Many commentators write about Greece as if she were some helpless victim of forces beyond her control. I myself have expressed some sympathy for Greek people caught up in a crisis of their government’s making, especially for those who thought the Euro and their government’s policy was ill judged. I have no sympathy for the Greek political classes and for the general Greek approach to the Euro over the last two decades.
Greece is one of the rich countries of the world. It has many advantages. It has a great climate, a wonderful history, and many talented and well educated people. Greece made her own decision to join the Euro. She signed up to a scheme which very clearly included rules to limit the amount a member country borrowed in any given year to just 3% of national output, and limited the total amount a country borrowed to just 60% of GDP.
No-one can deny the solid historical achievement of the Greeks of the classical period, leaving aside the embroidered tales of great feats in the legends. Today’s events are enough to make one ask if Agamemnon ever managed to pay off the loan for his armour, or if Odysseus was forced to take ten years getting home as he did not want to face the mortgage.
Those who are ever ready to criuticise the morality of the market when some private sector organisation behaves badly are surprisingly quiet about the morality of a state cheating its creditors, whether by reneging on debts or inflating them away,
The Greek government decided the rules did not apply to her. Without a thought for the good reasons why those rules were in place, Greece decided to go on a borrowing binge. The country lived well beyond its means for many years. Instead of cutting the excessive stock of debt, it embarked on a course of increasing it at every opportunity. Some of the money was borrowed from countries poorer than Greece. Some was borrowed from low income individuals who depend on the income on the Greek bonds to pay their retirement pensions or meet their daily outgoings. Some was borrowed from banks, who were told by European regulators they could rely on Greek government bonds as part of their capital.
Now we read in briefings that the authorities are moving towards the idea that it would be just fine if Greece decided to repay only half of all the money she has borrowed. Poorer countries, weak banks and poorer savers would be told they are only getting half their money back. It is difficult to know what the moral justification for this will be. Richer countries and richer savers will no doubt be told it serves them right for being rich, and they too will lose half their invested money as well.
If Greece does default, as the markets expect and as some sources close to the IMF and the G20 are now putting about, this is no victory. It is a moral disgrace. It is the failure of a rich country to manage its affairs properly and meet its obligations. If a company goes bust owing to misjudgements, changes in the market place, or the economic cycle, that can be an understandable price of having competitive markets. The company has no power to demand money of its customers. A state has the power to demand money of its citizens under pain of imprisonment. That’s why government debt is usually regarded as much lower risk than company shares. A company can go bust owing to a shortage of revenue. A state can only go bust by deliberately spending too much.
It is not just a case that state default is wrong. It is also the case that it is very destablising. It leads markets to ask is debt refusal catching? Will other Euro members think it is just fine? Why should people and banks go on lending to these countries if they behave like this? The markets might move on from Greece and try to topple another risky sovereign.
Greece has three simple options that could offer a better choice than ratting on its debts. The first is to spend less. The second is to raise more in taxes. The third is to sell more assets. Greece can have a perfectly good political argument about the best way forward, the right mix of spending less, raising more in tax and privatising more.
If the sources are right and Greece does default, it would be best done quickly. It also needs a follow up to persuade people it will not happen again. That follow up has to be credible decisions to spend less or tax more. Default and spending restraint are not alternatives.
The west’s economic and financial power rested heavily on providing a clear framework of law, and insisting that my word is my bond. Any western sovereign default would be witness to the declining power and authority of the west in world markets.