As we listen to a new round of banker bashing, with demands for bankers to go to prison, we need to ask who is to blame for the current serious sovereign debt crisis. Should they also be in line for prison?
At the heart of today’s crisis is Greek debt. There are dangers that the problems surrounding the Greeks could spread to Italy, Spain and Portugal.
The crisis is brought on by one simple fact. These countries have borrowed too much.
Is it the Greek government who are to blame, for borrowing more than they can afford?
Is it the Greek people, for seeking to stop the Greek government cutting its spending so it can afford it?
Is it the banks who have been prepared to lend money to Greece on poor figures?
Is it the bank regulators who have actively encouraged the banks to lend more to sovereigns, as they regard sovereign loans as no risk loans that count as part of the bank’s liquidity?
Is it the European Central Bank, that has encouraged sovereign borrowing by bond issues, and has bought up sovereign bonds itself to artificially inflate their market price?
In the case of mortgages that go wrong because the poor borrower can no longer afford them, more people are inclined to blame the bank as lender than the borrower for the default. In the case of sophisticated countries with armies of clever people in their finance departments it is more difficult to blame the banks for the excessive borrowing of the sovereigns, and for their eventual reneging on the debt if that is what they do.
I suspect the enthusiasm for putting people in jail for their part in the Credit Crunch will wane as we move decisively into the sovereign debt phase. I do not expect to awake to calls from BBC programmes for leading politicians and government officials to go to jail for taking the system to the edge of bankruptcy by overspending and overborrowing in the state sector. Their morality is lop sided. Putting a banker in prison for a dud mortgage is one thing. Putting a left wing Minister in prison for overspending would be quite another. Arguably the latter has done more damage than the former.
The Greeks today are protesting loudly against the demand for more public sector cuts as part of the package to lend them more money. As few think they can pay back what they have already borrowed, isn’t borrowing more a case of seeking money with no thought for the lenders? How moral is a further Greek loan?
If a country defaults on its borrowings, how does that differ from theft?