Thursday 12. December 2019
#180 - March 2015

 

The Greek debt, the Greek nation and the moral position

 

Servicing the debt drains a huge proportion of the Greek productive economy. As a result, Greece is sinking into a quagmire.


Should the Greek debt be cancelled completely or partially? According to anthropologists, the answer is no, because debt is the most fundamental of social ties. Any cancellation, even partial, would only prop up the inadequate public management and negligence of successive Greek governments. It would be a slap in the face for countries such as Ireland, Portugal and Spain which have battled courageously to rebuild the competitiveness of their economies.  What is more, this would be somewhat of an insult to the Greeks, placing them in the category of irresponsible nations.  The creditors, of course, are also partly responsible for this situation. By granting more time to Greece they took a risk – which today seems like a bad choice. The blame, if any, is to be shared. But these days, without bad faith, the lending countries should not be criticised for having accepted the risk to lend to a legitimate government that had applied to them. (So this rules out the idea of “odious debt”.)

 

To the question “Should the Greek debt burden be eased?” economists reply in favour. Servicing the debt (repayments and interest) drain a huge part of the Greek productive economy. As a result, Greece is sinking into a quagmire; it has already lost about a quarter of its productive effort, despite the indicators of these past few months apparently confirming that stabilisation is trending slightly upwards. The debt itself blocks any return to viable growth.

 

To the question of whether or not to relieve the burden of Greek debt, anthropologists say “No”, economists say “Yes” and moralists say “Maybe”. On the one hand, living together at the European level requires that debtors should be made to confront their responsibilities. Greece must show that it is capable of pulling itself together, that it “has credibility”. Since the criterion here is economic performance, public management focusing on Greece’s global productivity is the only way to restore financial credibility based on confidence.   In that sense, the creditors of Athens are right – and it is even their duty – to continue to call for structural reforms in Greece.

 

There is an intergenerational point of view that develops a new perspective of the financial diktat. We cannot give back to previous generations the efforts whose results benefit us today. One line of argument, completely altruistic, encourages us to act likewise to the advantage of future generations. That means there must be a softening of the arguments playing on “the burden that the debt places upon future generations”. Because naturally the future generations will inherit not just the debt but also the corresponding creditors. On this point the political dimension of the problem of the Greek debt has also to be considered.

 

To the question “Should the Greek debt be cancelled, completely or partially?” politicians  couch their response in terms of solidarity. If the Greek debt were held entirely by Greeks, a judicious national fiscal policy would suffice to redirect the debt servicing towards purposes that would suit Greek interests. This national solidarity is rendered inoperative as the important part of the Greek debt is held abroad (essentially by Germany and France). This fact makes debt servicing a net drain on the Greek economy.

 

Yet supposing solidarity were maintained within the framework of the European area rather than confined to the national setting, then the same logic would lead us to draw a different conclusion. The situation here is similar to the pooling of risks practised in sectors such as car accidents. In the insurance system, broadly speaking the good drivers pay for the bad drivers; this still does not remove the need for strict rules which are designed to limit road accidents. Does Greece’s debt cause Europe to query the adequacy of its solidarity, taking into account the sensitivities of public opinions voiced at European level? How does it operate? Under what conditions?

 

In answer to the legitimate mistrust of European taxpayers (who will in the end be paying for any easing of the Greek debt), this solidarity could follow different routes to the one where cash is paid over the counter, in other words without any controls. Financing in the form of direct aid through concrete projects is without any doubt less wasteful of European funds when working towards greater prosperity for Greece.

 

Fr. Étienne Perrot sj

Economist, Geneva

 

Translated from the original text in French

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