The nature and causes of sovereign debt differ from country to country. Yet the popular or contrived narrative of debt usually obscures its true origin or cause.

In the case of Lebanon, currently facing a financial and economic crisis classified by the World Bank as possibly among the The first three most serious global crises since the mid-nineteenth century, one of the key lessons from the Greek experience is the importance of understanding the cause. The truth about how and why Lebanon reached the current debt crisis, including its suspension of payment of a $ 1.2 billion Eurobond in March 2020, must precede any step towards recovery and restructuring under current solvency conditions.

A look at the Greek experience

At the time of Greece’s sovereign debt crisis, the popular narrative was that successive Greek governments had increased the public sector and overstretched their finances. This further reinforces the popular myth that the people of southern Europe are lazy, take long naps, aspire to become public servants and that their governments are corrupt. Despite this, an independent parliamentary commission created in 2015 refuted this account.

The vast committee results clearly showed that the Greek public sector was the least spending among its 27 counterparts in the European Union (apart from defense spending). In fact, until the onset of the global financial crisis in 2008, Greece’s debt-to-GDP ratio was one of the lowest in Europe and certainly sustainable. So why did he shoot through the roof the following year? Indeed, the Greek banks had accumulated a private debt (in the form of loans) to the tune of approximately 100 billion euros.

At the time, Greek banks had been largely bought out by French and German banks, and as a result, the private (and now unsustainable) debt of Greek banks was on the verge of becoming a Franco-German problem. Instead, the then Prime Minister of Greece was “convinced” to nationalize Greek banks and thus turn purely private debt into public debt. In doing so, it was now the Greek taxpayer who was in debt and the resulting austerity, while Greek banks were restructured (effectively refinanced) and France and Germany were relieved.

As a result of this incredible nationalization, which is irrational both financially and politically, Greece’s debt-to-GDP ratio has skyrocketed and its creditworthiness has shrunk to the depths of the Aegean Sea. He now had newly discovered debt of 100 billion euros, no access to financial markets and the prospect of high borrowing rates. Even so, these facts were buried under popular narrative and the committee was discredited even in Greece.

Public debt in Lebanon

At the time of the default in March 2020, Lebanon public debt had reached more than $ 90 billion, or about 170% of its gross domestic product, with nearly 37% of the debt in foreign currency.

To fully understand Lebanon’s debt crisis, it is not enough to simply look at the corrective measures suggested by the International Monetary Fund. The origins of a country’s debt are much more important because they tell us how the debt was accumulated and by whom. The people of a country whose debt was totally or partially illegal and illegitimate can choose to repudiate that debt or to hold responsible people and institutions to account.

Therefore, Lebanon needs an independent committee on the truth of its debt. It is an obligation of the State. Since such a committee does not exist, I can only speculate on the origins of the Lebanese public debt.

According to the Debt Abolition Committee (CADTM), two main reasons are advanced. First, Lebanese commercial banks are allowed to speculate (with hard currencies sent by the foreign diaspora) on sovereign debt securities denominated in Lebanese pounds at interest rates much higher than those granted by the Lebanese Central Bank. These high rates on government bonds and bank deposits severely restrict capital investment in the productive economy. Not surprisingly, Lebanon imports 80% of its food. The second reason is corruption through existing financial channels. CADTM reports that from 2005 to 2014, the richest 1% of the Lebanese population captured 23% of income and 40% of total personal assets, while the poorest 50% had to share half of the income of the 1 % the most rich. It further confirms that key political decisions have to do with the broader power structure in the country.

It should also be noted that the burden of debt restructuring is very regressive, penalizing small depositors, the majority of the working population and small businesses.

If someone looks only at Lebanon’s default and its restructuring process, we are missing the real picture, and the rights of the Lebanese people, which is an integral part of fiscal self-determination. People have the right to be free from all kinds of illegal, illegitimate and odious debt, even if they are incurred under the banner of the state.

No restructuring process should begin until the truth about the debt is known. No sane person would mortgage their house just because a bank told the owner they had a debt they didn’t know about. The owner would first inquire about this debt and if he found that it had been contracted wrongly or unfairly, he would refuse to pay it. It is the least that the Lebanese people can demand.