Though the Greeks will default, we should not be too swift to claim that’s a good thing

This is a guest post by Andrew Lilico:

When we take out a loan, we undertake to repay. We make a promise. Even without an oath, our yes should be yes, our promises kept.

If we lend to someone that we believe cannot repay, we induce her to make a promise we believe she cannot keep. We thus induce her into an immoral act. A Benthamite would have it that we bear no responsibility, here. She entered into the deal freely – no-one forced her into it. The lender might take collateral or charge a very high interest rate, reflecting the risk. If both parties are willing, what is the problem? But the Christian should not regard this as adequate, any more so than when the same willing-trade argument is used to defend prostitution or slavery. Mere freedom not to participate does not make an immoral act any less immoral. If we induce someone to commit an immoral act – be it prostitution or promise-breaking – we are culpable. When Eck and Melanchthon commenced the Reformation era re-framing of thought about usury, they were focused upon the concept of lending to the relatively well-off, who were known to be well-placed to repay, and it was important that no harm was done or intended by the usurer.

When a nation takes out a loan, it undertakes to repay. If it does not do so, it break its promise. That is wrong. Greece has been a democracy throughout the period it acquired the vast majority of the debts it now owes. If the Greek population did not wish its government to borrow, it was free to vote for a different government. Greeks enjoyed lower taxes, higher public sector salaries, higher benefits, higher economic growth, and many of the other fruits of the debts it acquired. Did we see protests from Greeks about these benefits? No. The Greek population chose this path, when other paths were possible.

The Greeks will now default – we can be confident of that. But many commentators go further than observing the fact that they will default, to urging that they should, and that others are wrong to try to persuade them not to do so. Default there will be, but it will be a moral failing mainly of Greek making, not that of others. And it will not, in fact, truly be the case that the Greeks have no choice but to default. Not defaulting might involve many years of serious declines in Greek living standards, but even at the end of that period Greece would have a wealth per person much higher than that of most countries in the world. We would expect an Egyptian businessman, or a Peruvian home-owner to pay her debts; so why would it be immoral to hope that a much richer Greek might do so?

The attempts to bail out Greece with international funds are of course bailouts of the banks of other countries, under another name. It is wrong that poor German and British taxpayers keep the wealthy German and British bondholders and depositors in banks rich, despite the investment errors those wealthy people made. But it was not obviously wrong, in many cases, for banks to have lent money to Greece. At the time those loans were made, back in the halcyon days of the mid-2000s, banks had no conception that Greece might not repay. Perhaps they should have worried about that, but that is a different matter. These banks were not making immoral loans to a borrower they knew could not repay. They were merely making loans that, with the benefit of hindsight, we can now see were ill-advised – quite a different matter. If/When the Greeks now do not repay their loans, that is a moral failing of the Greeks, not of the banks.

But there are players out there that did indeed make loans to Greece at a time when it was clear that Greece would not be able to repay, immorally inducing the Greeks into promises they would not keep. Those players are the IMF and the EU. By the time of the 2010 (and now 2011) bailout packages, it was already obvious that the Greeks would eventually default. And that was widely understood even by the politicians and technocrats involved in putting together these bailouts. The point of the bailouts was not to save Greece – it was to delay default to a moment that was more convenient for the banking sector. But the effect was that Greece was induced to make promises it would not keep. That is immoral.

Thus the agents that are culpable here are not, in fact, the banks. Those in the wrong are the Greeks for refusing to pay (when they do so refuse) – the sin of promise-breaking - and the EU and IMF for making loans they knew would not be repaid – the sin of usury inducing promise-breaking.