Moral hazard: if Greece will not pay for profligacy, why should anyone?


The democratic lightning has struck Athens, but the thunder will reverberate throughout all of Europe. As the ‘anti-austerity’ Syriza party is swept to power in Greece, its leader Alexis Tsipras has vowed to end “five years of humiliation and pain”. Noble nations do not like to be degraded, shamed or sickened. Proud peoples will not abase themselves in mortified dishonour. Not for long, anyway.

The euro cannot survive in its present form. Greece is insolvent, broke, bankrupt: its government cannot repay its debts and will never be able to do so. Pumping in a €240bn (£179bn) bailout may have created the illusion of solvency, but it was never anything but political sticking plaster over a malignant economic carcinoma.

The love of the euro is the root of all Greek misery. 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.

The euro was always a gamble, especially for the Hellenic branch of the European family. Why they ever ditched their ancient drachma – the currency of Plato, Ptolemy and Alexander the Great – is a mystery. Perhaps a nation which carelessly squanders its political sovereignty without regard for its unique heritage as the cradle of Western civilisation – the birthplace of democracy, the fount of Western philosophy and literature, the creator of the Olympic Games, the originator of historiography, political science, mathematical principles, and our dramatic traditions of tragedy and comedy – does not deserve much sympathy for its economic woes. The dream was to be at ‘the heart of Europe’. The euro has driven a stake through that heart and turned the dream into a nightmare.

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.

When we do not bear the consequences of our actions, we get a false sense of security. 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 has been a constant theme of the Archbishop of Canterbury: Justin Welby understands that this is a profoundly 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. There are public sector strikes, pay freezes, tax hikes and extensions to the retirement age. The total number of suicides, heart attacks, divorces and mental breakdowns is never actually 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 suggests that authorities are not free to pursue any policy they please or to ride roughshod over the rights of the poor. The same concerns are expressed time and again 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.

The single currency was built on sand: it was destined to founder without political union, which will surely now arise. But remove from a nation the right to set its own interest rates to suit its own domestic economy, and in times of turmoil it is left either to tinker with taxation or slash spending. Since the people are not particularly disposed either to high rates of taxation or to cuts in their public services, disquiet turns into protests; protests become marches; marches become riots; riots become social turmoil. And social turmoil slips so easily into civil war.

Never forget that the EU’s answer to the EU’s problems is invariably ‘more Europe’: every crisis is seen as an opportunity for more bureaucracy, regulation and centralisation. God’s social design inclines toward the decentralisation and diffusion of power. The natural moral order demands accountability and responsibility, such that nations be allowed to fail and people to bear the consequences of their actions – including the deception, profligacy and irresponsibility of the politicians they vote for and the governments they elect.

  • sarky

    Got a feeling the first domino just got pushed over.

  • Graham Wood

    A balanced, biblically orientated, and concise view of the Greek dilemma – deliberately wrought by the crassly foolish ideology of the EU’s “ever closer union” at all costs.
    Greece has now run out of road, and “more Europe” cannot be, and never will be, the answer.

    As so often and especially in Greece’s case – ‘it’s the economy stupid’
    Thanks Cranmer for another timely and excellent comment.

  • The Explorer

    Two impressions I have about Greece.
    1. It was hit badly by 9/11. Americans cut back on foreign travel.
    2. Greece had always been a really cheap place to go on holiday. But once it entered the Euro prices of everything rocketed. If you wanted a sun holiday with similar food, Turkey became a much better option.

    • interesting points.

    • Phil R

      Having visited many times. It is not a holiday desintation. Poor hotels, roads, tourist info and surly Greeks make it a poor destination. Cyprus is much better for a holiday. We have often thought of buying a holiday home there.

      But value for money? They just don’t compare. I am not sure I would visit Greece again even if the prices were halved. If I am going on holiday I want a holiday.

  • Linus

    If “God’s social design inclines toward the decentralisation and diffusion of power” then one assumes Cranmer supported Scottish independence. And would support moves towards Welsh independence too. How about a sovereign duchy of Cornwall? Or a soviet socialist republic of Yorkshire?

    Decentralization and the diffusion of power favour tribalism. I suppose it’s natural that believers in a tribal religion should also believe in tribal power structures. But the problem is that tribes always end up coming into conflict with each other. That’s why we have wars. And surely war is the most profoundly anti-Christian social institution there is.

    Don’t be too ready to throw away centuries of unity in the UK and decades of unity in Europe for the sake of narrow tribal considerations. That’s what will lead us back down the path of conflict and war, not increasing integration.

  • Dominic Stockford

    You might like to note that a significant article on the Beeb (!) pointed out that in fact the number of divorces in Greece has plummeted during the period of austerity. They also commented that families have stayed together for longer (adults and children) and that people haven’t rushed off into marriage so quickly. Maybe at these times people rediscover what are the important things in life.

    The Greeks interviewed also pointed out that they wouldn’t want the British benefits system, as they prefer family support, and it works.

  • The Explorer

    There are four members of a monthly lunch club. The average bill per meal is £50. For the one earning £100,000 + a year, it’s cheap. For the one on £9,000, it’s too expensive. Common sense would say to drop out; but the financial struggler remains through a mixture of face-saving, pride and folly.

    • James60498 .

      But then if one drops out, because, at this fictional lunch, many of the costs are fixed, it means that the average bill for the other three goes up to £60.

      That means that it’s in the interests of the other three that the poorer one stays.

      So, should the richer ones pay towards the costs of the poorer to keep him there?

      Morally? Financially?

      Of course Greece is at fault for joining the Euro. But the other countries who allowed it to join are also at fault.

      • The Explorer

        Good point. I should have said £50.00 per head. The bill for the table is now £150 not £200: their individual costs remain the same.
        Let us extend the analogy a bit, and say that the high earner was subsidizing the low earner (say £25 of the £50) to enable the low earner to participate. The high earner would now be better off by the other’s absence. And if a loss is involved, then what is it?

        • James60498 .

          But the individual costs don’t remain the same. If the weaker economies drop out, then the Euro strengthens and Germany loses it’s advantages against other strong world economies.
          Therefore the average cost of the meal does increase.

          I could not even pretend to have a clue whether Germany is better off subsidising Greece but with a weak currency or whether it’s better of saving that money but having to cope with a stronger euro.

          But there is certainly some element of trade off.

          • The Explorer

            As you will have surmised, my grasp of economics is rudimentary.. Your point about a stronger Euro reducing competitiveness is entirely valid, and with that the lunch-club analogy breaks down.
            It does seem to me that with the Euro, Greece is caught in a vicious circle. Euro > higher prices. Higher prices > fewer tourists/reduced revenue. Reduced revenue > financial hardship .> social unrest. Social unrest > further reduction in tourism > increased financial hardship. And so on.

          • James60498 .

            That does appear to be the Greek problem.
            And the German problem is that they have to keep bailing out their weaker fellow Euro members.
            At what stage does Greece decide to pull out? At what stage does Germany decide it’s better to allow them to go? Rather them to decide than me.
            One currency. Lots of economies. Does it work?

  • Athanasius

    When might we expect to see the UK pay off the Mount Everest of debt it is currently staggering beneath?

    • the UK is staggering beneath a “mountain of debt” which have negative interest rates… not really staggering. Because (a) the UK is solvent and (b) the debt is largely denominated in a currency that the UK controls

      Sorry Archimedes!

      • Athanasius

        Does that mean you don’t have to pay it?

        • The Explorer

          1. Are we borrowing from China in order to repay China?
          2. Are we borrowing in order to give Foreign Aid?
          That I am only half joking is a reflection on the current global insanity.

        • James Bolivar DiGriz

          “Does that mean you don’t have to pay it?”
          To some extent, yes.

          Because the UK debt is denominated in sterling then the HMG/BoE can affect (i.e. reduce) the value of sterling compared to things of real value. That is inflation.

          Inflation of 2% pa will halve the real value of a debt in 35 years, 3% halves it in 23 years.

          So you have to pay the same number of pounds but the value of those pounds, i.e. the real cost to you, reduces.

        • both the US and the UK can (& will) inflate away this debt: the debt is denominated in a currency that they control. or, to use a more modern term, they can quantitatively ease their way out of debt.

  • The Explorer

    When Greece went bankrupt in the days of the drachma, it simply devalued. It became so cheap that Northern Europeans flocked there, and the problem solved itself. Locked into the euro, Greece is now denied that escape route.

  • The Greeks have had five years of austerity and for most of them things appear to have got worse, with very high unemployment, food shortages, minimal health treatment due to lack of drugs and people dying of the cold. The GDP of the country has halved , so how is austerity, as being practised, going to help matters? I’ve no clue what needs to be done, but the seemingly neither do the “experts”.
    I suspect that if we had that situation in Britain, voters here would also turn to the extreme left or right parties (there’s not a lot of difference between the two) on the basis that if the mainstream parties can’t solve the matter let’s try something else. It’s what happened in Germany between the wars bringing Hitler to power. Meanwhile standards of living in Greece for many have dropped to almost the equivalent of our Victorian era.

    • right, ep, but the point is that the previous standard of living was based on spending money they didn’t have – either borrowing, or unfunded commitments to the many state employees. they don’t have “austerity” now, they are just no longer making promises they can’t deliver.

      • I suspect that a large percentage of the voters have no idea about such matters (here as well as in Greece), they don’t understand why things are going downhill and just know that they’re worse off.
        How often do you hear someone, who should know better, say something like “The government should do something about that, they’ve got plenty of money”? So, if there’s enough pressure, the government does what’s demanded and borrows more money. If it were honest, it would say, OK, but that’s going to cost you all £xxx to pay for it, are you sure that’s what you want?

  • bluedog

    Young man with a dream and in a hurry collides with old and obstinate men who won’t give up their dreams. Greek catastrophe and/or tragedy is assured. The day of reckoning? 28th February 2015 when the Eurozone finance ministers will pull the rug out from under the Greek banking system, according to their current threat. This sort of macho game of bluff can only crush the lives of millions, and one suspects that Alexis Tsipras is not the type to blink first.

    • Anton

      Not so, Bluedog! this is the day of reckoning for Germany far more than Greece. If Greece reneges and gets kicked out of the eurozone and locked out of financial markets for some years then its economy will initially tank but then recover as a reduced exchange rate takes the strain and makes Greece attractive to investors and tourists. That is far better – and humane – than indefinite stagnation with a very high unemployment rate. The problem the Greeks face is that Tsipras has left-wing economic policies which would wreck any recovery – but at least he can be dispensed with by democratic means, unlike the Euro. The question is: will he really do it? Or will he simply renegotiate the Greek debt down, and leave the day of reckoning for the Euro to another nation with larger debts, like Spain?

      What I’ve just written is simply an analysis of the consequences of certain choices. I have kept morality out of it. But all are guilty: the Greeks of joining the Euro to access northern European wealth without effort, and of failure to deal with rampant financial corruption; the Germans and French for turning a blind eye to Greece’s failure to meet the criteria for joining the Euro, yet still, for their own political reasons, letting them in. I do not believe the Germans are seeking a Fourth Reich by stealth but they certainly like the weaker Euro that Greece etc induce, for it greatly boosts the German economy via exports that cost less to their consumers.

      • bluedog

        The markets have a habit of proving me right, Anton, but you are welcome to disagree. The stage is set for miscalculation by both parties.

  • carl jacobs

    As a general rule, the Left is exceedingly opposed to the idea of pain as a corrective influence. Unless of course it is the pain imposed by a bullet from a Commisar’s gun.

    • CliveM

      It’s the propagation of a childish view that if only we wished it hard enough, the world could be nice and fluffy with no difficult choices.

  • educynic

    “When we do not bear the consequences of our actions, we get a false sense of security.”

    A bit like the current welfare state, I suppose…

    • The Explorer

      Isn’t the EU the Welfare State on a big scale?

  • nice one – but Greece isn’t the cradle of civilisation. that’d be ancient greece, not these modern imposters.

    • Anton

      We were very much on the side of these “modern impostors” two centuries ago in getting them free of the Turkish yoke; via the Orthodox church they were well aware of who they had been.

      • i agree, there was a sentimental Victorian belief (e.g. byron and co) that a newly freed modern Greece would be the continuation of that ancient civilisation. Of course, it wasn’t, any more than modern Egyptians are in a line from the Pharaohs.

        • Anton

          I agree, but I was unhappy with your term “impostors”.

  • SidneyDeane

    Vote UKIP.

    • Anton

      I probably shall, but we’re not actually in the Eurozone which is what the Greece issue is all about.

    • Shadrach Fire

      They are turning out to be a shady lot just like all the other politicians.

      • UKIP is deeply infiltrated by loyal Tories who are letting their stink bombs off one by one as directed. I have been saying this for over a year. Expect more as the establishment responds to the threat.

        Probably good thing if UKIP does poorly in the May elections. Dave’s lies over the referendum exposed and another 2 million net immigrants by 2020 leading to gridlock on the roads and public services will change a few more people’s minds.

      • James Bolivar DiGriz

        I heard a piece on this a while back when the media were making a fuss over relatively some minor thing a UKIP councillor had said. In the previous month (IIRC) there had been 12 Labour / Conservative / Lib Dem councillors arrested / in court / convicted. None of those had had any national coverage.

        Are there bad people in UKIP is semantically the same as ‘are there people in UKIP’.

        All have sinned and fall short of the glory of God.

  • Democracy is overrated.

    Greece has discovered ahead of the rest of us (but not very far ahead) that once people discover they can vote themselves an unearned pay rise, their economy is doomed. Communism will never die as long as there are rabble rousers who tell the masses ‘You are poor because those b*****s over there are rich. SCRAG’EM!!!’ (and put us into power while you’re at it)

    In a (to be published) Kindle novel set in a post-oil 2089, I describe a history class in which students are taught that democracy (long extinct) consisted of a swindle in which ‘Knaves courted fools for their votes, bribing them with their grandchildren’s money.’

    I’m sorry that I don’t have, and am never likely to have, grandchildren. My friends who do seem to get such joy from them. But perhaps its for the best.

    Europe’s going DOWN.

  • An internet friend of mine who worked in Greece in pre-Euro and post Euro days and who likes the place says that a lot of the trouble is the Greeks’ powerful antipathy to paying their taxes. That and bribery. Wheezes like leaving a house imperfectly completed with a bit of angle iron sticking out of the foundation so you could claim it wasn’t finished to avoid paying tax, bribing officials, cash in hand for everything.

    He said they used to had a profitable export trade in oranges to Russia, but after joining the EU used to dump truckloads of ripe fruit into ravines to rot and claim the subsidy. When he asked why, a man said ‘Thatcher pay! Thatcher pay!’

    I can feel for people who are suffering, but they should have known that this is how socialism ends. I heard a German politician on the radion this morning asking how he would be able to persuade German taxpayers to stup up so that Greek public sector workers could retire earlier than them.

    Trouble ahead. Wonder how this will impact the 2 Eds ‘nice growth not nasty austerity!’ line as our election approaches.

  • Dreadnaught

    I think they have lost their Marbles.

    • Anton

      We could always offer to bail them out on condition that we get the rest of the Parthenon to go with the frieze.

      • Dreadnaught

        Why not flog off a few of their islands – I’d settle for Corfu or similar.

        • CliveM

          Some German politician has already suggested that!! There are a couple of islands I could quite fancy.

  • len

    If anyone catches on that all Countries are insolvent in theory and that we are all using money from the Bank of M Mouse then the trouble will really start.
    Until then carry on with the illusion….

  • Inspector General

    Steady on Cranmer! Don’t go overboard on democracy. It is after all, a mere construct of man by which a deserving population may govern itself. One will not define deserving on this occasion, save one definition thereof – that said population has a true and honest grasp of matters fiscal and will not attempt to weasel out of repaying what is an astonishingly large amount of money back to those who lent it in the first place.

    Which brings the Inspector to point. There is a far older concept than democracy in the world, and that is property and ownership thereof. So one asks, as at this time, who actually owns Greece. It’s so in hock, it can’t be the Greeks, can it. And if it is not the Greeks, then whom. And if it is a consortium of banks, or even countries, are they content to allow the indigenous to play at democracy whenever they feel like it…

  • James Bolivar DiGriz

    “Greece never actually fufilled the Maastricht convergence criteria in the first place”
    Essentially noone did.

    There were a set of numeric measures and countries had to meet them or be moving towards them, without a definition of how fast they had to meet them or any consequences if they never did.

    Only two countries actually met those numeric measure, Sweden (which choose not to join the Euro) and Luxembourg.

  • MrJonathanHornby

    Any moralising over the Greek bailout that bailed out the German and French banking system and it was all down to lazy profligate Greeks ( as opposed to a corrupt political elite and massaging of figures from Goldman Sachs and system that is systemically unbalanced) is as lazy in its thinking as it is stupid.
    If it is a whole people’s fault for not changing a government when they are offered no alternatives, well that ‘collective responsibility’ meme gets you into some pretty dark corners morally.

    To demand payment when there is nothing is simply theft with menaces, the only way any of this fictitious money will be paid is to restructure. Interesting that Syrza are making the political weather and essentially saying the emporer has no clothes. With hyper financialisation, the whole financial system is built on sand, the Euro an extreme manifestaion of it.

    Strange how we seem to have forgotten that usury (all interest, not just high rates) are a sin….no? Maybe a little too medieval for these parts, but remember Dante put usurers in the 7th circle of hell.