Guess Which Loan-Sharking Enterprise Helped the 1% Loot Europe After the Global Economic Crisis

The International Monetary Fund is probably the world’s greatest loan sharking enterprise. People in the developing world have known this for decades. As Naomi Klein noted in a 2002 article for the Globe and Mail, the IMF swooped in during Argentina’s financial crisis and forced the country to sell off most of its financial assets, enact deep cuts in public services and drastically reduce its social safety nets. The IMF’s policies transferred much of the country’s wealth to private investors while Argentineans saw their wages and living standards plummet.

The IMF reacted no differently to the Euro crises, which in many ways were caused by reckless investment practices that caused a collapse of the global economy. The IMF, supported by northern European countries like Germany, forced deep austerity measures in Spain, Greece, Portugal and Italy, allowing wealthy hedge funds and investment banks to buy up Europe’s debt and infrastructure at rock-bottom prices.

The austerity measures cut the welfare programs that would have benefited the poor. Meanwhile, the IMF encouraged European central banks to engage in one of the greatest “welfare” programs in history: bank bailouts. They flooded the financial markets with money by loaning at record-low interest rates and purchasing toxic debt. 

Recently, the IMF admitted that it was a mistake to recommend austerity at the height of the European crisis. A report issued by the Independent Evaluation Office (IEO), the IMF’s research division, concluded that the IMF’s “advocacy of fiscal consolidation proved to be premature for major advanced economies, as growth projections turned out to be optimistic.”

The IMF’s managing director responded to the IEO’s report by acknowledging that the IMF had made a mistake, but she said that austerity seemed like the best course of action at the time.

“As the report acknowledges, this assessment is benefiting from hindsight,” she said.

Except the IMF knew exactly what it was doing. It had pursued the same strategies in the developing world and got the same results.

Since the beginning of the austerity measures imposed by the so-called Troika (IMF, ECB and European Commission), European unemployment climbed steadily, peaking at 12.1 percent last year. In Greece and Spain, two of the worst performing economies in the Euro Zone, the unemployment rate has hovered around 25 percent. At the same time, European debt also climbed dramatically, in spite of the austerity measures supposed to reduce deficits. Meanwhile, global capitalists started pillaging Europe’ financial assets.

Spain recently announced it was selling 49 percent of the state-owned airport operator Aena Aeropuertos. The banks picked for privatization? Morgan Stanley, Bank of America, Merrill Lynch, Goldman Sachs and two Spanish lenders, Banco Bilbao Vizcaya Argentaria  and Banco Santander.

Probably the most egregious example of IMF policies can be seen in Greece, where the recapitalization game offered wealthy financiers an outrageous bargain to buy up Greek banks. Essentially, the deal went like this: in order to bail out the Greek banks, private investors could purchase shares for 10 cents on the dollar while the government would pay for the other 90 percent. However, once the stocks of Greek banks recover, reaching what’s called a trigger price, the investors will have the option to buy the remaining 90 percent, but at the same price the government paid when the bank’s stocks were almost worthless. What a deal!

And it wasn’t just Greek banks that got raided by wealthy investors. A group of bullish hedge fund managers led by John Paulson, who famously made billions by betting that the U.S. housing market would collapse, have bought up Greek infrastructure as well. Paulson owns shares in two Greek banks and controls almost 10 percent of the country’s largest water supply company.

Earlier this month, Paulson had the audacity to freeze his Greek investments to protest upcoming special elections in the country, which will likely result in huge victories for the anti-austerity Swyriza party.

Italy is currently trying to unload tens of billions in state-owned assets, including large stakes in its energy and shipping sectors. But the sale comes with a bonus: In September, the Italian government, under the leadership of Prime Minister Matteo Renzi, abolished a statute that protects workers from unlawful dismissal. The Italian unions heavily protested the measure, since legal protections for workers are a pillar of a union’s ability to organize.

So in order to lure investors, Italy has amended its laws to make workers more vulnerable. Because who wants to buy into a company if it comes with a strong union?

In Portugal, the government has made deep spending cuts in social services, like educations and welfare programs, in order to comply with the Troika’s austerity measures. At the same time, the country has been selling off state assets as if it were putting on a yard sale. The government has sold off an airport management company, a highway operator and its postal service. Portugal even tried to auction off paintings by beloved artist Joan Miró, but backed down when the move elicited a public outcry.

Frustration with the austerity measures has prompted enormous protests across Europe. The IMF’s admission that it pursued a flawed strategy in response to the Euro crisis may be a sign the organization is ready to back down. Or maybe it just means there’s nothing left to sell.