Cathy O’Neil — Greek Debt and German Banks

Are you fascinated by the “debt as moral weight” arguments you see being tossed around and viciously debated over in Germany and Greece nowadays? It seems like the moral debate has superseded the economic reality of the situation. Even the IMF has declared the current Greek deal untenable, but that hasn’t seemed to interfere with the actual negotiations.

What gives? Many point to history to explain this. Besides the whole Nazi thing, or maybe exactly because of it, the Greeks keep reminding the Germans that they (and others) forgave half of existing German debt after World War II, with the1953 London Debt Agreement. The Germans have responded vehemently that such ancient history is irrelevant, and that the Greeks are a bunch of lazy olive-eating tax avoiders. It’s a dirty fight, and getting dirtier every week.

I maintain we don’t have to examine the history of 60 years ago to understand at least some of the moral anxiety. Instead we should look a mere 7 years ago, at the enormous German bailout of their own banks, which had invested quite recklessly in all sorts of the most risky financial instruments and, most relevantly, Greek bonds.…

This is not to suggest that there was perfect planning going on by the previous Greek governments. But I do think that, if we’re looking for who deserves blame in this story, we might want to circle back to the German bankers who couldn’t resist subprime mortgages and Greek bonds back in the early 2000’s.

MathBabe
Greek Debt and German Banks
Cathy O’Neil

ht Brad DeLong

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