6. Sovereign Debt Crisis in the Global North

In 2003, debt economist Ann Pettifor wrote a article titled “The Coming First World Debt Crisis”, which preceded a 2006 book by the same name. Pettifor, who had been a leading economist working for the campaign to cancel third world debt in the 1990s, argued that the world’s richest countries, in particular the United States, showed all the major signs of a forthcoming debt crisis. 

In 2008, she was proved right. As the US subprime mortgage market began to unravel, the Lehman Brothers bank collapsed in 2008. Soon, banks across the world’s wealthiest countries began to seek guarantees from governments in order to avoid collapse. In countries like Ireland, the government guaranteed all of the debts of the major banks, including commercial debts, meaning that any losses were transferred from the private shareholders, to the state’s citizens. 

The nationalisation of bank debt led to a surge in sovereign debt across many rich countries. Over the next few years, it became clear just how much bad debt had been nationalised, and countries like Ireland faced the prospect of not being able to repay the bank debts they had guaranteed. Instead of defaulting on these debts, the Irish government sought loans from the IMF, European Commission and other lenders totalling €67.5 billion. The loans came with stringent conditions imposing harsh austerity on the country – public spending cuts and tax increases – something which the IMF itself has admitted slowed the recovery of the economy.