The world’s media are full of the problems of the Greek economy and the possibility of a national bankruptcy there which will force it out of the Euro zone. For over five years the Troika of financial lenders to Greece have imposed a severe austerity program on Greece which has created an unsupportable mountain of debt. Under the new Syriza government the Greeks have refused to dig an even deeper hole for its country and has said ‘No’ to the demands for further austerity. This story has not yet come to an end and a whole host of possible outcomes have been forecast by experts from across the globe.
This is all very interesting and important but the impact of this crisis in the Eurozone extends far beyond the borders of Europe. It will have a dramatic impact on African economies, especially those 14 states labouring under the burden of the CFA franc.
There are actually two separate CFA francs in circulation. The first is that of the West African Economic and Monetary Union (WAEMU) which comprises eight West African countries (Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo) The second is that of the Central African Economic and Monetary Community (CEMAC) which comprises six Central African countries (Cameroon, Central African Republic, Chad, Congo-Brazzaville, Equatorial Guinea and Gabon), This division corresponds to the pre-colonial AOF (Afrique Occidentale Française) and the AEF (Afrique Équatoriale Française), with the exception that Guinea-Bissau was formerly Portuguese and Equatorial Guinea Spanish).
The WAEMU CFA franc is issued by the BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest and the Bank of the Central African States (BEAC) controls the CEMAC CFA franc. This currencies were originally pegged at 100 CFA for each French franc but, after France joined the European Community’s Euro zone at a fixed rate of 6.65957 French francs to one Euro, the CFA rate to the Euro was fixed at CFA 665,957 to each Euro, maintaining the 100 to 1 ratio. It is important to note that it is the responsibility of the French Treasury to guarantee the convertibility of the CFA to the Euro.
The monetary policy governing such a diverse aggregation of countries is uncomplicated because it is, in fact, operated by the French Treasury, without reference to the central fiscal authorities of any of the WAEMU states. Under the terms of the agreement which set up these banks and the CFA the Central Bank of each African country is obliged to keep at least 65% of its foreign exchange reserves in an “operations account” held at the French Treasury, as well as another 20% to cover financial liabilities.
The CFA central banks also impose a cap on credit extended to each member country equivalent to 20% of that country’s public revenue in the preceding year. Even though the BCEAO and the BEAC have an overdraft facility with the French Treasury, the drawdowns on that overdraft facility are subject to the consent of the French Treasury. The final say is that of the French Treasury which has invested the foreign reserves of the African countries in its own name on the Paris Bourse.
The African countries don’t have access to their own money. France allows them to access only 15% of the money in any given year. If they need more than that, they have to borrow the extra money from their own 65% from the French Treasury at commercial rates. Beyond this, France imposes a cap on the amount of money African countries can borrow from the reserve. The cap is fixed at 20% of their public revenue in the preceding year. If the countries need to borrow more than 20% of their own money, France has a veto. If they do get permission to borrow their own money they pay the French Treasury at commercial rates.
In short, more than 80% of the foreign reserves of these African countries are deposited in the “operations accounts” controlled by the French Treasury. The two CFA banks are African in name, but have no monetary policies of their own. The countries themselves do not know, nor are they told, how much of the pool of foreign reserves held by the French Treasury belongs to them as a group or individually. The earnings of the investment of these funds in the French Treasury pool are supposed to be added to the pool but no accounting is given to either the banks or the countries of the details of any such changes. The limited group of high officials in the French Treasury (nine people) who have knowledge of the amounts in the “operations accounts”, where these funds are invested; whether there is a profit on these investments; are prohibited from disclosing any of this information to the CFA banks or the central banks of the African states.
There are billions of francs deposited with the French Treasury since 1961 which belong to African states and to which they have virtually no access. This lack of transparency is not the only problem. Most of the goods produced in the CFA zone are priced in CFA francs. As the Euro is constantly burdened by the policies of bail-outs and decline in real value, the purchasing power of the CFA has declined along with it as its price is pegged to the Euro. However, many products that must be purchased, like gas and petroleum fuels, are priced in dollars. African countries will get fewer net dollars for their sales of goods like cocoa, coffee, cotton, etc. because of the decline of the Euro against the dollar and other currencies at the same time as having to pay even more for their dollar-priced goods. Even if they sold their goods for dollars they would have to deposit over 80% of the earnings on those in the French Treasury. Their reserves are propping up the French economy and they have no recourse to them as individual nations. Still less do they know how much of these reserves are theirs. It is a trap in which they are caught.
France has been undergoing rapid economic decline. In an effort to resolve French problems the French have hypothecated via the French Treasury much of the African reserves held in the name of the Treasury. France has run out of money. It has massive public and bank debt. It had the largest exposure to both Greek and Italian debt (among others) and has embarked upon yet another national austerity plan. Its credit rating is at risk again and the stress tests on the European banks by the ECB have shown serious and risky undercapitalisation among the French banks. It vast expenditures in pursuing its wars in Libya, Mali and the Central African Republic have exhausted most of its defence budget. The reason it has been able to sustain itself so far is because it has had the cushion of the cash deposited with the French Treasury by the African states since 1960. Much of this is held in both stocks in the name of the French Treasury and in bonds whose values have been offset and used to collateralise a substantial amount of French gilts and pledges to the ECB. When sked about this Jacques Chirac answered “We have to be honest, and acknowledge that a big part of the money in our banks come precisely from the exploitation of the African continent.”
The African countries will suffer greatly from any further decline in the value of the Euro because of the peg to the CFA franc. As the Grexit or something similar, undermines the credit-worthiness of the European Eurozone countries, interest rates will rise, public sector debt will increase and the Africans will find themselves competing for the cash needed to develop their nations. Still less will they be able to access their cash reserves as they have already been lent out by the French Treasury. As the house of cards crumbles the Africans will find themselves trapped in the crumbling edifices.
In addition many of these African states are suffering under the need to make extraordinary expenditures on their militaries. With the rise of Al Qaida in Northern, Western and Eastern Africa the creation of organisations like Boko Haram have posed great difficulties for those who seek to contain them. The Europeans have failed to play a positive role. The French, who blotted their copy book in their pre-emptive attack on Libya and their harassment of Gbagbo in the Ivory Coast, have extended themselves in Mali, Central African Republic and Niger far beyond their means of paying for their efforts themselves without help. In mid-May 2014 the defence minister, Le Drian, admitted the French had run out of funds. He demanded an addition of €500 million from exceptional receipts for 2014 to be raised by selling the government’s shareholdings in defence companies. His report set out concerns over military training, poor state of buildings, paying bills on time, hurting labour and postponing key equipment orders to 2016. These difficulties have manifest themselves in their overseas campaigns in Mali and the Central African Republic.
France has had to cut back on its military spending to meet its budget targets. It has tried to do so by demanding funds from the United Nations by pretending French troops were ‘peacekeepers’ and worthy of support. France has tried to lead its EU colleagues into a commitment of funds and materiel but most have been unwilling. The Europeans and the nations of the African Union have pledged support in terms of manpower and funds but these are already delayed and insufficient. The African states are being forced to take on more of the financial burden. With the contraction in the funds available from Europe as a result of the conflict in the Eurozone, the Africans will have to make further sacrifices.
The other aspect of this development has been the rise of Far Right anti-European unity parties. In European Parliament elections the forces of the Right established themselves a credible players, threatening the traditional parties of power in France and across Europe. In France voters expressed their preference for the Front National (‘FN’) as the party of opposition to the UMP and the Socialists. The FN has moved away from the fringes of the political party system to take up a place nearer to the centre. It has subsumed its appeal to racism, Holocaust denial and nativism under a cloak of anti-immigration policies coupled with a broad populist appeal against the demands of the European Union for austerity.
This is a phenomenon growing wherever the austerity policies are viewed as inimical to social welfare. In Holland, the anti-immigrant Party for Freedom (‘PVV’) led by Geert Wilders, has had a similar success as the FN in France. In Austria the anti-immigrant Austrian Freedom Party (‘FPO’) led by Heinz-Christian Strache won 20 per cent of the vote and almost stopped the ruling grand coalition of the two main centre-right and centre-left parties from getting a majority of the votes. In Britain the rise of the Eurosceptic party, the U.K. Independence Party (‘UKIP’) of Nigel Farage, swept the Liberal Democrats into fourth position as a national party.
Even in Germany, another Eurosceptic party, Alternative for Germany (‘AfD’) led by Bernd Lucke, Frauke Petry and Konrad Adam just missed out on a place in the Bundestag.It did better than the Free Democrats (‘FDP’) which had formerly been in a coalition with Merkel. Elsewhere in Europe there has been a sharp rise in Eurosceptic parties as well as newly emboldened anti-immigrant and racist parties like Golden Dawn in Greece. There are similar neo-fascist groups in many European countries and they are joined by regional independence movements like Scotland, the Basques or Catalonia. The traditional two-party struggle between the parties of capital and labour are fraying at the edges as neither seem able or willing to deal with the problems of the lower and middle classes other than by increased austerity which compounds the distance between rulers and ruled. The Eurosceptic opposition parties have morphed into anti-Euro, anti-immigrant and nationalist parties with these issues as the foremost in their campaigns.
The rise of the European Far Right is a great danger to Africa. As they are strengthened and grow in power in Europe, they have turned on Africa for its waves of immigrants washing up on Lampedusa and Greece. If the situation in Greece descends to violence as a result of Grexit, this will not improve, nor will the reluctance of Italy to keep funding the thousands of refugees arriving on the EU borders.
So there are many political and economic factors which will dramatically affect Africa as a result of the turmoil in Greece and the Eurozone. No one seems to be addressing them or even recognising the full horror as it approaches.