Forgiving Germany's Debt:
ON THE QUESTION OF GREECE, the New Zealand population divides itself neatly into three groups.
By far the largest of the three, is the group that knows three-fifths of bugger-all about what’s going on in Greece and cares even less. The less said about them the better.
Then there’s the group that regards the unfolding Greek crisis as a simple morality tale. According to this view, the Greeks awarded themselves a lifestyle they had not earned and paid for it with other people’s money. When the music stopped and their creditors came a-calling, the Greeks were required to discover just how unpleasant life can become when excessive debt falls due. As far as this group is concerned, the Greeks are in the process of being taught some very valuable lessons. On no account, therefore, should the EU be encouraged to remove its boot from Greece’s throat.
The third group’s response to Greece is born out of natural human empathy. They see a whole people suffering tremendous hardship and their first response is to do everything humanly possible to end it. The notion that this mass suffering must be continued – even intensified – to satisfy the demands of international finance strikes them as obscene. Responding to the second group’s pitiless moralising, they undertake some basic research into the Greeks’ predicament. What they discover makes them even more appalled. Greece isn’t a morality tale, it’s a horror story. The only ethical course of action is to stand in solidarity with the Greek people and offer full support to their courageous left-wing government.
It is a measure of how strong the grip of the free-market philosophy has become in this country that the third group finds itself being pilloried for its “soft” approach to Greece. The second group prides itself on being “hard-nosed” about such matters. What the Greeks need is the sort of “tough love” that parents are encouraged to dispense to wayward offspring. Unlike the “bleeding hearts” of the third group, the second group knows that sometimes you have to be cruel to be kind.
Those who recall the response of these hard-nosed New Zealanders to Campbell Live’s extraordinary broadcasts on child poverty in New Zealand will not have been in the least bit surprised by their reaction to the Greek Crisis. In almost every respect their reaction has been the same. We’ve heard how such deprivation that does exist is simply the result of poor personal choices. Like the spendthrift Greeks, irresponsible parents have contributed hugely to their own – and their children’s – poverty. To intervene with undeserved assistance would merely prolong an already interminable saga of material dependency and moral failure.
It’s been the same in this country for a very long time. On the one hand stand the people who judge the world according to a brittle set of inherited moral precepts – almost all of them thinly disguised justifications for selfishness and greed. While, on the other, stand the people who respond to the world as it presents itself to them. Where they see suffering they try to end it. Where they see injustice they try to fight it. Their moral code stipulates, simply, that they should do unto others as they would have others do unto them.
It’s the same simple principle which the Greeks applied in 1953 when they voted, with many others, to forgive 50 percent of Germany’s international debt. That the Germans have so signally failed to reciprocate says much more about their morals than it does about the Greeks’.
This essay was originally posted on The Daily Blog of Wednesday, 8 July 2015.
Chris, please note that there is nothing 'free market' about governments, groups of governments, or offshoots of governments, lending other governments money. The free market has nothing to do with the situation in Greece. We're no talking about loans or gifts from private banks to individual citizens or groups of people. The money is not being lent or given by voluntary decision of the people who actually owned it in the first place. Free market capitalism and 'neoliberalism' have nothing to do with this situation. The Greek people are now suffering because of decisions made by governments, the EU and the IMF. These are not private entities.
If those on the left care so much about the people of Greece, put your hands into your own pockets and arrange your own foreign aid. It's not hard.
Chris; When a borrower and a lender do a deal the onus in on the lender to assess the risk. If the lender sees a risk they ether stop lending or charge more interest, sometimes both.
When a lender sees that the borrower is getting into trouble beyond their ability to pay and still keeps pouring money in, is that not an irresponsible act on the part of the lender? If so why do we constantly blame the borrower? Is not the lender equally at fault?
Greece is accused, not unfounded, of "Creative Accounting" when they applied to join the Euro. But they we not alone, so did Spain, Italy and FRANCE! Also it's interesting to note that Goldman Sachs were and are involved in all that "Creative Accounting!"
Germany has a record of not paying it's Sovereign Debts going back to the 1800's, the record is there for all to see but there are many who subscribe to the adage; "There are none so blind as those who wish not to see." It is extreme hypocrisy for Germany to demand payments under these circumstances given it's own history.
Good article Chris. Not only did the 1953 agreement cut the German debt, which included the WW1 debt, in half, it made the balance repayable over the next 30 years by payments of 3% of export revenue. The last payment was made in 2010. - Wikipedia.
We do live in such a cruel world. There is so much violence in the world both real and psychological that one does wonder what is going to happen next.
Chris, "Do unto others" cuts BOTH ways.
The Greeks borrowed from others all the while cooking the books to hide the fact that they had no means to repay the debt.
Is this an example of Greek doing unto others? I seriously doubt it.
The reality of the situation is that Greece NEEDS further debt relief and should probably be granted it. Even Merkel seems to accept this, but is not willing to budge on this matter until Greece delivers on the reforms that are needed to fix the Greek economy.
Should the EU just continue to lend to the Greeks whilst the Greek economy is run is the same manner that led to this parlous situation? I think not.
They need to remove dispensations for special interest groups, fix taxation and get real about entitlements to retirees et al.
Then and only then should they get the debt relief that they need.
I think it is totally immoral that my bank expects me to pay the mortgage on time. I don't want to pay my rates either. If I incur a debt I should be able to just ignore it and damn the consequences because bludging is good. Yay Greece!
The problem is that if they are "saved" as you suggest they should be, then their form on sound economic management will again be tested, and most likely will fail again. The Greeks seem to have a sense of entitlement from the EU and as long as that sense remains the structural changes needed in the economy will never happen. The bloated public service in Greece has a strangle hold on the economy which is against reform. Because of that it is probably better in the short term that Greece is allowed to fail, then the quicker the rebuild of economy can begin.
Unless I'm much mistaken, a large part of Greece's current predicament is that debt originally owed to commercial organisations (viz. banks) has been converted into debt to political institutions through the 'bailout' process.
So it is disingenuous to claim that this situation has nothing to do with the markets within which the banks operate.
Ultimately, I would agree, there's no reason to swap private debt for public if the public institutions then behave like commercial organisations and ignore the human, social, political and geo-political consequences of their behaviour.
A crucial role of both governments and supra-national institutions should be to rise above the short time-scales and limited parameters of commercial decision- making. That they are currently failing to do so reflects (at least in part)the ideological predominance of "neo-liberalism".
It is therefore disingenuous to also claim that this foolishly moralistic ideology has nothing to do with the current baleful situation.
Yet another article displaying the moral superiority of the Left. This tone suffuses just about everything written by those of the left persuasion.
It makes it very easy to demonize the evils of the failed neo-liberal experiment the main objective of which is to crush the poor.
And not just the policies, but also those who promote them. Mind you I suppose those on the left would say many on the right are guilty of exactly the same sin.
On paper, this should actually be outside the Left/Right divide: this is a balance of payments crisis where devaluation isn't an option, a consequence of monetary union without fiscal union. The true villain here (the Euro itself) isn't about socialism, capitalism, or whateverism - it is simply a bungled project of European integration. You thus have Britain's Daily Telegraph (hardly a hotbed of leftism, but staunchly Eurosceptic) standing shoulder to shoulder with many Leftist commentators. Milton Friedman of all people was entirely correct about the problems with the Euro's birth.
In practice though, there is a section of the community who literally take delight in hurting people. These aren't even the ones associated with actual economics - austerity makes no sense in these circumstances, as the IMF itself has recognised. These are simply low-information idiots who enjoy other people's pain.
Wayne, if indeed you be Wayne – thank you for acknowledging the moral superiority of the left. I must say yes, it IS very easy to demonise the evils of the failed neoliberal experiment, because they practically demonise themselves. Shooting fish in a barrel as they say. You've hit it in one. And the people who promote those policies. Those who ignore malnourished kids in other words :-). Nice to see you coming round to our way of thinking.
I have commented and asked questions as to why lenders keep lending to places that they know can't pay it back. No-one in their right mind could ever accuse the Troika as being stupid or foolish so -- IT MUST BE DELIBERATE!! So the next question is why would they deliberately get a country into deep debt?
Cast your mind back to Sth America in the 70's and 80's. What did the IMF and World Bank (in collusion with the CIA) do there? Naomi Klein wrote a book called 'Disaster Capitalism' where Carpetbaggers move in after a natural disaster but what happens when the disaster is not natural? They engineer a disaster such as they did in Chile. Now it's Greece's turn! Greece has assets that they want. The Port of Athens has already been sold off to a German Consortium and other assets are on the block.
There are deposits of Gas in the Aegean Sea and they want that too. Heaven forbid that it gets sold to Gazprom!!!
The endless drivel from right wingers here is that it's all an "accident" and it was caused by the Greeks -- utter bullshit! The Greeks were naive but led astray by Goldman Sachs. It was carefully set up by that cancerous tumour. Goldman Sachs knew exactly what they were doing when they cooked Greek books!
Michael Hudson sums it up well:
Every nation has a right to defend itself against attack – financial attack just as overt military one. That is an essential element in the principle of self-determination.
Greece, Spain, Portugal, Italy and other debtor countries have been under the same mode of attack that was waged by the IMF and its austerity doctrine that bankrupted Latin America from the 1970s onward. International law needs to be updated to recognize that finance has become the modern-day mode of warfare. Its objectives are the same: acquisition of land, raw materials and assets.
A byproduct of this warfare has been to make today’s financial network so dysfunctional that nations need a financial Clean Slate. The most successful one in modern times was Germany’s Economic Miracle – the post-World War II Allied Monetary Reform. All domestic German debts were annulled, except employer wage debts to their labour force, and basic working balances. Later, in 1953, its international debts were written down. The logic prompting both these acts needs to be re-applied today.
With specific regard to Greece, Syriza’s leaders have said that they want to save Europe. First of all, from the eurozone’s destructive economic irrationality in not having a real central bank. This defect was deliberately built into the eurozone, to enforce a monopoly of commercial banks and bondholders powerful enough to gain control of governments, overruling democratic politics and referendums.
Current eurozone rules – the Maastricht and Lisbon treaties – aim to block governments from running budget deficits in a way that spend money into the economy to revive employment. The new goal is only to rescue bondholders and banks from making bad loans and even fraudulent loans, bailing them out at public expense. Economies are obliged to turn to commercial banks for loans to obtain the money that any economy needs to grow. This principle needs to be rejected on grounds that it violates a basic sovereign right of governments and economic democracy.
Once an economy is fiscally crippled by (1) not having a central bank to finance government spending, and (2) by limiting government budget deficits to just 3% of GDP, the economy must shrink. A shrinking economy will mean fewer tax revenues, and hence deeper government budget deficits and rising government debt.
The ultimate killer is for the ECB, IMF and EC to demand that governments pay their debts by privatising public infrastructure, natural resources, land and other assets in the public domain. To compound this demand, the Troika have blocked Greece from selling to the highest bidder, if that turns out to be Gazprom or another Russian company. Financial politics thus has become militarised as part of NATO’s New Cold War politics. Debtor economies are directed to sell to euro-kleptocrats – on terms financed by banks, so that interest charges on the deal absorb all the profits, leaving governments without much income tax.
The trouble was Greece was running external deficits, and, when the necessary finance from external sources dried up, they needed to devalue their currency. But of course they couldn't as their currency was the euro. Whilst I think there were weaknesses in the Greek economy the main cause of the problem was a systemic one: ie no Greek central bank.
If the Greeks have tax evasion, featherbedding etc then that's business, and nobody else's. If the Eurozone can't cope with this the it's them as has a problem, not the Greeks.
curious to know the basis of the 3 groups.....has there been a poll of some description?...while not knowing the numbers it is patently obvious many, if not mosts understanding of what has and is occurring in Greece is woeful to say the least...however when has that even stopped anyone? indeed many of that group seem to end up in parliament.
I suspect you are an individual and not a country. What makes you think that countries are the same as individuals? Isn't that a rather crazy thought?
Germany makes accusations of money printing on Greece proof paper, Greece rebukes and says Germany had the benefit of oven proof paper after WW2.
Politics, filthy money, smoke and mirrors.
A reality movie already playing on the ninth floor of the beehive.
The reality for pensioners in Greece!
What you're saying is that much of the private debt in Greece was nationalised. This completely removes - by force - these transactions from the market. Any hope of these debts being paid off by those who incurred them, and thus any justice for those who lent money to Greeks in good faith, is now extinguished.
A crucial role of governments should be to stay the hell out of people's private affairs.
In demanding compassion from their creditors Greece fails to convince any one that this kindness won't be yet again abused.
Oh Dear Richard, what a good self-satisfied Capitalist you are! "Stuff you Jack - I'm alright".
~"justice for those who lent money to Greeks in good faith~"
How do you know it was in "Good Faith?" Are you telling us that the lenders were so naive not to check if Greece could pay back the loans? It was patently obvious that Greece couldn't but they still kept lending. That comes under the auspices of "Odious Debt".
Try watching this: https://www.youtube.com/watch?feature=player_detailpage&v=CO_UVxJy6XM
Prof (Emeritus) Steve Keen.
Mr Mapp says in response to Chris' thesis, "This tone suffuses just about everything written by those of the left persuasion. It makes it very easy to demonize the evils of the failed neo-liberal experiment the main objective of which is to crush the poor."
I would ask Wayne, whose qualifications and position in life indicate a modicum of intelligence, what took you so long to pen the line "the evils of the failed neo-liberal experiment?"
Mr Mapp has been an active party in the implementation of, administration of and promotion of neo-liberalism. He has no doubt benefited from it. Would it have been more honest to state that the experiment was about benefiting the few rather than the suggested crushing of the poor? And that Mr Mapp as a beneficiary agreed with that for any number of reasons?
How is it that the cheerleaders of "isms" seem to insert themselves into holding the fort and blithely ignore the rafts of evidence that is contrary to their "ism"? The only consistent answer may be that so long as the "ism" pays for their privileges they wont rock the boat, because ultimately in true Randist fashion only they personally count.
GJE – and yet the Germans had huge amounts forgiven. Have they abused this? Except in so far as they won't forgive Greece.
Economic transactions are not about justice. Why should you assume that they are? Normally they are about enrichment, hopefully of both parties and sometimes (alas) of just one.
Perhaps, I should ask you to define what you mean by "justice".
Meanwhile, unless you're Robinson Crusoe, all wealth is ultimately created by society but, most of the time, the market provides the best mechanism for fructifying that wealth and providing for the sustenance and maintenance of the population.
"Most of the time", however, is not the same as "all of the time".
That's why government (a natural, human-made institution...just like the market) also has a role in the economy.
Why should you assume that everything the market does is "just" and everything governments do is "unjust"?
'Why should you assume that everything the market does is "just" and everything governments do is "unjust"?'
Er... Because he follows that romantic, adolescent (and debunked) philosophy of libertarianism - judging by his posts.
Chris, you say, "The Chinese immigrant of today arrives with capital to invest, a factory to build and/or a business to run."
A Chinese friend disagrees. You do not come here to make money, she says, because there are too many taxes and regulations which you can't easily sidestep with bribery. What you come here for is “the lifestyle". You put your money into real estate, park granny in the largest house you can afford, get the kids a free education, and go back to China, the land of bribery and corruption, where you really can make money. The notion of 'making money' here is akin to suggesting starting a banana farm in Wellington.
And you do not let the houses you buy in New Zealand as that would generate income; taxable income; the ultimate horror!
Thus there are perpetually vacant houses all over Auckland that the government is too afraid to even talk about, let alone count. I know of many. A typical example in Mt Eden has been vacant for 14 years. I personally asked the owner whether I could rent it. No, she said, if we rent it we would have to pay tax! In her mind 14 years of lost rental income is much better than risking paying any tax. The idea is to take maximum advantage of 'the lifestyle' in New Zealand, but never pay!
A friend who teaches English tells of a student who had a relation visit from China recently. Said relation, went out and bought 8 or 9 houses one afternoon and gave the real estate agent a new $55,000 car for their 'help' in doing the deals. Was he going to let the houses: no, of course not, the tenants might do some damage that might interfere with the capital gain, and of course, one has to remain off the IRD's radar. If they get to know about your real estate portfolio, maybe they will start asking questions about you other business activities, and where would that lead: quelle horreur!
A real estate agent friend tells me how it actually works. A multi-millionaire Chinese RE agent in her office continuously buys large numbers of properties which he on-sells, sight unseen, to Chinese buyers in China. I am sure he is not the only one reaping this whirlwind.
If you allow a foreign power to finance and encourage this sort of predatory suction from the pool of housing stock, and you don't care what you pay to keep the grand Hoovering-up game going, is it not surprising that owing to (a) the reduction of supply caused by keeping a lot of housing stock vacant, off the rental market, and (b) the price escalation you cause by running this racket with ultra cheap foreign loans which New Zealanders do not have access to, that you effectively squeeze the locals out of their own housing stock, AND make a fortune out of the capital gain that flows from the racket the Chinese government is funding, by deliberately only allowing money out of China, 'to buy real estate'? The Chinese government is more directly squeezing the Tibetans out of Tibet. With such a blatant example of imperial expansion there for all to see, why would anyone think that they are not advancing on other fronts with similar policies?
Another friend worked for Merrill Lynch in China for a decade, a few years ago. He said that in the same way we refer to Indians as 'curry munchers', the Chinese term for New Zealander is, 'Block-head'.
They are not wrong!
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