By Guy Brandon
Thanks go to Paul Mills for providing insight into the situation in Greece and the Eurozone.
After its government’s unilateral decision to hold a referendum on bailout proposals, Greece has defaulted in all but name and the way forward is significantly less clear than it was even a week ago. Despite a last-minute U-turn on accepting the proposals, Greece will still be held to Sunday’s referendum, with further talks only taking place after the popular vote – which is being presented as a referendum on membership of the Euro by EU leaders.
The current situation appears intractable, with no clear way forwards for Greece to clear its unpayable debts to the satisfaction of its creditors and set itself back on the road to economic recovery.
From a biblical perspective, there are a number of ways in which the current approach falls short. Relationally, both borrower and lender have obligations. For the borrower, there is the obligation to repay their debt, to seek to understand the lender’s interests and to secure the best deal for them within the terms available. For the lender, there is the recognition that the world is an uncertain place. Repayment cannot always be guaranteed and default should not be forced unnecessarily.
Greece’s immense loans – over €240 billion – should never have been structured in the way they were, without taking into account the relational backdrop to debt. (More broadly, the formation of the single currency should never have been undertaken without an understanding of the relational impacts.)
In the Bible, there was a strong obligation to repay a loan, but the lender equally had to be prepared to forgive the debt after seven years if repayment was impossible. Such an eventuality is never considered today with official sector lending. The lender is invariably considered senior to the borrower and must be repaid, because the loan is backed with taxpayers’ money. Thus the terms on which the loans were made to Greece invited problems from the start.
Greece, of course, has many issues of its own to contend with, including serious inefficiencies in its public sector and entrenched union interests. Tax evasion is endemic. However, the EU’s approach has been to dictate policy to Greece, forcing the country into a course of action it believes will be more harmful in the long run. Rather than cutting public spending, Greece’s government wanted to raise taxes, which they hoped would damage the country’s fragile economy less. The EU disagreed, effectively denying them sovereignty over their own nation. This is a broader issue of EU membership; the single currency only works when its members – who joined without a referendum – give up some of their autonomy to the EU.
In biblical terms, the way forwards is for both sides to recognise their mistakes, acknowledge their guilt and rebuild relational capital. Greece’s debt would need to be restructured, either on a zero-interest basis or converted to GDP-linked securities, such that repayments would be dependent on economic growth. This aligns the interests of borrower and lender, and avoids the current problem of one side punishing the other to bully them into a different decision.
Long-term, there are questions to answer about the nature of national sovereignty and the viability of a fiscal integration without full political integration – and therefore the direction of travel for the Eurozone as a whole. But those will have to wait at least until the dust settles, and likely much longer.