On the surface, it seems the Greek crisis is all about money. The Greek government has defaulted on a €1.6bn loan repayment to the IMF and is seeking a new bailout programme. Meanwhile, the Greek people are to take part in a referendum that is being billed as a choice between the euro and the drachma.
In fact this crisis is not about money. Greece’s creditors are well aware that Greece cannot repay or even service its debt. They are happy to keep finding ways to refinance it, so long as Greece agrees to punitive austerity policies. They aim for punishment, not repayment. They care about honour and vengeance, not money.
Modern Europe is witnessing an enactment of an ancient law known as wergeld. Greece is expected to continue paying, not until its financial debt has been cleared, but rather until its creditors think it has suffered enough.
The endless debt
When a person or a firm faces bankruptcy, their debts can be written down to their ability to pay. A person’s total ability to pay can be estimated on the basis of expected lifetime earnings. Firms have indefinite lifespans, but at least their rate of repayment can be estimated on the basis of their expected profits.
Sovereign debt is completely different. A sovereign, as Hobbes said, is immortal in the intention of them that make it. And in principle it can set its own level of income by choosing how much to tax its citizens and how much to spend on them. There must be a limit to what sovereigns can extract from their citizens, but who knows where it is? A sovereign’s ability to pay is an unknown rate of income multiplied over an infinite lifespan. This is why Greece can, in principle, stay in the condition of a debtor forever.
Nor is there any real limitation on the creditors’ side. It is true that some creditor or other must keep lending Greece money to service its debt. But once the European Central Bank got involved the amount of potentially available credit became infinite.
So far the austerity policies imposed on Greece by its creditors have made it less, not more, able to pay. From 2006 the debt-to-GDP ratio has risen from 100% to nearly 180%. But what does it matter? The sovereign debtor has an infinite lifespan in which to recover the loss.
There is 60% youth unemployment now, but three generations in the future people might be working again. Greeks may be dying early due to malnutrition and curable disease, but others are being born who can take over the work of repayment. The luxury of time is all the luxury the creditor needs.
The burning question isn’t whether Greece can be kept in this condition indefinitely; it is why anybody should want it to be. The creditors are never made whole, so what is the point? The answer is not to be found in economic reasoning.
Such reasoning tells us only that a creditor should get as much as possible while there is still time. But that is not what is going on here, where there is always still time and the creditors are making new loans faster than they recover old ones. Sovereign debt is an entirely different species of debt to that whose workings are governed by economic reasoning.
The Greek debt is instead what anthropologists know as wergeld. This is a type of debt found in a variety of societies in different periods. It is typically owed when the member of one tribe kills or injures the member of another.
Some theorists interpret wergeld as the price one pays for the wrong. Others, recognising that no amount of money can right a past wrong, see it as something else: a sacrificial act to show contrition and supplication. Philippe Rospabé, for instance, claims that wergeld is paid in order to suspend vengeance.
The debtors pay to show how sorry they are, to harm themselves through deprivation, and thus to assure those they have wronged that there is no need to take vengeance. The word “pay” itself comes from “payer” - to pacify.
So it is with Greece. The refrain of those who support the austerity measures is that the transgressions of past Greek governments should not be forgotten. This is very revealing. It explains why the creditors don’t care that they aren’t getting their money back – and why in fact they are lending ever more. For them it is not a matter of money. It is a matter of honour.
The Greeks lied about their financial situation, and for this they must be punished. They must harm themselves to satisfy those they have dishonoured.
We might see the upcoming referendum as a chance for the Greeks to decide whether their penance is done. But it isn’t up to them. Even leaving Europe will not take away the power of their creditors to exact vengeance. It is the creditors who must decide how many homeless pensioners and starving children it takes to restore honour to someone who was once told a lie. It is they who must draw the line between honour and cruelty.