Covenants and crises: Greece and the Eurozone

Quote
“If a man owes the bank £1000 and cannot pay, it is his problem; if he owes them £100 million and cannot pay, it is their problem.”  Anonymous.

News

The prospect of Greece defaulting on its debt was postponed this week, as austerity measures intended to save €28 billion over 5 years were approved by the Greek parliament.  Attention has now shifted from the relationship between Greece and her main creditors to the tension between the Greek people and their own government.  Two days of rioting in Athens this week show their deep antipathy towards sweeping tax rises, job losses and spending cuts that lie ahead.

What makes this crisis so significant is the nature of political commitment that underlies monetary union.  Citizens of each country adopting the euro entered a covenant with the people of other Eurozone nations.  Covenants require a high level of trust and discipline, as they bind people’s lives and destinies together for better or worse.  Every country joining the euro pledged to keep their economy in alignment with the others – most importantly by ensuring government deficits stayed under 3% of GDP to ensure the stability of the whole Eurozone.  Yet Greece’s annual deficit averaged 5.4% of GDP between 2000 and 2007, even before the financial crisis began.

In a covenant, there will always be stronger and weaker parties, and the former will offer protection and support when necessary to the latter.  But that should never be taken for granted.  The Greek government has maintained a large, inefficient public sector, and cannot expect indefinite subsidies from other Eurozone countries; equally, the rest of the EU cannot lightly turn its back on covenant parties in need.

Notwithstanding who ends up paying for Greece’s present mountain of debt (or those of Ireland, Portugal and Spain), the future of European monetary union is clearly a relational issue.  As with marriage, being bound by a common currency means both richer and poorer nations must continuously choose solidarity over independence, discipline over profligacy, prudence over risk.  Each country must accept the costs of such a union if they are to share in its benefits, whether defined in economic or relational terms.  

Read on...

In 1998 the Jubilee Centre published a Cambridge Paper considering whether Britain should join the euro; it selects seven biblical principles pertinent to the issue of monetary union and considers the arguments in the light of them.  You can read the paper here.

Walk the talk

Although none of us has lent money directly to Greece, the financial institutions which hold our savings and pensions might have done so.  It is good to know what those we entrust with our money actually do with it, so why not make a request to your bank to see how exposed you are to Greek debt?

The last word
From the Bible, Proverbs 17, verse 18: “It's poor judgment to guarantee another person's debt or put up security for a friend.”