European Parliament demands that EU negotiates debt restructuring framework at the UN

Implementation matters

The fact that the European Parliament has embedded its demand in the Financing for Development Resolution, released ahead of July’s UN summit in Addis Ababa, indicates that it views the UNGA process as a crucial part of the political agreements made throughout the FfD process, which began with the first summit held in Mexico in 2002. Through the ’Monterrey Consensus’, the EU unanimously endorsed a commitment to create a new debt workout mechanism. Not much has happened since in terms of implementation.

The setting up of the Ad Hoc Committee at the beginning of this year (following up on the mandate given to the UNGA) indicates that the UN takes the political commitments made at FfD summits seriously, and stands ready to transform them into actual regime building and implementation processes. The diplomatic faux pas of the EU to stay away from the first session of such a process has undermined its credibility and sent a very bad signal ahead of the three big Summits that are coming up this year, namely Financing for Development, Post-2012 in September and Climate Change at the end of the year. The European Parliament’s call compensates for this, as the representatives of the people of Europe have understood that this process is in the EU’s interest and the EU has to be a reliable ally for partners in the Global South and a constructive actor in international relations.

Debt workout features on the EP agenda

Ambassador Sasha Lorenti, chair of the UN Ad Hoc Committee, addresses an event on the UN’s work on sovereign debt restructuring

Debt crises and how to resolve them is a top priority issue for EU Parliamentarians these days. This does not come as a big surprise, given that the positions parties take on this issue can now determine election outcomes, especially in Southern Europe. Consequently, there was high interest in the joint Eurodad and UN event in the European Parliament this month.

Eurodad opened at the debate with a call for a faster, fairer, and more effective solution to debt crises. The lack of an effective debt restructuring mechanism is responsible for the fact that debt crises such as those in Greece and Argentina continue to be unresolved for many years and cause unnecessary harm to people and economies. Eurodad presented the European CSO position, which is that debt workouts need to be dealt with by an independent institution that is mandated to restructure all debts in one comprehensive processes and under consideration of developmental and humanitarian criteria.

Sacha Llorenti, Bolivian Ambassador to the UN and the UNGA Ad Hoc Committee chairman, stressed that the UN General Assembly is the world’s most inclusive and legitimate forum. He called the Resolution that mandated the work on the new sovereign debt restructuring framework “the most important UN General Assembly Resolution in a decade”.

Richard Kozul-Wright, the director of UNCTAD’s Globalisation and Development Strategies Division, pointed to the risks that a new wave of debt crises might soon hit the South, as the commodity super-cycle comes to an end. He presented UNCTAD’s brand new Roadmap and Guide for debt workouts that is based on 5 principles: legitimacy, impartiality, good faith, transparency and sustainability.

Migual Urban, MEP representing Spain’s Podemos welcomed the UN’s work in so much as it is helps to promote human rights. He flagged that an automatic standstill of payments is key in a debt crises to make sure that creditors don’t blackmail a debtor country. He also raised the fact that the UN should improve their instruments by taking the legitimacy of debt into account. Debt audits can help to identify illegitimate debt and should be institutionalised.
MEP Elly Schlein from Italy’s Partido Democratico said that austerity policies have failed in Europe, and that there is enough evidence that the current regime does not work. It is hypocrisy for the EU to participate in UN processes such as post-2015 but boycott related processes such as this one.

Syriza’s MEP Stelios Kouloglou stressed that none of the five debt workout principles that the UNCTAD has developed were applied in the case of the Greek debt restructuring. The outcomes were not sustainable as Greek debt continued to increase heavily. He pointed out that French and German banks exposed to Greek debt were saved while Greek banks had to dig into social security savings. He said that this was not transparent, as there was no scrutiny of the legitimacy of claims. There was no impartiality and legitimacy in negotiations. He stressed that instead of a sustainably solved debt crises, Greece now faces another Troika: blackmail, threat and ultimatum, and that it is power play and not a legitimate relationship.

Florent Marcellesi, spokesperson for the Spanish Green party EQUO, said that the absence of a multilateral mechanism creates political and social problems and has an incredible impact on development. He underlined that human rights should be taken into account in debt restructurings. He also suggested convening an International conference on illegitimate debt to better define it. He added that an holistic vision of the problem is necessary – debt implies issues of both North-South and intergenerational justice, and has non-monetary dimensions. There is a need to discuss environmental debts.

Additionally, MEPs and MEPs’ assistants representing different parties from a variety of EU Member States seconded the call for reforms towards an effective mechanism for the fast, fair and effective resolution of debt crises. Now is the time for EU governments to act, and for the European External Action Service to arrange EU participation in the UN negotiations that can lead to such a mechanism.

To read a Q and A with Richard Kozul-Wright, director of UNCTAD’s Globalisation and Development Strategies Division, on the new Roadmap and Guide for debt workouts and the way forward click here.

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