The Big Fat Greek Default

It is axiomatic that taxation in a democracy must come not only with representation, but also with justice: the people must give consent for the tax to be levied and assent to the level of that taxation. Once that assent is removed, collection becomes impossible. Especially when a nation's tax collectors deem it to be onerous, and are themselves advising the people not to pay. The Greeks are being buried beneath a tax burden which may suit Germany, but will plunge Greece into political instability, social unrest and even civil war. If the politicians cannot sort this out, a military coup is not an impossibility. This is Greece, after all.

EU politicians have spent months assuring us that the bailouts are working: that Greece will not default. We, of course, knew otherwise. Greece is insolvent, broke, bankrupt: its government cannot repay its debts and will never be able to do so. Pumping in bailouts of billions of euros may make the country liquid for a time, but it is nothing but political sticking plaster. It will not improve solvency; it merely delays the inevitable.

When a nation does not bear the consequences of its actions, its behaviour is distorted. ‘Moral hazard’ is a natural consequence of insulating the profligate from punitive judgement. Greece would have behaved differently if its people had been fully exposed from the outset to the risk, because pain encourages responsibility.

Pope Benedict XVI observed a few years ago that the global financial crisis ‘shows the futility of money and ambition’. He said: ‘He who builds only on visible and tangible things like success, career and money builds the house of his life on sand. We are now seeing, in the collapse of major banks, that money vanishes, it is nothing.’ And he added: ‘The only solid reality is the Word of God’.

As the IMF, EU and ECB troika move to sustain the banks during the imminent Greek 'orderly' default, the banks are insulated against the just consequences of their irresponsible lending. 'Moral Hazard' originally referred to the prospect that insurance distorts behaviour: when holders of fire insurance take less precaution with respect to avoiding fire or when holders of health insurance use more healthcare than they would if they were not insured. Thus it is that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk.

When we do not bear the consequences of our actions, there is indeed the creation of a false sense of security. While abortion is available on-tap, why not indulge in endless irresponsible sex? And so it is that the ECB/EU/IMF are granting the banks endless abortions, because the consequences of delivering the children conceived during their age of irresponsibility are too frightening to contemplate.

Banks and building societies are in the business of lending money, and the risks of doing so are offset by the potential for making high returns. But a moral hazard arises when those banks and building societies enjoy all the fruits of the good years but are bailed out in the lean years. Shareholders appoint boards of directors who make decisions on risky loans, and they all profit when the investment turns out well. But His Grace is more than irked that it is he who shall subsidise their lean years, especially since he never profited during their years of plenty. It is a perverse financial morality when the humble and oppressed taxpayer is forced bear part of the burden of risky financial decisions made by irresponsible lending institutions.

Consider the home. For what family can survive or function without one? And then consider the effects of moral hazard upon the peace and security of domesticity. The whole Euro-crisis was inevitable precisely because it wasn’t so much built on sand, but on thin air. Greece never actually fufilled the Maastricht convergence criteria in the first place: her accession to the single currency was a mechanism of absolving themselves of risk. The euro exposed the Greeks to debt not only above the value of their assets, but beyond their means ever to repay. The ECB sold this debt on to other EU banks, who in turn shifted it on to other EU banks. They were all hedging (and praying) against the risk of default, and pushing those risks even further along.

Reliance on central banks coming to rescue as lender of last resort is bound to discourage prudent behaviour. When a government guarantees the liabilities of a financial institution, it also risks weakening the currency and causing an increase in interest rates, with all the consequent unemployment, recession, inflation and increased poverty. This is an undoubted moral issue, for people are reduced to hardship and depression, firms are condemned to closure, more workers to unemployment and more families to homelessness through unprecedented levels of repossession. The total number of suicides, heart attacks, divorces and mental breakdowns is never known.

God cares for the poor, the oppressed, and the underdogs in society. He pours his wrath upon those who corrupt justice or create economic machines designed to provide more wealth for the wealthy and deprive the poor. The story of Naboth’s vineyard in 1 Kings 21 establishes that authorities are not free to pursue any policy they please or to ride roughshod over the rights of the poor. These same concerns are vehemently expressed by the prophets Amos, Hosea, Isaiah and Micah, writing in the 8th century BC. God demands conscience above political conviction, and a government which places narrow economic considerations above liberty and justice is guilty of worshipping Mammon above God.

Greece is no longer sovereign, for she has abdicated her control over these crucial powers of state to a foreign power. Greece is no longer a democracy, for whoever is elected must now make their supplications to the German Caesar, for it is in Berlin that the power now resides, and it is thence that fiscal morality is defined.

And so we arrive at what Pope Benedict referred to as the ‘Godless character of modern culture’, with the warning that ‘Christianity in Europe could become extinct’:

‘If we look at history we are forced to notice the frequent coldness and rebellion of incoherent Christians. Because of this, God, while never shirking in his promise of salvation, often had to turn towards punishment.

‘Nations once rich in faith and vocations are losing their own identity under the harmful and destructive influence of a certain modern culture. There are those that, having decided that 'God is dead', declare themselves 'god’, believing themselves to be the only creator of their own fate, the absolute owner of the world. When men proclaim themselves absolute owners of themselves and the only masters of creation, are they really going to be able to construct a society where freedom, justice and peace reign?

‘Is it not more likely — as demonstrated by news headlines every day — that the arbitrary rule of power, selfish interests, injustice and exploitation, and violence in all its forms, will extend their grip?’

Within this moral hazard the love of Mammon may indeed be seen as the root of all evil. But, as His Holiness observes, 'evil and death never have the final word’.