COMMENTARY
This is a very interesting analysis, and as mentioned in the article this is only an overview of the totals with a lot of detail omitted that could make it very difficult to actually do anything practical to follow up.

This study is similar to some work that I did almost 30 years ago. I tried to prepare a study on the national debt of Egypt. and was horrified to find that the information that I expected to be easy to obtain essentially did not exist. Various organizations of the government had the ability to obtain debt financing for their own account, but with government guarantee, which as these state organizations became financially stress became government debt. Worse, as financial conditions deteriorated, the accounting got worse and it became progressively more difficult to get a reasonable accounting.

I did many other assignments involving government accounting ... and the general state of government accounting was appalling. Why it never became a priority is not a question of limited technical capacity, but simply a lack of moral and ethical capacity.

In the current situation of the global banking crisis, we the people should be demanding some pretty clear accounting and accountability, and then some meaningful justice and criminal prosecution.
Peter Burgess

Here’s a question for you. Why have we heard nothing in the media or parliament about A People’s or a Sovereign Debt Jubilee? Is it because a People’s Debt Jubilee is simply a nice but unworkable fantasy dreamt up by crackpot bloggers like me?

This is what I have been wondering. And then in response to the Jubilee article, a regular contributor to this blog, Hawkeye, wrote to me and suggested I take a look at “The Great EU Debt Write Off”.

The web site contains details of a ‘proof of concept’ study of the Jubilee idea done by Professor Anthony Evans and his colleagues at The ESCP Europe Business School. The study used up to date figures from the IMF and the Bank of International Settlement (BIS) to see what would happen if Portugal, Ireland, Italy, Greece, Spain, Britain, France, and Germany simply cross cancelled all the foreign debt they owed each other – a Sovereign debt jubilee.

The web of mutually destroying debt they studied looks something like this. The image is from a New York Times article called Europe’s Web of Debt. (The original article has a larger version)

Professor Evans said what he and his colleagues found “was astounding”.

The countries can reduce their total debt by 64% through cross cancellation of interlinked debt, taking total debt from 40.47% of GDP to 14.58% Six countries – Ireland, Italy, Spain, Britain, France and Germany – can write off more than 50% of their outstanding debt Ireland can reduce its debt from almost 130% of GDP to under 20% of GDP France can virtually eliminate its debt – reducing it to just 0.06% of GDP Among the ‘debtor’ nations a Debt Jubilee means Ireland reduces its debt load to from 130% of GDP to under 20%! That would virtually wipe out the crippling cuts being forced upon the Irish. While even among the ‘Creditor’ nations France benefits by nearly eliminating its debt. So the French people too would benefit. Which does beg the question – who is benefiting by enforcing all the debts? I’ll give you one guess.

Of course there can always be a devil lurking in the detail ready to spoil a happy ending, so I called Professor Evans and asked him about his methods and their limitations.

First thing he pointed out is that by ‘All Foreign Debt” he included foreign debts held by Private banks. But as he also said, considering that in many countries the Tax Payer owns large chunks of the Private banks in question and so the line between truly sovereign and private bank debt is already blurred and sadly we ‘own’ both.

Professor Evans said the main limitation they had was not being able to determine the duration or rates of the different bonds for different countries. So he was cancelling debts which although of the same capital amount would have been worth different amounts because of different interest rates and durations. Understandably this makes him wary of making too much of his results. However he did agree that on such large gross amounts, such interest rates and duration differences could be considered marginal. In the grand scheme of the massive debt reductions achieved the differences of rate and duration could be justifiably seen as a small cost to bear for the over all gain.

So there are grounds for criticizing his findings. BUT the criticisms are not so large that they derail the force of the findings. The simple fact of the matter is that the PEOPLE of all our nations would be immensely better off. They would not be facing crippling austerity cuts, nor be being forced into selling their National heritage and wealth at Fire Sale prices to the very banks who are the cause of the debt crisis, and who will profit from the fire sales.

Which brings us back to the reason there has been no discussion at all of a Debt Jubilee. Keeping the debts is going to profit the banks and their bond holders. Not only that, but making sure there is no discussion of mutual debt cancellation, and thereby keeping sovereign debt levels as high as possible, gives those on the political Right, the perfect crowbar they have wished for but never had, for forcing through a political agenda of privatizing and destroying the social fabric of welfare. An agenda for which they never quite got a mandate through the ballot box.

That is why the debts are being maintained and why there has been no discussion of any alternative. Our politicians are ‘protecting’ the debts and those whose will profit from their payment over and above the welfare of the people they are supposed to serve.

The bankers don’t want any discussion of mutual debt cross cancellation because it would force a necessary deleveraging. The bankers do not want deleveraging because leverage is the secret of how the bankers make their profits and without it they wouldn’t look nearly so smart. The reason debt cancellation would force deleveraging is because much of the debt which would be cancelled is currently being held on bank books as an ‘asset’ serving to underpin yet more loans and debt. So start cancelling debt and the bankers pyramid of leveraged debt begins to crumble. The fact that it has to crumble if we are to recover without being crippled with trying to pay unpayable debts never gets a mention in banker-world.

A second reason bankers don’t like cancelling debt is that what would quickly get revealed is which banks are the walking dead kept alive by transfusions from us. At the moment they are all hiding each others debts.

Think about it – they all want the debts they owe each other to be paid in full – but since they can’t afford to pay them, they have got our politicians to make US pay all the debts they owe to each other, for them.

I don’t think our government’s have any interest in protecting us. They may say they do, and may make noises about ‘necessary measures’ but they seem mind-blind to any alternatives to what the bankers whisper in their ears. So here are a few ideas the bankers won’t like AT ALL.

As a start let us say that we will only consider paying debts which we can see. What I mean by that is the debts we are expected to pay must be transparently clear to us. They must be in an auditable form not held in mystery SIV’s in off-shore in tax havens. They must be held on balance sheet, not off it and on shore where we can inspect and audit them.

These are perfectly reasonable and entirely enforceable requests. We, the public simply want to be sure that what we are being asked to pay, is in a place and form such that we can verify for ourselves that the debts are legal, above board and ours to pay.

If the bond holders have nothing to hide then they have nothing to fear. Any bond holder who refused and any debt which was kept off-shore and un-auditable would not be payed. It would be not even be considered for counting against other debt it would simply be zeroed. Simple, fair, clear, transparent and legal.

First thing this would do is destroy tax evasion and avoidance. Every nation would get a colossal windfall of tax THAT SHOULD HAVE BEEN PAID IN THE FIRST PLACE. That would help the austerity a bit.

Second there has been so much fraud, so much of it now clearly known and documented, that only a cretin would pay ‘debts’ on faith. Show me the paper or go away.

It is a fact that the vast bulk of the global stock pile of wealth and particularly debt backed ‘wealth’ is held off-shore in tax havens and Banking secrecy jurisdictions. Why? Why should we pay debts to people who won’t pay their taxes?