a large amount annually for duties, and we give them back nothing but sterling exchange. […] Mexico is not only our neighbor, but she is a Republic. If fostered, she can produce nearly all of those articles, and will take in exchange what our manufacturers produce. They will take from us cotton goods, locomotives, cars, railroad iron, rolling-stock, all the machinery necessary to the running of a railroad, agricultural implements, wagons, carriages, musical instruments, jewellery, clocks, watches, and a thousand and one other things too numerous to mention.” |68|

Map of Mexico’s railways in 1903

Map of Mexico’s railways in 1903

Before the liberal Porfirio Díaz replaced his predecessor, the equally liberal Sebastián Lerdo de Tejada had been less willing to allow Washington to spread its railway infrastructure deep into Mexico. Referring to the semi-arid regions that separated Mexico from the US he declared, “Between the strong and the weak, let’s leave the desert”. |69| But Porfirio Díaz threw the doors wide open to the interests of Mexico’s northern neighbour.

The first railway line was inaugurated in 1873 and serious extensions went on from 1880, when the infrastructure counted 1,086 km, to the end of the Porfiriato in 1910. The infrastructure grew to 9,558 km in 1890, 14,000 km in 1900 and 19,025 km in 1910. |70| Construction and exploitation was trusted to US and British companies who enjoyed many advantages: abundant State subsidies, free transfer of land, requisitioned and badly paid work force, exonerations from taxes and duties, even the organization of their own private police forces.

A quarter of the federal State revenue was allocated to subsidising private railway companies. |71| By 1890 half of the domestic debt was allocated to subventions for capitalist owners of the railways (37 million pesos out of a debt of 74 million pesos). |72| Public subsidies covered between half and two-thirds of real construction costs. Grants were paid by the kilometre.

Karl Marx writing about railways in 1879

According to Karl Marx, “There is no doubt that in the colonies and in semi-colonial States the introduction of railways has accelerated the social and political disintegration, as in the more advanced States, the final development and thus the final change in capitalist production was faster. In each State, except in England, the governments enriched and supported the railway companies at the cost of the Exchequer. In the United States they were freely granted the ownership of vast tracts of public land, not only the land necessary for railway construction, but also several kilometres along either side (…). They became the biggest of the landowners, just at the time when immigrant farmers were seeking to create their farms along the railways to ensure the convenient transport of their produce […] Railways initiated a dynamic for the development of foreign trade, but trade in the countries that produced mainly raw materials for export came at the cost of increasing hardship for the labouring masses. .[…] The new indebtedness taken on by governments for the railways has increased their tax burden.” (Letter from Karl Marx to Danielson, 1879, cited by A. Gilly, p. 281, CADTM translation.)

The railways’ first goal was to favour external trade routes, so that the lines could be connected to the US network. All the regions they crossed were integrated into the budding capitalist economy, pushing up land prices and intensifying the spoliation of the peoples, as previously mentioned, while destroying their pre-capitalist life styles. Politically, railways also permitted the central authorities to affirm their power as they could quickly intervene in a rebellious region. |73|

At the beginning of the 1900s the two main rail networks were owned by private US companies. |74| In 1904 Mexico purchased one of them from the Speyer bank for $9 million. Previously, the Mexican government had borrowed to subsidize this network and now borrowed a further $40 million, of which, only $16 million ever appeared in the Mexican Exchequer. This $40 million loan was to be repaid at 5% interest over a period of fifty years, the final repayment scheduled for 1954. |75| In 1909 Mexico financed the purchase of the other network from its US owners by borrowing from US banks associated with the railway’s owners.

Purchasing rail networks brought 13,744 km under the management of the Mexican State or two-thirds of the total Mexican infrastructure. In fact the Mexican and US owners wanted to sell off their interests because the systems were no longer as profitable as when the State was massively subsidising them. |76| The State purchased them at high prices and to do so borrowed from the banks that owned much of the network.

Gilly also wrote “Considered together, the development of a domestic market, the integration of the economy into the New World economy and the development of capitalist production under the Porfiriato are one and the same phenomenon, the remarkable dynamism of which is borne out by several observations. Along with the railways the whole communications system progressed: the telegraph, which ran along the rails; roads, ports, postal services. Cities inaugurated drinking water and electric street lighting networks.” |77|

Foreign investment

Foreign capital investment is essential to industrialize the country:

“Around 1884, foreign investment in the country amounted to 110 million pesos. In 1911, it reached 3,400 million pesos […]. These investments were in the following sectors: railways 33.2% ; mining 24%; oil 3.1%; public debt 14.6%; commercial 4.9%; banking 3.6%; electricity and public services 7% ; agriculture, stock-breeding and forestry 5.7% ; industry and transformation 3.9%. 62% of total foreign investment came from Europe (90% of which was British or French) and 38 % from North America. However, Mexico represented only 5.5% of European foreign investment whereas it took 45.5% of US foreign investments.” |78|

Towards the end of the Porfiriato, when drilling started for the oil that had been discovered in 1901, the investments came from Britain and the US.

The end of the Porfiriato and the beginning of the 1910 Revolution

“For a generation Porfirio Díaz ruled Mexico with an iron hand. During that period he transformed a turbulent and bandit-ridden land into a peaceful and law-abiding country in which life and property were secure.” |79| For William Wynne, jurist and author of this opinion, the rights to be defended are those of capitalists seeking to grab the country’s and people’s resources. A dictatorship such as that of Porfirio Díaz helps this along and by doing so gains this kind of approval. In Wynne’s opinion it is fundamental that the country get into debt and the creditors be repaid without the legitimacy or legality of the loans being contested. Wynne saw the Porfiriato measures as positive.

In fact, there was such a widespread process of dispossession, spoliation and exploitation that revolution was brewing and ready to burst. It started by a rejection of Porfirio Díaz’s authoritarianism but from the beginning it included social and identity issues. The communities of despoiled indigenous peasants wanted justice. They wanted the return of lands that had been stolen from them, so as to regain their livelihoods. The workers wanted better labour laws and political rights. Other social sectors, victims of capitalist development under the Porfiriato, made demands and eventually joined the revolution that set its mark on the Mexico of the 1910s.

Emiliano Zapata

Emiliano Zapata

Revolution broke out in response to calls to resistance when in 1910 the by now very unpopular General Porfirio Díaz, at the age of 80 and in power since 1876, was again re-elected. The calls were notably made by Francisco I. Madero, son of a wealthy capitalist family, |80| who had founded the National Anti-re-election Party in 1909.

After a difficult start, the uprising, which had met its first successes in the north of the country, spread to other regions, notably to Morelos (south of the capital) where the indigenous leader Emiliano Zapata and his companions fought for the restitution of common lands plundered by big landowners. The successes of the revolution forced Porfirio Díaz to resign in May 1911 and go into exile in Europe. |81|

Once elected president in October 1911, Madero tried to channel the ongoing revolution. He refused the agrarian reforms demanded by Emiliano Zapata |82| and his partisans but he also annoyed US conservatives. He was assassinated in February 1913 after a coup d’état set-up by the US Embassy and led by General Victoriano Huerta, who Madero had put at the head of the Strategic Military Command. William H. Taft was president of the USA |83| and had direct interests in several US conglomerates active in Mexico. |84|

Victoriano Huerta

Victoriano Huerta

In 1911-12 Mexico borrowed $20 million from the Speyer bank in New York who, as we have seen, had previously granted loans to the Porfirio Díaz regime in 1904 and 1909. The 1912 loan was partly used to pay the interest on the first loan and was to be repaid in record time in 1913. After Madero’s assassination, the usurper, Huerta, managed to raise the equivalent of 58 million pesos in Paris in June 1913. The US banks were clearly becoming aware of the extent of the revolution and the dangers it represented for them; whereas European banks jumped at the chance to lend to the dictator during the euphoric period that preceded the First World War. French banks (mainly the Banque de Paris et des Pays Bas and Société Générale) subscribed 45 % of the total amount, German banks (including Deutsche Bank) 19% and an English bank also subscribed for 19%. The New York banks JP Morgan and Kuhn Loeb only subscribed 12%. Speyer did not take part in the loan but supported it as the funds would be used to pay the loans it had granted in 1911-12. By January 1914 Huerta was in a financial stranglehold and suspended debt repayments. |85| Mexico did not resume payments until 30 years later after having won an enormous victory against its creditors (see further on). Mexico did not resort to foreign banks again until the second half of the 1950s (US banks became Mexico’s principal lenders).

The Mexican revolution 1910-20

The Mexican revolution had deep-seated implications. The principal protagonists were the indigenous peasantry (who made up the majority of the population), while the workers’ role, although important, was only secondary. |86| Nevertheless, the repression of the miners in 1906 in Cananea, in the east of the State of Sonora, and of the workers of Río Banco, at Veracruz, had exacerbated popular discontent and contributed to creating the conditions that led to the revolution.

Pancho Villa and his escort, 1911

Pancho Villa and his escort, 1911

The movement led by Zapata was the most advanced among the population. It was very widespread in the State of Morelos and became the “Commune of Morelos”. Zapata and his movement promoted, as of November 1911, the Ayala Plan which went much further than President Madero’s, known as the Saint Luis de Potosi Plan.

While Madero went no further than to revise decisions through which the Porfiriato plundered vast stretches of land at the expense of indigenous communities and Campesinos, the Ayala Plan called for arms to put an end to private ownership of the vast stretches of land. Zapata and his Plan called for the redistribution of the land to the smallholders who worked it, and for the land seized by aggressively applied laws going back to 1856, to be returned to the communities who had been dispossessed. The war-cry was “Reform, Liberty, Justice and Law”.

Madero organized the repression of the Zapatista movement that he wanted to destroy as well as against socialist and anarchist movements in the north. The elimination of Madero by Huerta was welcomed by the ex-Porfirists, the Catholic Church and the armed forces. The repression against the popular movements intensified.

Venustiano Carranza

Venustiano Carranza

Venustiano Carranza, a liberal leader and admirer of Benito Juárez, called for the overthrow of General Huerta and so made a momentary alliance with the Southern Liberation Army and with Pancho Villa, |87| who had created the Northern Division near the US border. Carranza repudiated the debt Huerta had signed in 1913. Meanwhile, the democrat Woodrow Wilson succeeded William Taft as US President. Taft’s policy concerning Huerta was not the same; he considered him a usurper and preferred to await the outcome before granting US recognition. To sway the balance, Wilson sent 44 US navy ships to block the port of Veracruz on the pretence of preventing German arms supplies from reaching Huerta.

Although the social ideas and objectives of Pancho Villa |88| were less progressive than those of the Zapatistas, the two groups came to an agreement in order to influence the process. Their armies met in Mexico City at the end of November 1914. The two leaders came together at the presidential palace on 6 December 1914, in opposition to Carranza.

Finally, after much difficulty and several battles against Huerta’s and Pancho Villa’s troops, who represented opposite sides, Carranza gained the advantage and Huerta was forced into exile in July 1914, after which, Washington recognized Carranza as de facto President. From then on the US intervened directly to end the threats from Zapata and Villa, whose intentions were a threat to the interests of its big businesses (plantations, mining, oil, etc.).

To help Carranza destroy Zapata’s social basis and organize his assassination Washington sent him 53,000 rifles in 1915. Carranza launched an offensive against Zapatista resistants: mass executions and deportations took place, villages were destroyed, a 100km long trench was dug around the capital city to protect it against Zapatist attacks and chemical weapons supplied by Washington were also used. |89| Yet despite the magnitude of the atrocities committed the objective completely failed. The Zapatista army was again operational within a year.

Furthermore, on 15 March 1915, the US sent an expeditionary force of 12,000 troops (5,000 according to some authors), under General Pershing, to the State of Chihuahua to eliminate Pancho Villa. Among the other officers were two future generals, Patton, who made their names at the battle of the Ardennes in the winter of 1944, and Eisenhower, who was to become 34th President of the United States of America after the Second World War. The operation was a fiasco; Pancho Villa’s resistance won through.

The failure to quell Pancho Villa’s forces and the Zapatista movement was clearly due to the enormous popular support the two movements enjoyed. Fierce repression could not end it for as long as the revolutionary momentum lasted, which it did until 1918-1919.

In order to consolidate his power, Carranza passed social measures applicable to rural as well as to urban sectors. He was well aware that to take the sting out of the Zapatista movement it was necessary to meet some of the popular demands.

When the capital was retaken without hostilities after the Zapatista and Villista troops’ voluntary withdrawal (neither had ever had the intention of taking power or of occupying the capital), Carranza applied his new measures to the rural and urban sectors and made agreements with the trade unions which included the distribution of humanitarian aid. He supported the electricians’ union against their bosses and arrested tradesmen and 180 priests. The leaders of the “Worldwide Workers” Anarchist unions signed an agreement with Carranza and the influential General Obregon to join the war against Pancho Villa in exchange for concessions. |90| On 6 January 1915, Carranza passed a law of agrarian reform of limited application with the intention of alienating Zapata’s and Villa’s rural base.

A year after the pact with the Anarchists Carranza ended the concessions. He no longer had any use for them; Villa’s Northern Division had been destroyed. Repression started against the workers and the unions. Repression quashed a great general strike that began in Mexico City on 31 July 1916. |91| At the same time, during July and August 1916, there was a massive offensive against the Zapatistas in the State of Morelos.

In spite of all these tragic and unpopular acts, in January 1917 Carranza managed to consolidate his power and give it a cloak of legitimacy by adopting what was, for its day, one of the world’s most socially advanced constitutions. This constitution included some elements of the Ayala Plan. It stated that the Nation should keep control of its natural resources, and that the Peasantry should have access to the land. It announced an agrarian reform and social rights (an eight hour day, union rights, the right to strike, a minimum wage, limitations on the work of women and children).

Letter from Emiliano Zapata to the Russian Revolution dated 14 February 1918.

It would be wrong to imagine that Emiliano Zapata limited his visions to Mexico and the Campesinos. The following extracts of his letter to the Russian revolutionaries clearly show the importance he gave to solidarity between the two great revolutions of the time and the necessity of cooperation between workers and peasants:

“We would win much, Humanity and Justice would win much, if all the peoples of the Americas and the older European Nations understood that the cause of the Mexican Revolution and the cause of Russia incarnate and represent the cause of Humanity, the supreme interest of all the oppressed peoples […]

Here as there, there are inhuman masters, who, greedy and cruel from father to son, brutally exploit the great masses of the peasantry. Here as there, enslaved men, men of broken spirit, are starting to awaken, to cry out, to act, to revolt.

It is not surprising that the proletariat of the World applauds and admires the Russian Revolution, in the same way that they will join, sympathize and support our Mexican Revolution as soon as they realize what its goals are […].

This is why the diffusion and propaganda effort that you have undertaken in the name of truth is so interesting; this is why you should go to all the associations and workers’ centres in the World to have them realize the importance of taking on the double task of raising the awareness of the worker’s struggle and forming the peasantry’s class consciousness. It must not be forgotten that because of their interdependence, the emancipation of the workers cannot succeed unless it goes hand in hand with the liberation of the peasantry. Otherwise, the bourgeoisie will always be able to get the upper hand by setting one against the other, for example, using the ignorance of the peasants to combat and restrict the workers’ rightful anger, or enrol unaware workers to fight their country brothers.”

We can see here why the Mexican ruling classes and the US government wanted to be rid of Emiliano Zapata. |92|

In April 1919, Carranza managed, through trickery, to have Zapata assassinated.

In 1920, Carranza was ousted by the General Alvero Obregon, a key collaborator. Some months later, on 1 September 1920, Obregon was officially elected President with more than one million votes. He had the support of union leaders, particularly those of the Confederacion Regional Obrera Mexicana(CROM, the Regional Confederation of Mexican Workers), a trade union founded in 1918. In 1920, Obregon persuaded Villa to lay down his arms and demobilize his remaining loyal soldiers. In return, he would receive a pension and his grade of regimental General in the federal army would be recognized. Villa too was assassinated, in 1923.

The revolutionary dynamic petered out during 1918-1919. The most ardent and visionary men and women, such as Emiliano Zapata and his partisans, were either eliminated or absorbed by the capitalist system. The country had a very progressive constitution but it was only partially applied and the local ruling classes quickly started to work towards abolishing the important concessions they had been forced into during the revolution.

Successive governments gradually buried the great social conquests achieved between 1911-1917 but they resurfaced in force as of 1934 (see further on). The governments also sought compromise with the creditors from 1921.

Debt renegotiations from 1921

Between 1922 and 1942 (20 years!), extended negotiations were held with a consortium of creditors chaired by one of the executive officers at JPMorgan.

In February 1919, a cartel of banks to which Mexico owed money was set up and called the International Committee of Bankers on Mexico. It was chaired T. W. Lamont, who represented JPMorgan and brought together banks from the US, the UK, France, the Netherlands, Belgium, Switzerland and Germany.

In 1921, President A. Obregón invited T. W. Lamont to Mexico to start negotiations that resulted in an agreement in June 1922. |93| It was a bad agreement for the country that clearly showed the government’s political orientation. It was close to the Porfiriato policy in terms of indebtedness, i.e. its subjection to the interests of local ruling classes and of international banks that were creditors for both external and internal debts.

Through this agreement President Obregón and his government acknowledged a public debt of US$ 500 million. In 1910 it had amounted to 220 million which, with additional loans after that date, i.e. those contracted by the usurper Huerta between 1911 and 1913, came to a total of US$ 30 million (The 20 million lent by Speyer Bank had been paid back with a loan contracted in Paris in 1913). President Obregón thus agreed to acknowledge a debt that was twice the amount actually due. |94| On top of that, he agreed to add 200 million as default interest. |95| It was a thorough betrayal of the country’s and the Mexican people’s interests, especially since the debt contracted by dictator Porfirio Díaz (US$ 220 million) as well as loans by the usurper Huerta (US$ 30 million) clearly constituted odious debt. They had been contracted against the interests of the people with the full knowledge of the creditor banks. |96|

The Mexican Congress, controlled by the president, sanctioned the agreement and Mexico started paying back in 1923, but the amounts to be paid were so high and the fiscal deficit so deep that on 30 June 1924, Obregón suspended debt repayments. Mexico resumed negotiations with Lamont from JPMorgan and these resulted in another agreement in 1925, which was again sanctioned by Congress. To resume repayments, the new Mexican president, Plutarco Ellias Calles (in office from December 1924 to November 1928), negotiated a credit line with the Committee of Bankers. Some payments took place in 1926, but in 1927 Mexico again suspended repayments.

In 1928 the Committee of Bankers sent a commission of experts to analyze the situation. In their report the experts criticized the government for its social spending, particularly in public education. They considered that Mexico had invested too much in irrigation works and in setting up a system of public credit for farmers. They acknowledged that in order to avoid another revolution, public expenditure was necessary but estimated that government spending had been excessive. |97|

Negotiations between the government and the Committee of Bankers were resumed. Another agreement was signed in 1930 but for the first time since 1922 many MPs were opposed to ratification. Four MPs from the State of Chihuahua even introduced a bill demanding a ten-year moratorium on debt repayment so as to use the money for socially useful expenditure. |98| The government rather than run the risk of a minority in Congress, did not put the agreement with the Committee of Bankers to the vote.

Meanwhile export revenues declined as a consequence of the October 1929 Wall Street crisis and the project of resuming debt repayments was perceived with increasing anger by the population. In January 1932, Congress voted a law that cancelled the latest agreement between the government and the Committee of Bankers. Eventually on 1st September 1933, President Abelardo Rodriguez announced that Mexico would not resume repayment of its external debt.

Lázaro Cárdenas’ presidency (1934-1940) prepares the 1942 victory against creditors

In December 1934, Lázaro Cárdenas started a presidential mandate that was extended until December 1940. Over those six years Cárdenas carried out major left-wing reforms, some of which made it possible to implement for the first time some of the revolutionary aspirations of the years 1910-1917 and the 1917 Constitution.

Lázaro Cárdenas became president in a context of social struggle such as workers’ strikes. His orientation was quite different from that which had prevailed since 1920. He opposed his predecessor Plutarco Ellias Calles. He refused to resume negotiations with the Committee of Bankers.

Lázaro Cárdenas

Lázaro Cárdenas

One of the first measures Cárdenas took concerned the reform of public education. Article 3 of the Constitution as modified in December 1934 stipulated that state education was to be “socialist in character”, and that as well as excluding any religious doctrine it was to fight fanaticism and prejudice. Schools had to foster among the young a “rational and accurate” perception of the universe and of social life. The explanation given of the rationale behind the bill introduced to the Chamber of Representatives was that a socialist education as set down in Article 3 did not mean an immediate transformation of the economic system but the preparation of the human material needed to carry the revolution forward and consolidate its work. Indeed the country’s future belonged to the socialist youth, educated and trained in Mexican schools. It was incumbent upon those young people, the text said, to fulfil the aspirations of Mexico’s oppressed and labouring classes. Though the implementation of these principles was limited due to the system’s inertia, they had a deep and lasting impact on Mexican society.

Land Reform

According to one of the provisions in Article 27 of the 1917 Constitution, which provided for land to be expropriated by ejidos, |99| Lázaro Cárdenas expropriated some 45 million acres that had previously belonged to big Mexican landowners and foreign companies. He distributed this land to indigenous agrarian communities in the form of traditional collective properties known as ejidos. So the land was no longer the property of private individuals. Apart from meeting the fundamental demands formulated by Emiliano Zapata and in the Ayala plan, the aim was to give back to local communities what they had been robbed of and to promote a self-sufficient kind of farming that would meet the needs of the local markets. The farming communities that received land could use it as they pleased but were not allowed to sell it. Those ejido communities developed decision-making procedures to run the land. Cárdenas’ government created a public bank, Banco Nacional de Crédito Ejidal or Banjidal (the National Bank for éjido Credit) and also financed the training of technicians to improve the yield of the land. Cárdenas’ land reform differed from the policies of former governments which had only restored a limited quantity of land to private individual owners.

Nationalization of oil and railways

The 1936 railway workers’ strike resulted in the complete nationalization of the railways.

In 1938, the nationalization of oil was brought about by a strike of the workers in the oil industry. Oil extraction, which had started at the end of the Porfiriato, was in the hands of UK and US companies. Paragraph 4 of Article 27 in the 1917 Constitution stated that oil-field reserves were the property of the nation. In 1937, oil workers began a determined confrontation with the owners of the oil companies who would not grant the pay-rise demanded by the workers. On 18 March 1938, Lázaro Cárdenas stepped in to put an end to the confrontation by expropriating the oil companies. He added that within ten years foreign owners would be compensated. This infuriated foreign capitalists and the UK severed its diplomatic relations with Mexico so as to put maximal pressure on its government. |100| Cárdenas did not budge. He created the public company Petróleos Mexicanos (Pemex). Cárdenas’ decision was met with huge enthusiasm in the population. Pemex (let us recall) was privatized sixty-five years later, in 2013, in the context of hardening neoliberal policies.

International policy

Cárdenas’ government was also one of the few to provide the Spanish Republicans with weapons, thus breaching the blockade by the British and French governments. Churchill vehemently decried Mexico’s position. Cárdenas’ government also welcomed and supported 40,000 Spanish Republicans after they were defeated by Franco, who had been massively armed by Nazi Germany and Fascist Italy. Cárdenas also hosted Trotsky, the Russian revolutionary persecuted by Stalin to whom no European government was willing to grant either a visa or a right to extended residence. |101| Cárdenas befriended the Russian exile, which did not prevent one of Stalin’s agents from murdering Trotsky in Mexico City in August 1940.

Cárdenas was also very popular because as soon as he became president, he cut his salary by half, left the traditional presidential palace (Chapultepec Castle, the former residency of New Spain’s viceroys) to move to a less ostentatious place called Los Pinos and converted the former castle into a national museum of Mexican history. At the end of his mandate, his fellow citizens could see that he had not accumulated any riches for himself.

To sum up, we can say that although Lázaro Cárdenas did not try to break away from capitalism, he carried out structural reforms that improved the people’s living conditions. They partly met fundamental demands formulated during the 1910-1917 Revolution and strengthened the country’s sovereignty over its natural resources. Cárdenas also conducted an anti-imperialist international policy that supported solidarity among peoples.

The 1942 victory against creditors

Cárdenas’ refusal to resume debt payment or even negotiations with the international Committee of Bankers brought victory. His former Defense Minister, Manuel Ávila Camacho, was elected to take over as President and Cárdenas became Defense Minister.

From 1941, as he wanted to improve the US relationship with Mexico, President Franklin Delano Roosevelt insisted that US bankers, starting with JPMorgan, give up and acknowledge the Mexican government’s repudiation. In December 1941 Washington was about to enter the Second World War and needed the support of its Mexican neighbour (as well as that of Brazil, another country that had stopped paying its debt). The agreement that put an end to the conflict between the international Committee of Bankers and Mexico was an act of surrender on the part of the banks. While the Committee demanded payment of debts estimated at US$ 510 million (capital and interest), the final agreement mentioned payment of less than US$ 50 million: a cut of over 90%.

Moreover, what is most remarkable is the rate used for compensation of default interest: 1/1,000 for delays before 1923, 1/100 for 1923-1943. |102| Now in many debt restructuring agreements in the 19thcentury or in the first half of the 20th century, all default interest was turned into owed capital. Let us recall that the agreement signed between Obregón and the international Committee of Bankers in 1922 meant that Mexico acknowledged a debt of US$ 500 million! And 20 years had gone by. By agreeing to pay a debt of US$ 50 million (capital and default interest included), the Mexican government won a resounding victory.

There is more: security holders had to hand in their securities and have them registered and stamped by the Mexican authorities before they could claim any compensation! Bankers had to register securities with the Mexican government: this was unprecedented. Note also that German banks that were part of the international Committee of Bankers were not allowed to register their securities because they were perceived as helping an enemy power.

Better still, from 1940 onward Washington tried to buy Mexican oil even though Mexico had paid no oil compensation. The Sinclair oil company started buying oil from the public company Pemex. Sinclair, that had demanded US$ 32 million of compensation, finally settled for US$ 8 million compensation partly paid with dollars Pemex had received from Sinclair in payment for 20 million barrels of oil over four years. Eventually a general agreement was reached and Mexico promised to pay US$ 23 million as compensation for all the US oil companies that had been expropriated in 1938. |103|

Thanks to the agreement on its debt, to other political measures taken under Cárdenas and to the general context after the Second World War, Mexico was able to unfold a policy of economic development while carrying out a strict form of protectionism until the 1950s. Mexico did not borrow from private banks again until the late 1950s.

Final remarks and conclusions 

Mexico is the only former colony that managed to defeat its creditors on its own in the 19th and first half of the 20th centuries. In 1861, Mexico repudiated a large portion of the debt that was claimed and gained complete victory in 1867. Next, less than twenty years later, ruling classes and the dictator Porfirio Díaz managed to backpedal, which is typical of the collusion and duplicity of the upper classes in a dominated country who see their own interest in submission to European or US imperialist powers.

When Porfirio Díaz was eventually overruled and a genuine popular revolution took over, Mexico again suspended debt payments for over thirty years (from 1914 to the end of the Second World War) and simultaneously implemented in-depth social and economic reforms. The victory over Mexico’s creditors was complete albeit not final.

The present paper shows how important it is to understand what occurred in Mexico between its independence in 1821 and the end of the Second World War. The other country that succeeded in repudiating its debt on its own was the USSR in 1918. The common point with Mexico is the coincidence of a revolutionary process and debt repudiation. There are also differences: 1. the Bolshevik government simply wiped the Tsarist debt away; |104| 2. at the time of the 1917 revolution Russia was an imperialist power, though a declining one, while Mexico was a former Spanish colony that was eyed greedily by the US and ascending European imperialisms. The other countries that successfully repudiated debts were major powers such as the US |105| – or were protected by one of them – as was the case of Costa Rica, protected by the US against the UK in the early 1920s. |106| This is why the Mexican experience is unique and deserves to be more widely known. |107| Yet very little has been published about it. Dominant thinking hardly wishes Mexico’s real history to be acknowledged. Among left-wing movements we have a lot of catching up to do and it is to be hoped that this article will play its part.

Acknowledgements: The author is grateful to Victor Isidro, Nathan Legrand, Carlos Marichal, Alejandro Manriquez, Silvia Elena Meza, Damien Millet and Claude Quémar for their comments and/or their help in locating sources.

The author is fully responsible for any mistakes that may occur in this paper.

Translation: Snake Arbusto, Vicki Briault Manus, Mike Krolikowski, Christine Pagnoulle.


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- GALEANO, Eduardo. 1970. Las venas abiertas de América latina, Siglo XXI, Mexico, 1993, 486 p. (In Spanish.) Edition in French: Les veines ouvertes de l’Amérique latine, Plon, coll. « Terre humaine »,‎ Paris, 1981, 435 p.
- GILBART, James William. 1834. The History and Principles of Banking, London, 1834, 220 p.
- GILLY Adolfo. 1995. La révolution mexicaine 1910-1920, Éditions Syllepse, Paris. (In French.)
- KÉRATRY, Emile de. 1867. La créance Jecker : les indemnités françaises et les emprunts mexicains, Paris : Librairie internationale,
http://gallica.bnf.fr/ark:/12148/bp… (In French.)
- KING, Jeff. 2016. The Doctrine of Odious Debt in International Law. A Restatement, University College London, 2016, 222 p.
- LADD, William. 1839. The War between France and Mexico. The Advocate of Peace (1837-1845), 2(15), 241-253. Retrieved from http://www.jstor.org/stable/27886999
- LUXEMBURG, Rosa. 1913. The Accumulation of Capital, see https://www.marxists.org/archive/lu…
- MANDEL, Ernest. 1972. Le troisième âge du capitalisme, Paris: La Passion, 1997, 500 p. (In French.). See also Late Capitalism at https://www.marxists.org/archive/ma…
- MARICHAL, Carlos. 1989. A Century of Debt crises in Latin America, Prince¬ton, University Press, Princeton, 283p.
- MARICHAL, Carlos. 2003. “Deuda externa y politica in Mexico 1946-2000”, in Capítulo en Ilán Bizberg y Lorenzo Meyer (eds), Una historia contemporánea de México: transformaciones y permanencias, Vol. I, Mexico: Océano, 2003, p. 451-491. (In Spanish.)
- MARX–ENGELS, La crise, col. 10/18, Union générale d’éditions, 1978, 444 p. (In French.)
- REINHARDT Carmen and ROGOFF Kenneth. 2009. This Time is different. Eight Centuries of financial Folly, Princeton University Press, 512 p.
- SACK, Alexander Nahum. 1927. Les effets des transformations des États sur leurs dettes publiques et autres obligations financières, Recueil Sirey, Paris. (In French.)
An almost complete version of the file in French is available for download at http://cadtm.org/IMG/pdf/Alexander_…. Specific instances of cases when the doctrine of odious debt was used can be found at https://en.wikipedia.org/wiki/Odiou… and http://www.cadtm.org/Odious-debt?lang=en
- SISMONDI, Jean de. 1819. Nouveaux principes d’économie politique ou de la richesse dans ses rapports avec la population, Paris, 1827. (In French.) The French text can be accessed at https://play.google.com/store/books…
- TAIBO II, Paco Ignacio. 2006. Pancho Villa: una biografía narrativa (In Spanish.) Published in French as Pancho Villa, Roman d’une vie, (translated by Claude Bleton) Paris: Payot & Rivages, coll. “Petite bibliothèque Payot”, 2 volumes de 752p. and 704p., 2012 (2009).
- TOUSSAINT, Éric. 2004. La finance contre les peuples. La bourse ou la vie, CADTM-Bruxelles/CETIM-Genève/Syllepse-Paris, 640 p. (In French.). See English version Your Money or Your Life at http://www.cadtm.org/Your-money-or-our-life (free download).
- TOUSSAINT, Éric. 2016. “Newly Independent Greece had an Odious Debt round her Neck”, http://www.cadtm.org/Newly-Independent-Greece-had-an
- TOUSSAINT, Éric. 2016. “Greece: Continued Debt Slavery from the late 19th century to the Second World War” http://www.cadtm.org/Greece-Continued-debt-slavery-from
- TOUSSAINT, Éric. 2016. “Debt as an instrument of the colonial conquest of Egypt”, http://www.cadtm.org/Debt-as-an-instrument-of-the
- TOUSSAINT, Éric. 2016. “Debt: How France Appropriated Tunisia”,
http://www.cadtm.org/Debt-how-France-appropriated
- WYNNE, William. 1951. State Insolvency and Foreign Bondholders. Selected Case Histories of Governmental Foreign Bond Defaults and Debt Readjustments. Vol. 2. New Haven: Yale University Press, 1951, 652 p.


Footnotes

|1| Prior to the Spanish conquest, the population of present-day Mexico was between 18 and 25 million. Less than a century later, in around 1600, it had fallen to approximately 3.5 million (source: Jean Batou, see fn 5). According to a lower estimate by Angus Maddison, Mexico’s population was 7.5 million in 1500 and diminished by two thirds after the Spanish conquest, to some 2.5 million in 1600. Source: Angus Maddison, L’économie mondiale : statistiques historiques, (The Global Economy: Historical Statistics) OCDE, Paris, 2003, p. 120. Thomas Calvo, a specialist in Hispanic America, gives the following figures for the population of the Aztec empire and its dependencies prior to the Spanish conquest: 17.5 million inhabitants, of which the Northern territories: 2.5 million; central Mexico: 15 million; Chiapas: 0.8 million. Source: Thomas Calvo, L’Amérique ibérique de 1570 à 1910 (Iberian America from 1570 to 1910), Nathan Université, 1994, p. 14.

|2| See Jan Bazant, Historia de la deuda exterior de Mexico 1823-1946, (History of Mexican Foreign Debt 1823-1946), El Colegio de México, Centro de Estudios Históricos, Mexico City, 1995, p. 18-19.

|3| See Bazant, p. 21, and Alaman, p. 323.

|4| There had been uprisings of indigenous peoples several times during the preceding centuries, and some, such as the Yaquis of Sonora in Mexico, continued their struggle after independence, because they derived no benefit from it.

|5| Evolution of Mexico’s population between 1600 and 2015 (in millions of inhabitants): 1600: 3.5; 1700: 4.0; 1800: 5.7; 1850: 7.7; 1895: 12.7; 1910: 15.1; 1940: 19.6; 1950: 25.8; 1990: 86.0; 2000: 97.4; 2015: 121.7. Source: Jean Batou through 1990 (p. 171) and official statistics from 1895 (date of the first official census).

|6| See Bazant, p. 27-28.

|7| The full name was “Barclay, Herring, Richardson and Company” – not to be confused with Barclays, the high street bank.

|8| See Morning Chronicle, London, 8th February 1825, cited by William Wynne, “State Insolvency and Foreign Bondholders.
Selected Case Histories of Governmental Foreign Bond Defaults and Debt Readjustments.” Vol. 2., 1951, p. 5.

|9| J. Bazant, p. 48.

|10| Lorenzo de Zavala, who had participated in the struggle for independence, was a big landowner in Texas. He turned against his country in 1836 when he took part in the funding of an independent republic of Texas. In retaliation, Mexico stripped him of his nationality. The United States annexed Texas in 1845.

|11| J. Bazant, p. 39.

|12| L. Alaman, p. 983.

|13| J. Bazant, p. 39.

|14| J. Bazant, p. 233

|15| This can be seen from the table compiled by Bazant himself, p. 46.

|16| See “Debt as an instrument of the colonial conquest of Egypt” http://www.cadtm.org/Debt-as-an-instrument-of-the

|17| J. Bazant, p. 45.

|18ibid., p. 234.

|19ibid., p. 54.

|20| J. Bazant, p. 67-70

|21ibid., p. 53

|22ibid., p. 58

|23| In 1853, under new pressure and the expansionist ambitions of the US, Santa Anna sold the territory of Mesilla (a transaction known as the “Gadsden purchase”) for $10 million .This amount was devoted to fighting the liberal rebels (the Ayutla Plan) who wanted to overthrow Santa Anna, who had managed to remain in power until 1855.

|24| William Wynne, State Insolvency and Foreign Bondholders. Selected Case Histories of Governmental Foreign Bond Defaults and Debt Readjustments. New Haven: Yale University Press, Vol. 2., 1951, p.16. See also J. Bazant, p. 96.

|25ibid., p. 16-17.

|26ibid., p. 18.

|27| J. Bazant, p. 96.

|28| In 1856, the internal debt of 41 million pesos was more than half the total amount of the external debt, which was 68.6 million pesos. Total public debt, internal and external, was 109.6 million pesos. J. Bazant, p. 97.

|29| According to recent research by Mexican historians, the indigenous communities resisted fairly well against the application of the laws adopted as from 1856 aimed at putting their ancestral lands up for sale. While feigning to accept the laws, they managed to protect themselves. It was only later, during the long presidency of Porfirio Díaz, that expropriation of land became widespread.

|30| See his biography at https://fr.wikipedia.org/wiki/Jean-… (in French only). This biography may only be approximate.

|31| Cited by Émile de Kératry, La créance Jecker : les indemnités françaises et les emprunts mexicains, (Jecker Bonds : French Compensation and Mexican Loans), Librairie internationale, 1867, p. 17, accessible at: http://gallica.bnf.fr/ark:/12148/bp… (in French).

|32| E. de Kératry, p. 30 and W. Wynne p. 20.

|33| J. Bazant, p. 100. See also E. de Kératry, op. cit.

|34| W. Wynne, p. 21.

|35| W. Wynne, p. 25.

|36| It should be remembered that the War of Secession began in April 1861 and ended in April 1865.

|37| 1 peso = 5 French francs; 1 pound sterling = 5 pesos; 1 pound sterling = 25 French francs.

|38| The Crédit Mobilier suffered the same fate as the French expedition into Mexico, failing in 1867.

|39| J. Bazant, p. 103.

|40| This final fraudulent loan provoked such protest that Napoleon III compensated the holders of the bonds for a total of 87 million French francs. It is certain that some of the beneficiaries of this compensation had taken part in the fraud. And it is equally clear that the amount of 87 million francs increased France’s public debt for the benefit of the rich individuals who had acquired the bonds. See J. Bazant, p. 103; W. Wynne, p. 30.

|41| Calculations by J. Bazant, p. 105, based in particular on É. de Kératry.

|42| Of the 38,493 troops France sent to Mexico, 6,654 – one sixth of them – died of wounds or of disease. In 1863, the Khedive of Egypt supported France by sending a battalion of 450 soldiers to the Mexican Empire, including many Sudanese, whose resistance to tropical diseases was supposedly higher. From 1864-1865, Austria-Hungary sent 7,000 men (Poles, Hungarians, etc.) in support of the foreign aggression. Belgian soldiers also took part. Source: https://en.wikipedia.org/wiki/Frenc…. The King of Belgium, Léopold II (who reigned from 1865 to 1909), having colonial ambitions, sought to obtain advantages from the conquest of Mexico. He began carrying out his colonial projects in 1885 with the conquest of the Congo. Charlotte, Léopold II’s sister, was the wife of Maximilian of Austria. She actively supported Bonaparte’s projects and those of her father, Léopold I.

|43| W. Wynne, p. 29.

|44| Porfirio Díaz’s slogan, “Order and Progress,” is evidence of his belief in the Positivist ideology that was well established in Latin America during this period.

|45| It should be made clear that Benito Juárez did not actively seek to better the living conditions of the peonesand other peasants. Benito Juárez did away neither with the semi-slavery the peones lived under because of their inherited debts nor with the private prisons and the bodily mutilations at the haciendas. This failure to defend the peasants and indigenous communities and the attacks on their communal lands resulted in uprisings, notably that of the Chamulas in Chiapas in 1869; the resistance movement led by Julio Chávez López (based on socialist/anarchist principles) in the late 1860s in Chalco and Texcoco; and the continued struggle of the Yaqui people in the State of Sonora.

|46| Calculated by the author based on Jan Bazant (in particular p. 147, 160, 175, 176, and 272).

|47| W. Wynne, p. 3-4.

|48| J. Bazant, p. 240.

|49| With one single exception – repayment of the three-millions peso loan contracted in 1865 with the United States by the government of Benito Juárez for purchasing armaments used to overcome the French occupation. Repayment of this loan ended in 1893.

|50| J. Bazant, p. 109.

|51| See the text of the decree: http://cdigital.dgb.uanl.mx/la/1080… , p. 326 to 328.

|52| Jeff King, The Doctrine of Odious Debt in International Law. A Restatement, University College London, 2016, p. 72-73.

|53| J. Bazant, p. 127.

|54| See the press of the period: El Monitor, Mexico City No. 278, 19 November 1884; El Nacional, Mexico City, No. 242, 19 November 1884; La Libertad, Mexico City, No. 243, 31 October 1884.

|55| W. Wynne, p. 45.

|56| J. Bazant, p. 134.

|57| Furthermore, in violation of the repudiation pronounced by Benito Juárez in 1867 and the Decree of June 1883, the government agreed to include in the compensation payment of a part of the cost of the bonds issued by Maximilian of Austria to the creditors under the restructuring of the “London” debt. See J. Bazant, p. 130.

|58| The new debt, the consequence of repayment of the balance of the Goldsmith and Barclay loans, in fact amounted to 34 million pesos because in order to actually borrow 27 million, Mexico was forced to recognize a new debt that was greater than that amount, since the new issue was sold for less than its nominal value and a commission had to be paid to the German bank Bleichroeder, which managed the loan.

|59| J. Bazant, p. 237.

|60| J. Bazant, p. 234-235; W. Wynne, p. 7-13.

|61| W. Wynne, p. 57.

|62| In the late 19th and early 20th century, capitalist development was not based on a ’free’ work force only, as it combined capitalist productive relations (waged labour) with pre-capitalist forms of exploitation, and even certain forms of slavery. Entire indigenous communities were deported to forced labour on tobacco and sisal plantations.

|63| A. Gilly, p. 21.

|64ibid., p. 28.

|65| W. Wynne, p. 51.

|66| J. Bazant, p. 177.

|67| A. Gilly, p. 36.

|68| The Papers of Ulysses S. Grant, Vol. 30: October 1, 1880 – December 31, 1882 edited by John Y. Simon, Southern Illinois Univ. Press, Carbondale, 2008

|69| J. Bazant, p. 123.

|70| A. Gilly, p. 32.

|71| J. Bazant, p. 125.

|72| J. Bazant, p. 141-142.

|73| Several years later the revolutionaries made full use of the railways to move troops.

|74| J. Bazant, p. 165.

|75| J. Bazant, p. 167-169.

|76| This was happening in many countries throughout the World at that time.

|77| A. Gilly, p. 33-34.

|78ibid., p. 35.

|79| W. Wynne, p. 59.

|80| Madero studied in Baltimore, at the HEC in Paris, the University of California, Berkeley, and Culver Academy in Indiana.

|81| During his exile Porfirio Díaz lived at Interlaken in Switzerland, then in Paris. He was received with honours in Germany by Guillaume II, who was about to let loose the First World War. He visited Egypt and spent time in Rome and Naples. He died on the 2 July 1915 in Paris and is buried in Montparnasse cemetery. In exile he was well considered and provided for. Some Mexican neoliberal nabobs wish to have his remains returned to Mexico.

|82| Emiliano Zapata (1879-1919) was the revolutionary who carried the rights of the indigenous communities the furthest. His armed struggle was intrinsically linked to the popular masses particularly in his home state of Morelos. His programme went beyond the the concerns of the rural masses even if they were his main concern.

|83| Concerning the policies of US President (1909 – 1913) Taft see: http://www.cadtm.org/what-other-countries-can-learn

|84| J. Bazant, p. 181.

|85| W. Wynne, p. 64.

|86| During the porfiriato, the workers first organized in the mines, then on the railways. In the former the proletariat had the benefit of the revolutionary trade union experience of the US miners. The worker’s movement was also nourished by class struggles from many parts of the World, notably the experience of the Paris commune in 1871. Socialist publications appeared: El Socialista in 1872, La Comuna in 1874, that later became La Comuna mexicana. The first labour confederation; “The Great Circle of Workers”, implanted in the textile industry and the crafts, appeared in 1872. This organization started to dissolve in 1879, separating into factions supporting two different bourgeois candidates in the 1880 elections. Adolfo Gilly wrote: “this decomposition of the Great Circle marked the end of the epoch and coincided with the beginning of the period of impetuous capitalistic development of the 1880s-90s, when the young industrial proletarian movement produced a more authentically union-based organization, especially in the railways, mines and textile industries” (A. Gilly, p.41). Despite the fierce repression of the Porfirio Diaz regime there were 250 strikes between 1876 and 1911. Whether they were successful or not they developed the political organization of the productive forces against the contradictions of capitalism and prepared the explosion of revolution that occurred in 1910. Anarchist tendencies had a real influence on the revolution. They were most expounded by the Flores Magon brothers. In 1911 one of the brothers, with the support of anarchists of various nationalities, including a hundred or so internationalists from the US organisation, “Industrial Workers of the World”, took part in occupying two poorly-defended Mexican villages close to the US border, Mexicali (pop. 300) and Tijuana (pop.100). For five months the commune of Lower California experimented with libertarian communism, the abolition of private property, collective working of the land and among other experiments, the grouping of producers, before being invaded. That was the end of the attempt to establish a socialist libertarian republic.

|87| Pancho Villa (1878-1923) was a smallholder whose relations with the justice system were strained after conflicts with big landowners. He was an outlaw and lived by various means including cattle-rustling in the mountain regions. It was in the unequal struggle against Porfirio Diaz’s rural police that he developed his great fighting skills. Moreover Villa rapidly showed a strong gift for military organization not only in his relations with his foot soldiers but also with regard to his commanding officers. This ability to organize won him over the labour sectors in the North, mainly miners and railway workers who joined his army. This is no mere detail: the railwaymen in Villa’s army were central to his use of the railway for movements of revolutionary troops. Source: A. Gilly, p. 90.

|88| Nevertheless, when Pancho Villa was the the governor of the State of Chihuahua in 1913 he applied radical measures favouring the people to the detriment of the interests of the local ruling classes. See Paco Ignacio Taibo II, Pancho Villa, Roman d’une vie, (Life Story of Pancho Villa), Paris: Petite bibliothèque Payot, 2012, Volume 1, Chapter 23.

|89| See Jan Martinez Ahrens, « Toda la municion contra Zapata » (All ammunition against Zapata), El Pais, 24 December 2016, (in Spanish).

|90| According to Adolfo Gilly, this decision to sign a pact did not win the approbation of the general assembly that was held on 8 February 1915. There was strong opposition. Nevertheless 9000 “workers” formed the red battalions, including an “Anarchist first aid corps”, in Obregas’ army that fought against the Northern Division. See A. Gilly, p. 157-159.

|91| A. Gilly, p. 179.

|92| in A. Gilly, p. 228-229.

|93| W. Wynne, p. 66-67.

|94| J. Bazant, p. 239. J. Bazant, who is as a rule in favour of any compromise with creditors, says this amount of 500 million is simply incredible.

|95| W. Wynne, p. 68.

|96| A reasoned definition of odious debt can be found in the online article by Éric Toussaint, “The Doctrine of Odious Debt: from Alexander Sack to the CADTM”, http://www.cadtm.org/The-Doctrine-of-Odious-Debt-from

|97| W. Wynne, p. 77.

|98| W. Wynne, p. 82. See also the New York Times of 30 November 1930.

|99| An ejido is the name given in Mexico to a communal property by a group of indigenous farmers who work the land together. In an ejido, the principle is that members of the community be granted the land’s usufruct with no legal possibility of selling or ceding it. In 1993, President Salinas de Gortari, who carried forward the neoliberal policies initiated by his predecessors, had the Constitution modified so as to enable massive sales of ejidos. One of the aims of the Zapatista uprising on 1 January 1994 was to question this government policy.

|100| Diplomatic relations between the two countries were restored in October 1941 because London was looking for allies against Nazi Germany and feared a possible alliance between Mexico and Berlin.

|101| Another element that substantiates Cárdenas’ sympathy for revolutionary movements, though not at a time when he was president, is that he helped Fidel Castro and Che Guevarra to get out of prison a couple of weeks before sailing to Cuba in the Granma. Fidel and the Che had been emprisoned in Mexico City after the Batista government had told the Mexican authorities that some guerrillas were operating in the country. While in prison, Fidel managed to have the warden release him and him alone, after which, in an audience with Cárdenas, he enlisted his help to liberate the other prisoners. Cárdenas showed some empathy with Fidel’s project.

|102| W. Wynne, p. 97 and table p. 106.

|103| W. Wynne, p. 94-95.

|104| See Eric Toussaint http://www.cadtm.org/Demystifying-Alexander-Nahum-Sack

|105| See “Three Waves of Public-Debt Repudiation in the USA during the 19th Century”, http://www.cadtm.org/Three-Waves-of-Public-Debt as well as “The USA’s repudiation of the debt demanded by Spain from Cuba in 1898: What about Greece, Cyprus, Portugal, etc.?”, http://www.cadtm.org/The-USA-s-repudiation-of-the-debt

|106| See ‘What other countries can learn from Costa Rica’s debt repudiation’, http://www.cadtm.org/What-other-countries-can-learn. We must emphasize that Costa Rica did repudiate the debt claimed by Britain in a sovereign and unilateral way. Had the US not then given the country its support, the Costarican people might yet have been victorious in resisting almost certain aggression from Great Britain. Similarly in the case of Cuba, the army of Cuban independence fighters (the mambis) might have got the better of Spain, had the colonizing country tried to make them pay for their independence.

|107| The same applies to what happened in the USSR, which will be developed in another article.

auton5-c93f5Author

Eric Toussaintis a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France. He is the author of Bankocracy(2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc. See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.

Aug 132013
 

Posted by greydogg, 99GetSmart

* THE NSA IS TURNING THE INTERNET INTO A TOTAL SURVEILLANCE SYSTEM

By Alexander Abdo and Patrick Toomey, The Guardian

The NSA collects "nearly everything a user does on the internet"

The NSA collects “nearly everything a user does on the internet”

Another burst of sunlight permeated the National Security Agency’s black box of domestic surveillance last week.

According to the New York Times, the NSA is searching the content of virtually every email that comes into or goes out of the United States without a warrant. To accomplish this astonishing invasion of Americans’ privacy, the NSA reportedly is making a copy of nearly every international email. It then searches that cloned data, keeping all of the emails containing certain keywords and deleting the rest – all in a matter of seconds.

If you emailed a friend, family member or colleague overseas today (or if, from abroad, you emailed someone in the US), chances are that the NSA made a copy of that email and searched it for suspicious information. […]

READ @ http://www.theguardian.com/commentisfree/2013/aug/11/nsa-internet-surveillance-email

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* DEBT, AUSTERITY, DEVASTATION: IT’S EUROPE’S TURN

By Susan George, CADTM

austerity-george-osborne-desktop

As the creditors get fatter, the innocent are punished. Susan George laments a leadership subservient to big business.

Like plague in the 14th century, the scourge of debt has gradually migrated from South to North. Our 21st-century Yersinia pestis isn’t spread by flea-infested rats but by deadly, ideology-infested neoliberal fundamentalists. Once they had names like Thatcher or Reagan; now they sound more like Merkel or Barroso; but the message, the mentality and the medicine are basically the same. The devastation caused by the two plagues is also similar – no doubt fewer debt-related deaths in Europe today than in Africa three decades ago, but probably more permanent harm done to once-thriving European economies.

Faithful – and older – New Internationalist readers will recall the dread phrase ‘structural adjustment’. ‘Adjustment’ was the innocent-sounding term for the package of economic nostrums imposed by wealthy Northern creditor countries on the less-developed ones in what we then called the ‘Third World’. A great many of these countries had borrowed too much for too many unproductive purposes. Sometimes the leadership simply placed the loans in their private accounts (think Mobutu or Marcos) and put their countries in hock. Paying back in pesos, reals, cedis or other funny money was unacceptable: the creditors wanted dollars, pounds, deutschmarks…

Furthermore, the Southerners had contracted their loans at variable interest rates, initially low but astronomical from 1981 when the Federal Reserve declared an end to the era of cheap money. When countries such as Mexico threatened default, panicked creditor-country treasury ministers, top bankers and international bureaucrats spent some sleepless weekends eating take-out and cobbling together emergency plans. […]

READ @ http://cadtm.org/Debt-austerity-devastation-it-s

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* YOU’RE MORTGAGE DOCUMENTS ARE FAKE!

By David Dayen, Salon

Lynn Szymoniak (Credit: CBS News/60 MInutes)
                            Lynn Szymoniak (Credit: CBS News/60 MInutes)

Prepare to be outraged. Newly obtained filings from this Florida woman’s lawsuit uncover a horrifying scheme

If you know about foreclosure fraud, the mass fabrication of mortgage documents in state courts by banks attempting to foreclose on homeowners, you may have one nagging question: Why did banks have to resort to this illegal scheme? Was it just cheaper to mock up the documents than to provide the real ones? Did banks figure they simply had enough power over regulators, politicians and the courts to get away with it? (They were probably right about that one.)

A newly unsealed lawsuit, which banks settled in 2012 for $1 billion, actually offers a different reason, providing a key answer to one of the persistent riddles of the financial crisis and its aftermath. The lawsuit states that banks resorted to fake documents because they could not legally establish true ownership of the loans when trying to foreclose.

This reality, which banks did not contest but instead settled out of court, means that tens of millions of mortgages in America still lack a legitimate chain of ownership, with implications far into the future. And if Congress, supported by the Obama Administration, goes back to the same housing finance system, with the same corrupt private entities who broke the nation’s private property system back in business packaging mortgages, then shame on all of us. […]

READ @ http://www.salon.com/2013/08/12/your_mortgage_documents_are_fake/

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* ABBY MARTIN BLAST RACHEL MADDOW FOR 9/11 COMMENTS

Source: RT

Abby Martin calls out MSNBC’s Rachel Maddow, for promoting the notion that violence is rooted in conspiracy theories, while disregarding the importance of questioning official government narratives.

VIDEO @ https://www.youtube.com/watch?feature=player_embedded&v=qUkjIpgthWs#at=63

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* FINALLY A BILLBOARD THAT CREATES DRINKABLE WATER OUT OF THIN AIR

No really, it’s a billboard that can generate up to 26 gallons of water a day from nothing but air.

By Matt Peckham, Techland

I’ve never cared much for billboards. Not in the city, not out of the city — not anywhere, really. It’s like the saying in that old Five Man Electrical Band song. So when the creative director of an ad agency in Peru sent me a picture of what he claimed was the first billboard that produces potable water from air, my initial reaction was: gotta be a hoax, or at best, a gimmick.

Except it’s neither: The billboard pictured here is real, it’s located in Lima, Peru, and it produces around 100 liters of water a day (about 26 gallons) from nothing more than humidity, a basic filtration system and a little gravitational ingenuity.

Let’s talk about Lima for a moment, the largest city in Peru and the fifth largest in all of the Americas, with some 7.6 million people (closer to 9 million when you factor in the surrounding metro area). Because it sits along the southern Pacific Ocean, the humidity in the city averages 83% (it’s actually closer to 100% in the mornings). But Lima is also part of what’s called a coastal desert: It lies at the northern edge of the Atacama, the driest desert in the world, meaning the city sees perhaps half an inch of precipitation annually (Lima is the second largest desert city in the world after Cairo). Lima thus depends on drainage from the Andes as well as runoff from glacier melt — both sources on the decline because of climate change. […]

VIDEO @ http://techland.time.com/2013/03/05/finally-a-billboard-that-creates-drinkable-water-out-of-thin-air/#ixzz2bqVAhEwK

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* 15 OUTRAGEOUS FACTS ABOUT THE BOTTLE WATER INDUSTRY

By Eric Goldschein, Business Insider

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Water used to be free.

In fact, it still is — at least in nations blessed with plentiful clean tap water like the U.S. — but that doesn’t stop the world from spending over $100 billion on bottled water a year.

This strange industry is exploding overseas as well.

Who got the idea to sell us something we can get for free? And how did it get so popular that now more than half of Americans drink it?

READ / PHOTOS @ http://www.businessinsider.com/facts-bottled-water-industry-2011-10?op=1#ixzz2bqWwyrNE

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* THE MORAL IMPERATIVE OF ACTIVISM

By Ray McGovern, ConsortiumNews

St. Thomas Aquinas, a theologian of the Thirteenth Century.

St. Thomas Aquinas, a theologian of the Thirteenth Century.

That America is in deep moral and legal trouble was pretty much obvious to everyone before Edward Snowden released official documents showing the extent to which the U.S. government has been playing fast and loose with the Fourth Amendment rights of Americans to be protected against unreasonable searches and seizures.

Snowden’s revelations – as explosive as they are – were, in one sense, merely the latest challenge to those of us who took a solemn oath to support and defend the Constitution of the United States against all enemies foreign and domestic. That has been a commitment tested repeatedly in recent years, especially since the 9/11 attacks.

After all the many troubling disclosures — from torture to ”extraordinary renditions” to aggressive war under false pretenses to warrantless wiretaps to lethal drone strikes to whistleblowers prosecutions to the expanded “surveillance state” – it might be time to take a moment for what the Germans call “eine Denkpause,” a “thinking break.” And it is high time to heed and honor the Noah Principle: “No more awards for predicting rain; awards only for building arks.”

This is our summer of discontent. The question we need to ask ourselves is whether that discontent will move us to action. Never in my lifetime have there been such serious challenges to whether the Republic established by the Founders will survive. Immediately after the Constitutional Convention, Ben Franklin told a questioner that the new structure created “a Republic, if you can keep it.” He was right, of course; it is up to us. […]

READ @ http://consortiumnews.com/2013/08/12/the-moral-imperative-of-activism-2/

Apr 222012
 

* CHICAGO SUMMIT: NATO TO COMPLETE DOMINATION OF ARAB WORLD

By Richard Rozoff, StopNATO

[…] Regarding transformations in the Arab world over the past fifteen months in relation to NATO, the net result is that the U.S.-dominated military alliance is poised to gain one new adjunct, Libya, with Syria targeted as the next. Lebanon is another prospect for the Mediterranean Dialogue after Libya and Syria, which if it occurs will convert the entire Mediterranean basin into NATO territory. Similarly, if the West and its Arab monarch allies can arrange for the installation of compliant regimes in Iraq and Yemen (perhaps royal pretenders to complete the pattern), NATO can acquire two additional Istanbul Cooperation Initiative cohorts as well. The alliance identifies Iraq as a partner state and the NATO Training Mission-Iraq was instrumental in building the nation’s new armed forces from scratch, training everyone from the top officer corps to oil police.

In respect to the remaining Arabic-speaking countries, since at least 2005 leading American and NATO officials have promoted the deployment of NATO forces to Palestine in the event of, or as a precondition for, a peace deal with Israel. Last August Palestine’s Ma’an News Agency reported that “Palestinian President Mahmoud Abbas told visiting US Congressmen on Thursday that the security of the future Palestinian state will be handed to NATO under US command…” […]

[…] NATO and its allies in the (expanding) Gulf Cooperation Council are reversing 60 years of Arab independence and nonalignment, of pan-Arabism and of republican and socialist models of development in Arab nations in an effort to subordinate the 350,000,000 inhabitants of the Arab world to their regional and global agendas.

READ @ http://rickrozoff.wordpress.com/2012/04/18/chicago-summit-nato-to-complete-domination-of-arab-world/

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* “DRACHMA CLAUSES” FOR GREECE’S EXIT FROM THE EUROZONE

Source: Testosterone Pit

The largest banks in Greece—National, Alpha, Eurobank, and Piraeus—reported €28.2 billion in losses for the year 2011. Almost 13% of GDP! It included the bond swap that had saddled private-sector bondholders with a 74% loss. But no worries. Rescue funds were already lined up at the Hellenic Financial Stability Fund, which had received €25 billion in bonds from the European Financial Stability Facility the day before—part of the second bailout package of €130 billion that the Troika of the ECB, IMF, and EU had orchestrated. The banks, not the Greeks themselves, are getting bailed out. The big money is rolling in—and the ever wily Greek political elite have figured it out. Read…. They’re Not Even Trying Anymore.

But “solidarity of the union has its limits,” said even soft-spoken Jens Weidmann, President of the Bundesbank on Saturday. “That’s why we linked the aid to conditions….”

A whole litany of them. And they have caused riots in the streets. But if they aren’t met, the bailout will stop. That’s the threat. A leaked report by European Commission President José Manuel Barroso includes a 15% cut in private sector wages and an overhaul of the system for collective bargaining—both of which will go over very well in Greece. It also calls for privatization of public gas and electric utilities, comprehensive reform of the tax system, reform of the pension system, including “fighting fraud in disability pensions,” and a “radical” overhaul of public procurement which is inefficient and costly.

And corrupt: former Defense Minister Akis Tsochatzopoulos was thrown into the hoosegow just before the Orthodox Easter weekend, having been accused of extensive defense procurement fraud and money laundering that he’d conducted for years via a network of people and off-shore companies. Corruption on all levels haunts Greece. In the Corruption Perception Index, Greece is in 80th place, sharing that position with the likes of El Salvador. It is worse than China whose corruption is legendary. It is in last place within the Eurozone. But something unexpected happened. For this astonishing change in a society that hasn’t seen a glimmer of improvement in years, read….  In Greece, even Corruption Is in a Depression […]

READ @ http://www.testosteronepit.com/home/2012/4/21/drachma-clauses-for-greeces-exit-from-the-eurozone.html

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* THE FRENCH PRESIDENTIAL ELECTION IS UNDERWAY

By Tyler Durden, Zero Hedge

Update: according to Belgian Le Soir, first exit polls show that Hollande is not surprisingly ahead, with 27% of the vote, 25.5% for Sarkozy, 16% for Marine Le Pen, and 13% for Jean-Luc Melenchon. More or less just as expected, and setting the stage for the runoff round which will be Hollande’s to lose.

As of 8 am CET, polls are open in the first round of the French presidential elections where voters are expected to trim the playing field of ten to just two candidates, incumbent Nicholas Sarkozy and his socialist challenger Francois Hollande, who will then face off in a May 6 runoff, where as of now Hollande is expected to have a comfortable lead and take over the presidency as the disgruntled French take their revenge for an economy that is contracting, an unemployment rate that keeps rising (see enclosed) despite promises to the contrary, and as their to “express a distaste for a president who has come to be seen as flashy following his highly publicized marriage to supermodel Carla Bruni early in his term, occasional rude outbursts in public and his chumminess with rich executives.

France is struggling with feeble economic growth, a gaping trade deficit, 10 percent unemployment and strained public finances that prompted ratings agency Standard & Poor’s to cut the country’s triple-A credit rating in January.” In a major shift for the country, Hollande would become France’s first left-wing president since Francois Mitterand, who beat incumbent Valery Giscard-d’Estaing in 1981. As Reuters reports, “Hollande, 57, promises less drastic spending cuts than Sarkozy and wants higher taxes on the wealthy to fund state-aided job creation, in particular a 75 percent upper tax rate on income above 1 million euros ($1.32 million).” The Buffett Rule may have failed in the US but La Loi de Buffett is alive and well in soon to be uber-socialist France. Yet it is not so much Hollande’s domestic policies, as his international ones, especially vis-a-vis the European Fiscal Treaty, Germany, and most importantly the ECB, that roiled markets last week, causing French CDS to spike to the widest since January. In other news, goodbye Merkozy, hello Horkel as the power center shifts yet again to a new source of uncertainty and potential contagion. […]

READ @ http://www.zerohedge.com/news/french-presidential-elections-are-underway

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* WHISTLEBLOWER REVEALS WIDESPREAD BRIBERY BY WALMART IN MEXICO

By Pat Garofalo, Think Progress

One former executive told the Times about how Walmart employees brought envelopes of cash to government officials in Mexico in order to boost the company’s expansion:

 The Times examination included more than 15 hours of interviews with the former executive, Sergio Cicero Zapata, who resigned from Wal-Mart de Mexico in 2004 after nearly a decade in the company’s real estate department.

In the interviews, Mr. Cicero recounted how he had helped organize years of payoffs. He described personally dispatching two trusted outside lawyers to deliver envelopes of cash to government officials. They targeted mayors and city council members, obscure urban planners, low-level bureaucrats who issued permits — anyone with the power to thwart Wal-Mart’s growth. The bribes, he said, bought zoning approvals, reductions in environmental impact fees and the allegiance of neighborhood leaders.[…]

READ @ http://thinkprogress.org/economy/2012/04/22/468913/walmart-whistleblower-mexico/

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* THE BIG SWINDLE AND A FOG OF DEBT – HIDING THE UNEMPLOYED IN THE HIGHER EDUCATION BUBBLE AND THREE YEARS OF ECONOMIC RECOVERY EQUATES TO 11.5 MORE AMERICANS ON FOOD STAMPS

Source: My Budget 360

A large part of our recovery is running on public relations trickery and smoke and mirrors debt machinery.  Let me explain what I mean by this since on the surface we have been out of a recession since the summer of 2009.  Government debt is soaring and public debt in certain sectors is flying off the charts.  Take for example food stamp usage and student loan debt.  These payments typically rise during tough times as would be expected.  So you would conclude that being in year three of this so-called recovery that costs for both of these sectors would be retreating.  You would be absolutely wrong in this Alice and Wonderland debt world.  The student debt market has become a predatory landmine for prospective students and continues to grow like a wild fungus.  Food stamp usage is expected to be high deep into 2014.  Can you call it a recovery by using accounting magic that actually hides the continuing deterioration of the middle class?

How is it a recovery when 15 percent of the population is receiving food assistance just to stay afloat?  But examine the chart carefully.  When the recession officially ended in 2009 there were 35 million Americans on food stamps.  Today, three years later and deep into a recovery we have 46.5 million Americans receiving food stamps!  In other words, food stamp usage has increased by more than 32 percent during the recovery.  Since when does a recovery involve increasing the amount of Americans on food stamps? […]

READ and CHARTS @ http://www.mybudget360.com/big-financial-swindle-fog-of-debt-student-loans-food-stamp-usage-costs-2012-trend/#more-3933

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* SENATOR CHURCH’S PROPHETIC WARNING

Source: Washington’s Blog

Senator Frank Church – who chaired the famous “Church Committee” into the unlawful FBI Cointel program, and who chaired the Senate Foreign Relations Committee – said in 1975:

“Th[e National Security Agency’s]  capability at any time could be turned around on the American people, and no American would have any privacy left, such is the capability to monitor everything: telephone conversations, telegrams, it doesn’t matter. There would be no place to hide.  [If a dictator ever took over, the N.S.A.] could enable it to impose total tyranny, and there would be no way to fight back.

Now, the NSA is building a $2 billion dollar facility in Utah which will use the world’s most powerful supercomputer to monitor virtually all phone calls, emails, internet usage, purchases and rentals, break all encryption, and then store everyone’s data permanently.

The former head of the program for the NSA recently held his thumb and forefinger close together, and said:

We are, like, that far from a turnkey totalitarian state. […]

READ @ http://tinyurl.com/6ou3avz