By Christian Zeller

[This study published in the new journal "Emanzipation," Vol. 2, No. 1, Summer 2012 in Frankfurt is translated from the German on the Internet,]


The indebtedness of public budgets increased enormously in most European countries since the 2008 crisis and is one of the key questions of current political discussions. The regressive social and economic consequences of these debts are well-known. Since the 1980s, many analyses were published on the indebtedness of countries of the third world, particularly in Latin America (Toussaint 2000; Peet 2003). Now the debts of public budgets in Europe are increasingly the focus of attention. State debts are a central characteristic of the present phase of capitalism.

The goal of this study is to locate present indebtedness in the context of fundamental developmental tendencies of today's configuration of capitalism and secondly to sketch a radical political alternative that starts from the present conflicts and challenges.

In this article, I offer three related proposals for understanding public indebtedness. Firstly, the inflation of public indebtedness was an essential element for the enhanced power of financial capital. Secondly, it was a result of a conscious under-financing of the state. Thirdly, it is a lever to enforce an austerity policy that helps raise profit and bring capital to new fields for its exploitation.

I argue that the inflation of public and private debts shifts crises of capital accumulation temporally, spatially and to other areas of society. Indebtedness, above all in the peripheral countries of the Euro-monetary zone, is a strong expression of the unequal development in Europe. The chasm between the strong export countries and countries increasingly dependent on capital imports has widened since introduction of the euro. The Troika (European Union, European Central Bank and the International Monetary Fund) are now trying to shift the costs of the crisis to wage-earners through far-reaching conditions and extortions. The conflicts over the austerity policy in Greece, Spain, Portugal and Italy are of great import for the political balance of power in all Europe.

The second section explains the essential generating factors that led to the formation of a global financier regime. As an answer to the systemic crisis, this regime was supported since 2008 by a state-finance complex. In the third section, I analyze several features of the unequal development in Europe which are manifestations of the fundamental character of the EU and the euro and the bailout umbrellas for the financiers. The policy of the Troika secures the income of the financiers without solving the crisis. The fourth section sketches several characteristics of the European crisis and the crisis in Greece. Lastly, the fifth section discusses the demand for a moratorium on debt payments raised with increasing intensity and an audit of public debts that is widely discussed.


The tremendous surge of heavy debts is a direct expression of the increased power of financial capital. The financial assets and claims of some correspond to the financial obligations of the others. The greater state indebtedness carried out with the inflation of the financial sector was an essential element of capital's answer to the crisis since the middle of the 1970s.

2.1 The power of financial capital and state debts

The neoconservative and neoliberal de- and re-regulations carried out since the late 1970s were first practiced by the governments in the US and Great Britain and then adopted by most states on the basis of massive defeats of the workers' movements. These created the institutional foundations for the intensified concentration of financial capital in the hands of financial firms and institutional investors like insurance companies, investment- and pension funds and banks (Chesnais 2004a). Institutional investors could prevail as dominant actors on the capital markets.

Financial capital is understood here as concentrated money capital whose owners supported on property- or creditor-titles expect income in the form of interests, annuities and profits through the sale of these titles (Robinson 1956). This interest- and annuity income is only legitimated by ownership of assets even if the owner stands outside the production. This investment capital is exploited and expanded as interest-bearing and annuity-bearing capital by skimming off a part of the surplus value or profit.

The rise of financial capital was based on several linked processes. A series of further institutional changes can be named besides the genesis of an enormous pyramid of credit and indebtedness (Serfati 2009; Altvater 2010): the 1973 collapse of the Bretton Woods monetary order and the arising currency trade; the creation of euro-dollar markets and petro-dollar markets; the introduction of capital-covered old age insurance systems; the liberation of capital markets from institutional restrictions offering financial investors the necessary liquidity to place or withdraw their capital in firms within a short time; the conscious enhancement of liquidity through low interests and loose monetary policy by the central banks; liberalization and deregulation of trade, direct investments, currency transactions and capital flows and the creation of new so-called financial intermediaries that expanded the credit system far beyond the past limits of commercial banks and the realization of extensive privatization programs opening up new investment possibilities for funds.

These processes were carried out with different intensity according to the country and the concrete balance of power. In Germany, for example, the partial disentanglement of the close connections of banks and industrial firms, privatization programs and the enforcement of a Corporate Governance in the sense of the shareholder value concept contributed to the enhanced power of financial investment capital.

A considerable part of the excess money capital (for which the petro-dollars were jointly responsible) flowed into developing- and threshold countries and inflated their indebtedness. The abrupt elevation of interest rates under the US Federal Reserve chairman Paul Volcker in 1979 during Jimmy Carter's presidency made the heavy debts of many countries in South America, Africa and Asia rise by leaps and bounds and engendered a continuous money-flow to the financial firms in Europe and North America (Toussaint 2000). The indebtedness of the countries of the South helped the growth of financial investment capital and the strengthening of the power of the financial sector.

That the public indebtedness in all core capitalist countries, especially the US, clearly swelled since the late 1970s and brought about an accumulation of liquid money-capital in the hands of financial investors was essential (Chesnais 2004). At the beginning of the 1980s, the states increasingly issued government bonds on specialized markets for their own financing. The payment of interests and the repayment of debts contributed to the transfer of massive wealth benefiting the purchasers of government bonds, above all institutional financial investors and narrowed the economic possibilities of states.

The credit inflation in the US and many countries of Europe, particularly Great Britain, was advanced in the 2000s by the massive increase of the heavy debts of the financial sector and private households (McKinsey Global Institute 2010). While financial assets and capital resources amassed private and public debts and bank balances in the first eight decades of the 20th century were in harmony with the growth of the gross domestic product (with the exception of war times when state debts soar), their extent multiplied fourfold from 1980 to 2007 to a relation of 393% of the worldwide GDP ($194 trillion).

The distribution of national income has shifted in favor of capital. Financial operations have a more important role in the activities of banks that transform themselves to great financial conglomerates. The theory of the efficiency of markets formulated by neoclassical economists ideologically supported the growing economic and social power of financial investors (Chesnais 2011).

Financialization intensified the pressure for the reorganization of working conditions and precarization of work and living conditions. In finance-dominated capitalism, wages, working hours and working conditions become residual or secondary realities so businesses can correspond to the profit-norms of financial investors and quickly adjust to volatile markets (Dorre 2009). The hunger of financial investors for higher yields and the strengthening of annuities and interest in the process of distributing the surplus value in profits and annuities brought about a greater exploitation of wage-earners in the form of a higher rate of profit which is reflected by the development of the wage-share in the GDP (cf. Husson 2008). Unions in Europe and North America were unable or unwilling to resist this development.

Despite the far-reaching industrial reorganization, the accumulation rater did not rise to the same extent as the profit rate because it lacked realization possibilities of surplus value. Therefore the institutions of finance capital put part of the surplus value in the financial sphere in the expectation of realizing very high yields. Making more money out of money or exploiting the fetishized form of capital in the money to money process was central.

2.2 Fictional capital

This abridged money to money capital-cycle flows in an inflation of fictional capital. Fictional capital is capital that does not pass through the money-goods-money cycle and produce surplus value. This capital-cycle is capital piled up in the form of property titles and not used to buy workers and means of production. Securities (especially stocks or government bonds) are claims to socially produced wealth in the form of interest, dividends or annuities without contributing to the creation of wealth. Fictional capital cannot develop at pleasure independent of the dynamic of productive capital (Becker 2001).

For Marx the first form of fictional capital accrued out of government bonds while the second form originated with the founding of limited companies or stock corporations and trading shares on secondary markets. State debts were already a central moment of original accumulation and the genesis of capitalism (Harvey 2003; Stutzle 2008). The negotiable property title of a government bond authorizes a regular interest payment from tax revenues. The inflation of state debts and interest-payments arising from that - mediated through the direct and indirect taxation of wage-earners - becomes a central form of appropriating surplus value. Thus tax exploitation becomes a fundamental source for fictional capital.

Fictional capital was inflated intensely by the indebtedness of private parties, businesses and states since the late 1970s and could realize "endless" interest- and annuity payments. The rise of concentrated investment capital in the last three decades flowed in an extended accumulation of property titles and "financial products" of all kinds that appeared to their owners as capital. They are actually claims to future profits from production or are a part of the tax revenues. The enhanced market capitalization of firms far beyond their actual accumulation activity is an expression of the development of fictional capital.

The origin of fictional capital is closely connected with credit. The credit system operates with a form of fictional capital, a flow of money capital not supported by a commodity transaction. Awarding credit is based on the assumption that credit-financed investment will trigger a greater demand for consumer goods and enliven the under-used production infrastructure...

Thus the inflation of the credit system and state debts corresponds to an overflow channel for over-accumulated capital. Temporally shifted and spatially transferred, fictional capital can be transformed into productive capital. However it can also be accumulated independently. State indebtedness was a welcome field for the exploitation of over-accumulated capital.

To counter the over-accumulation and the exploitation crisis going along with that, capital must open up new fields. That happened through the integration of new geographical markets, the genesis of new industrial sectors and the inflation of fictional capital. These processes of mobilization, shifting and fixation of capital corresponded to the repeated discovery of new spatio-temporal fixes (Harvey 1982, 2006) that helped shift the problem of over-accumulation geographically and temporally to soon appear on a higher step-ladder.

With the implementation of the global financiers' regime, the gulf between the growth of capital income and income from work deepened. A massive surge of income can be observed worldwide that rests on property monopolies and property titles. This income could be described as annuity income which owners of property titles can pocket irrespective of their participation in the productive process. These financiers concentrate above all in the countries of the North Atlantic zone, in Japan and increasingly in up-and-coming countries (Serfati 2006). This global financiers' regime lacks the foundations for a stable development. The long period of capitalist restructurings produced sharp regional and sectoral crises and a geographically very unequal growth (Zeller 20110.

2.3 Loans instead of taxes

For the most part state indebtedness is a result of an under-financing of public budgets by lowering direct taxes on income and on the profits and capital of firms. The top tax rates for incomes and corporate profits were reduced all over Europe since the middle of the 1980s (Millet and Toussaint 2012). Two French authors clearly revealed the connection between tax reductions and the growth of public indebtedness in the case of France. The tax evasion driven by intensified tax competition is another factor. Most governments in Europe react to the problem of under-financing by issuing loans. They lend money to those parts of society whom they favored with lower taxes (Chesnais 2011). This policy was advantageous for owners of capital, property owners and financiers. These profited in two ways: first by paying lower taxes and secondly by receiving interest-payments from the continuing state debts. This process was carried out in the course of a massive internationalization of government bond markets and extension of secondary markets.

Paying interests for the debts is one of the most important budget elements. As a rule, the profits tax, the tax that burdens wage-earners most intensely, represents the backbone of revenues. This system of state financing signifies a transfer of wealth from wage-earners to the banks and investment funds.

The share of state spending in the gross domestic product shows that the widespread discourse on excessive state spending is misleading. State spending rose in relation to economic output as a result of reactions to the first two crises in the middle of the 1970s and the early 1980s. However total state spending hardly increased any more in the 1990s and 2000s and even fell in some countries. On the other hand, state spending constantly rose in Portugal and Greece. Public spending abruptly soared as a reaction to the crisis. Thus the state debts are not a result of excessive state spending. Rather they are an integrated element of the financiers-regime and an expression of a structural under-financing of public budgets.

The tight budgets were an important lever for carrying out a harsh austerity policy. They serve as a pretext for restraining the state from certain sectors of the economy and executing privatizations and a comprehensive reorganization or even destruction of the whole welfare system, - at the expense of wage-earners and the expropriated population.
Privatizations offer new fields for investments and financial centers to capital. They are nothing short of a private appropriation of public assets and could be characterized as a form of accumulation through dispossession.

Chart 5: The Circulation of state debts and financiers' income beneficial for financiers

Charts 6 and 7 show the consolidated gross debts in selected countries of Europe. Indebtedness rose in most countries since 1980 and fell in the 1990s as a result of the enforced austerity policy and in the 2000s up to 2007 thanks to higher growth rates in some countries. In 2008 and 2009, the debt burden exploded in many countries on account of the bailout of banks and the financial system.


3.1 The state-finance complex and shifting indebtedness to the public budgets

The 2008 financial crisis, the collapse of the credit system and the rapid rise of unemployment since the fall of 2008 have revealed the implications of over-production. In countries where finance capital encouraged housing bubbles as in the US, Great Britain, Ireland and Spain, overproduction has taken the form of empty houses, abandoned dwellings, unsold offices and a construction sector in crisis. In many countries, far-reaching over-capacities were suddenly manifest in different industrial sectors.

The crisis reveals the limits of an economic model in which the production and sale of goods and services were supported by a massive indebtedness of businesses and budgets. The financial sector has used the lever of indebtedness to counteract the demand weakness from freezing wages.

In the strongly liberalized and globalized economy, the extent of over-accumulation and over-production must be grasped on the world plane. Since 2009, many European industrial groups have speeded up their international expansion and made a large part of their new investments in China and other threshold countries. In fact, the very unequal growth since 2010 was driven by the indebtedness in the West and production in China (Chemais 2011). How long China and other threshold countries can assume the role of economic locomotive is uncertain.

With their crisis policy, the governments of the US and Europe act for recipients of interest- and annuity-income and strengthened their position. Many banks in the US and Europe were drawn through the storm of crisis and market correction with unprecedented state assistance. The state help for banks served the bailout of the banks and their support in the context of international rivalry. This teamwork of the state and finance capital was hardly analyzed for a long time. Harvey (2009) argues that the state-finance complex was crucial for the dynamic of capitalism. What appeared formally in the garb of nationalization was actually private appropriation of public assets by firms of finance capital to an unparalleled extent. This process corresponded to a shift of indebtedness from business to the state. The state appeared as the "ideal total banker," so to speak (Altvater 2010). The funds earmarked for direct support payments of the rich G20 states amounted to an average 5.7% of the 2008 GDP of the G20. In addition, capital infusions and the acquisition of assets were in the range of 3.4% and support credits in the range of 4.1% of the GDP. All these programs amounted to less than 50%

The significance of the state did not only arise from its role as lender of last resort, as a guarantor for the functioning of the financial markets and against an excessive value loss of accumulated (fictional) capital but also in its active role as issuer of state bonds. The strongly diverging interest-rates for government bonds are a barometer for the trust that investment-seeking capital brings to settle debt s3ervice with acceptance of new debts and ultimately meet its payment obligations to institutional investors.

The rapidly increasing state indebtedness arose directly from the socialization of the debts of the financial sector. This underlines the persistent power of finance capital and the actuality of the concept of fictional capital. State supports reduced the queued up devaluation of fictional capital and at the same time guaranteed the profitability of the most important financial firms. Fictional capital could develop and carry out interest-payments thanks to the enormous inflation of state indebtedness. The redirection of debts occurring with the issuance of government bonds promised relatively secure attractive investment possibilities to interest bearing capital in a deflationary environment, The barriers to capital exploitation piled up by fixed capital are now overcome at least for a certain time by opening another financial capital circulation (Harvey 1982).

At the cost of public assets, the state secured the exploitation conditions of capital and stabilized the financiers' income. The governments of North America and Europe, the IMF and the European Commission now react with the well-known neoliberal and neoconservative prescriptions for the indebtedness. The deficits should be reduced through a consistent spending discipline, increased efficiency of public services, particularly with social spending and further privatizations. The credibility of debtor states must be preserved...

In the short term, stable public spending limits the range of recessions. In the long term, investments and public expenditures for education, health, research and infrastructure stimulate growth. However the austerity policy carried out under the pretext of empty public treasuries and the freezing of wages in the euro zone and other countries of the EU intensify the demand weaknesses and the problems of realization (Math 2010).

In addition, nearly all countries in Europe ran into debt in the crisis. Even before the crisis, the heavy debts were already at a high level in Greece, France and Italy. In Spain and Ireland, the massive debt burdens grew directly from the bursting of the housing bubble. As a consequence, many banks and real estate funds ran into heavy debts. The governments helped them out at the expense of the state treasuries.

The accumulated public indebtedness offers the possibility to concentrated investment capital to appropriate a part of the state revenues through "eternal" interest payments by the direct and indirect taxation of wage-earners. The austerity policy means the debt burden shifted from the private to the public sector will strain wage-earners. As the crisis assumed historical dimensions in 2008 and 2009, the austerity policy now has dimensions that were long unknown.

3.2 Unequal development of Europe and construction problems of the euro

3.3. Bailout umbrellas for the banks



5.1 The illegitimate debts in Greece

The interest payments of states bring about a constant stream of gained wealth to financial investors. This means no really significant changes of wealth distribution benefiting wage-earners can occur as long as the debt service and ultimately public indebtedness are not put in question. Stronger taxation of profits and high incomes and any reform of the tax system, an undoubtedly important measure, will not really be effective if the debt question is not tackled (Chesnais 2011)...

The height of public debts that will rise even more through the effect of different financial-technical levers is not only important for the whole financial system because of the systemic risks. It also raises the question about the nature of these debts on which interests must be repaid. From the perspective of profits distribution, it is relevant to examine how great the share of the demands is based on savings balances and how large is the share of the debts arising from credit relations between the banks whose goal is only increasing profits. The notion that the borrowed sums are results of a long saving process of wage-earners implicitly underlies the principle of repaying debts... The public debts and the debt service function as a financial pump to the financiers and are an element of a comprehensive social redistribution. These economic characteristic of the borrowed sums put the legitimacy of the public debts in question. The concrete examination of the debt mechanism is a central concern in the demand for a public debt audit (Chesnais 2011).

The demand for a debt audit is made by many political organizations and social movements in Greece, Spain, Portugal, Italy and France. The international CADTM network (Comite pour l'Annuilation de la Dette du Tiers Morde) leads a Europe-wide campaign for a debt audit on the basis of experiences of movements for a debt cancellation for countries of the third world. A manifesto launched in France by heterodox economists and signed by around 6600 persons puts the payment of a part of the debts in question in measures 9 and 14 (Ashenazy et. Al. 2010).

The term odious debt goes back to the time between the wars. The first definition comes from Alexander Sack, a Russian lawyer and professor of international law in Paris who formulated the concept in 1927. Odious debt describes a debt incurred by a dictator or authoritarian regime for goals that are not in the interest of the nation and the citizens. Understood in a broader and more topical way, odious debts are debts contracted against the interests of the population of a state and without their approval but in full knowledge of the consequences on the part of the creditors. The Greek military dictatorship ran the country into debt and multiplied the debts fourfold between 1967 and 1974 (Toussaint 2011). Then the debts constantly increased under the following civilian governments. The borrowed sums intensified the widespread corruption. The tax exemption of Greek shipowners, their families and their companies is anchored in the constitution of 1975. That kind of privilege can only be viewed as a constitutive element for an odious debt (Chesnais 2010). Since the fall of 2009, people know that the government of Nea Demokratia of the former Prime Minister Karamanlis cooked the numbers to veil the range of the corruption and keep a clean image in relation to the European Union, the European Central Bank and investors. The succeeding Papandreou government did not legally prosecute Karamanlis. The most important expenditures were for the 2004 Olympic Games and arms sales without anyone knowing the amount of many commission payments (Chesnais 2011).

Greece was one of the five largest weapon importers in Europe from 2005 to 2009. The purchase of combat aircraft (26 F16 from the US and 25 Mirage 2000 from France) comprised 38% of the imports of this period. The Mirage alone cost 1.6 billion Euros. In addition there were purchases of tanks, helicopters and missile systems. The indebtedness over against the investment funds and banks from the same countries as the arms dealers points to forms of subordination as is characteristic for imperialism (Chesnais 2011).

5.2 Conclusions

Wage-earners are not responsible for the debt crisis of the states provoked by the systematic under-financing of public budgets and the socialization of losses in the financial sector. The squandering of public resources by weapon sales and corruption must also be recognized. A large part of the debts is not legitimate. Part of the debts was contracted under disgraceful conditions. Therefore financing these debts through taxes and wage/salary cuts is not legitimate.

The first step to questioning illegitimate debts is a unilateral moratorium on payment of interests and enforcement of an examination of debts by the democratically-legitimated structures of a country and by representatives of different social movements that act in an internationally coordinated way.

How can citizens gain the right to keep access to all relevant information and accountancy that give insights on the origins and development of public indebtedness? A public audit process scrutinizes the origin of different debt positions. In the framework of a public debate, what debt positions were incurred for meaningful projects and are legitimate can be examined. Debts that come from enormou9s weapon businesses and debts that originate from irresponsibly high interest rates of lenders whether these are unions, the IMF or European institutions are not legitimate and should not be paid. This reminds us of the successful restructuring of debts by Ecuador in 2007.

In such a process, a broad far-reaching public debate on the role of banks and financial institutions is necessary. How can banks be transformed into real mediators so they finance socially useful projects? Proposals and transitions to the social appropriation of the credit-function by wage-earners and organized citizens are vital. The perspective of a social appropriation of the banks should be in the foreground. This perspective includes their radical diminution and reconfiguration into public enterprises that are really democratically controlled.

Unions, social movements and critical researchers should give greater attention to indebtedness on all planes including communities, cities, regions, countries and the international plane and grapple intensively and radically with the credit system.

The whole European project is in an existential crisis. The political elites serving industrial- and finance capital linked together cannot save this project irrespective of whether they have passed through conservative, liberal or social democratic parties for their careers. They are unable to advance a common Europe. The European perspective must be reinvented and reconstructed to oppose nationalist temptations. The present institutions have no or very limited democratic legitimacy. The perspective of the social appropriation of the financial sector on regional, national and international planes is complemented by the demand for a European election of a Constituent Assembly commissioned to work out a common constitution (cf. Zeller 2006).

[The following statement of purpose from the new German journal "Emanzipation" (Journal for Socialist Theory and Praxis, Frankfurt) is translated from the German on the Internet.]

Several grievous crises shocked humanity at the beginning of the 21st century. For their mastery, the new great worldwide economic crisis screams for more growth while environmental catastrophes demand a global de-acceleration. Food crises and hunger provoke political debate on population and genetically-engineered food while small farmers struggle for their existence and independence from corporations. The rich North screens itself from poorer countries. Nevertheless the movements of refugees and itinerant workers cannot be stopped and put in question the traditional organization of workers tied to the nation state.

Capitalism must admit its inability to reach goals like the millennium goals of the United Nations and satisfy fundamental human needs like food, housing, work and a decent environment. Unfortunately this does not mean the influence of unions, social movements and anti-capitalist organizations has become stronger. The political weaknesses of the anti-capitalist organizations are blatant. They are manifestations of theoretical and conceptual deficits. The leftist feminist movements are no exception.

Whoever does not simply accept the dominant discourse on competitiveness, growth and innovation or abandon pressing social and ecological problems to market forces but sees critically the past attempts at a welfare state-capitalism or concrete socialism faces a two-fold task. Capitalism must be analyzed and understood as a production method and rule system in its constantly renewed forms. Ways and transitions beyond capitalism will be sketched. Demands for theoretical understanding and proposals for political praxis appear in nearly every feminist political discussion.

What does this mean concretely? The phase of the workers movement marked by social democracy, the classical communist politics and their respective mass organizations is history. The parties in these traditional lines often no longer have points of contact for a radical reform policy. Many unions seek desperately for ways to counter their continuous loss of influence in corporations, factories and society.

A new kind of movement of wage-earners can be envisioned in areas that have long been at the margin of "normal working conditions" and not in the sights of traditional workers organizations. Here people begin to take their fate in their own hands. Their forms of self-organization challenge the traditional structures and force changes of these structures.

In German-speaking countries, the theoretical, conceptual and political debates on social alternatives to capital rule and immediate political perspectives develop in a fragmented way. There are discussions in relatively small circles of the academic left and leftist feminists about the crisis, its explanation and possible consequences. Then there are debates about organizations and movements that often involve separation, polarization and superiority. Discussion about anti-capitalist transition-strategies overarching the movements on the national and international planes is lacking. Much experience and creativity is lost through splintering - as in the past.

The New journal "Emanzipation" will tackle these deficits. On a Marxist foundation, it will offer a pluralist, theoretically-founded discussion framework for the German-language zone. It joins academic demands with international, anti-capitalist and feminist orientation.

The name "emanzipation" emphasizes political orientation: self-liberation of all oppressed in a socialist perspective and redefinition of this perspective through the connection of eco-socialist, feminist and anti-racist ways of looking at things. The basic internationalist understanding influences the themes and the choice of authors. On the thematic spectrum of the articles, contributions will focus on economic, political, sociological, historical, geographic, ethnological and cultural orientations. Natural science contributions will also have their place. Despite the scholarly orientation, the articles should be understandable to a broad interested public.

Emancipation is a process. The name expresses the desire to contribute to the substantive and practical reform of an anti-capitalist, socialist and leftist-feminist movement.