2011년 7월 21일 목요일

The Battle of the Bonds


By Robert Skidelsky, 2011-07-20

Everyone knows that Greece will default on its external debt. The only question concerns the best way to arrange it so that no one really understands that Greece is actually defaulting.

On this topic, there is no shortage of expert plans – among them bond buy-backs, bond swaps, and the creation of Eurobonds, a European version of the “Brady” bonds issued by Latin American countries that defaulted in the 1980’s 
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No one who is not well versed in financial legerdemain can make much sense of this battle of the bonds. But behind it lie two moral attitudes, which are much easier to grasp.
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But there is a contrary moral attitude, the essence of which is that, whereas excessive debt is to be deplored, the blame for it lies with the lender, not the borrower. “Neither a borrower nor a lender be,” Polonius admonished in Hamlet. Lending money at interest was identified with “usury,” or making money from money rather than from goods and services – a distinction that goes back to Aristotle, for whom money was barren. The moneylender was the most hated figure in medieval Europe.

The last legal restrictions on taking interest on money were lifted only in the nineteenth century, when they succumbed to the economic argument that lending money was a service, for which the lender was entitled to charge whatever the market would bear. But the theory of usury survived in the view that it was morally wrong to extract some additional amount that was made feasible by the borrower’s weak bargaining position or extreme need.

These two moral attitudes confront each other today in the battle of the bonds. The demand for debt repayment confronts the philosophy of debt forgiveness. In the lender’s view, the 17% interest rate that Greece’s government now has to pay for its 10-year bonds accurately reflects the lender’s risk in buying Greek government debt. It is the price of past profligacy. But in the borrower’s view it is usurious – taking advantage of the borrower’s desperation.

The sensible middle position would surely be an agreed write-off of a portion of the outstanding Greek debt, combined with a five-year moratorium on interest payments on the remainder. This would immediately relieve pressure on Greece’s budget and give its government the time and incentive to put the country’s economy in order.

In the long run, however, we will have to answer the broader question that the eurozone’s various debt crises have raised: Is the social value of making finance cheap worth the days of reckoning for stricken debtors?

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