Central to Christianity is the notion that, at the end of the day, forgiveness is humanity’s only hope. Not performance, or improvement, or willpower, or wishful thinking, but absolution – “nothing but the blood of Jesus,” as the old hymn goes. Apparently, this idea holds in financial markets as well, or so a piece in yesterday’s New York Times claims.
“Germans Forget Postwar History Lesson on Debt Relief in Greece Crisis” is the title, and here are some of the money quotes:
As negotiations between Greece and its creditors stumbled toward breakdown, culminating in a sound rejection on Sunday by Greek voters of the conditions demanded in exchange for a financial lifeline, a vintage photo resurfaced on the Internet.
It shows Hermann Josef Abs, head of the Federal Republic of Germany’s delegation in London on Feb. 27, 1953, signing the agreement that effectively cut the country’s debts to its foreign creditors in half…
…The main creditor demanding that Greeks be made to pay for past profligacy benefited not so long ago from more lenient terms than it is now prepared to offer. “I’ve seen this movie so many times before,” said Carmen M. Reinhart, a professor at the Kennedy School of Government at Harvard who is perhaps the world’s foremost expert on sovereign debt crises. “It is very easy to get hung up on the idiosyncrasies of each individual situation and miss the recurring pattern.”
The recurring, historical pattern? Major debt overhangs are only solved after deep write-downs of the debt’s face value.
In other words, when it comes to crippling debt, be it moral or financial, only forgiveness works. And Germany itself is the prime example! (If you don’t trust the Times, check out this remarkable interview with renowned economist and author Thomas Piketty). In studying similar situations throughout the 20th century,
“(Resolutions to debt crises) came only after deep face-value debt write-offs had been implemented,” (a group of scholars) concluded. “Softer forms of debt relief, such as maturity extensions and interest rate reductions, are not generally followed by higher economic growth or improved credit ratings.”
That is to say, doing more, trying harder, “fake it til you make it,” is impotent in the face of debilitating debt. Only forgiveness brings health.
And how about these zingers? Sound familiar to any Gospel preachers?
Peter Doyle, a former senior economist at the I.M.F. who left in disgust over its approach to the world’s financial crises, wrote: “If ‘optimism’ results in serial diagnostic underestimation of a serious problem, it is no virtue: At best, it badly prolongs the ailment; at worst, it is fatal.”
Translation: better to see things as they actually are (i.e. original sin), which can lead to hope, than to assume that people are more capable than they actually are, which leads to oppression.
Creditors, of course, do not generally like debtors to write down their debt. But that’s not how Germany and its allies justify their approach. They rely instead on a “moral hazard” argument: If Greece were offered an easy way to get out of debt, what would prevent it from living the high life on other people’s money again? What kind of lesson would this send to, say, Portugal? (cheap grace, anyone?!)
But the Greek economy has shrunk by a quarter. Its pensioners have been impoverished. Its banks are closed. That counts as suffering consequences. No sane government would emulate the Greek path.
Here’s hoping that Germany remembers the mercy it was shown and exercises a bit of its own. It may be Greece’s only hope.
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4 responses to “Forgiveness Is Greece’s (and Germany’s) Only Hope”
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I have read way too much about this whole mess. This post is by far the best of the lot.
Thanks Michael! I couldn’t believe this article when I read it last night. Mercy is the answer!
Interesting essay. My first reaction was to do a quick dusting off of my books on the doctrine of two kingdoms. As you note, economists worry about “moral hazard” just as law-burdened believers do, and it is very interesting to ponder, as you do here, whether grace is an equivalently effective medicine in both cases. Yesterday’s WSJ noted that the green eyeshade crowd worries that if they write down Greek debt, Spain, Portugal, and Italy might follow. Their writer suggested that a good outcome could be for Greece to leave the EU, which would provide a de facto write-down of the debt, but avoid moral hazard (and political heat) by allowing the Germans and the banks to, as the writer said, “blame those losses on Greek intransigence.” I have a notion that there are interesting theological angles to be found in that, too, but I’m still trying to figure what they might be.
William –
Thanks for your thoughts and let me know what you discover…