How Not Paying Debt Might Respect Democracy

Campus Change Report
How much debt does Greece really have?

A debt is more than just a financial agreement between the debt ower and the creditor. State debt is a political agreement that ties up both parties for various terms and shows each other trust. At least, that's how it was until 2008 when the financial crisis began in the US and flooded all the way to the old continent, starting crisis after crisis.

In the spring and summer of 2015 the liberal government led by Greek Syriza tried to renegotiate Greece´s debt terms to help ease the heavy load of debt on the country. In the election, the government secured the support of it's citizens to turn down the unfair debt conditions, but the final negotiation result with their creditors turned out to be even nastier and on tighter debt terms. It is common sense that we respect agreements - if private customers have to hold on to agreements when they negotiate a loan from the bank, how could one entire country have the right to negotiate debt terms all over again?

Economists: Shortening the debt will lead to chaos

Then how much debt does Greece really have? Incomprehensible amounts. Until 2015 Greece had been granted €240 billion as an emergency loan, from which €120 billion has been used to shorten the old debts. That €100 billion of emergency money has mainly gone to french and german banks. €27 billion has been used for state expenses.

As unbelievable as it sounds, according to more and more economists collecting debt is not always the wisest decision.

The debt of a household and the debt of a state are not comparable. The world's leading economists, with Nobel-awarded economist Paul Krugman on the front line, are criticising the severity of the terms that have been demanded from Greece. Greek salaries have decreased by 30%, retirements have been reduced by 50% and youth unemployment has risen to over 50%.

From the standpoint of international justice, the debt terms have been criticised as unprecedented and as having very dangerous consequences for the democracy of Greece with regards human rights. The EU´s commission, European Central Bank, International Monetary Fund and the euro zone countries have kept to their strict line of making tight cuts, even though IMF has already admitted that the tight cutting policies of 2012 have failed.

Democracy was left out of Greece's debt collection

The resulting policy has really messed Greece up. Normal weekdays have became a battle for Greek citizens: withdrawals from the banks are being limited, more and more people are suffering from serious lack of materials and the number of suicides has risen.

Greece is in serious crisis. Originally a Greek word, “krisis”, means a turning point. What if Greek politicians just leave the debts unpaid?

Greece's crisis has been handled and rationalised based on mainstream, “classical” economics. According to that, money is a neutral benefit and the value of money is determined by demand and offer. Paul Krugman, who represents the more liberal, “Keynesian school” named after economist John Maynard Keynes, points out on his column that adapting classical economics has gone badly wrong. Even bad economical analyses are primarily used to serve political groups and their agendas.

The biggest critique is that the rough cuts policy did not pay attention to democracy. Greek citizens voted a clear “no” for tightening the debt terms. According to liberal economists, cutting the expenses should not even been considered as they only extend the economic downhill. According to conservatives though, forgiving the debts is too soft and provokes others to do the same. If Greece can brake the rules and won't pay it's debts, what happens next? Will the banks go crazy, will there be a new economical theory and will anyone pay debts again?

Rules reshaped

Iceland broke the rules consciously and refused to save banks and foreign losses after their own economy bubble popped. Still, Iceland´s recovery from crisis is considered a miracle. The further the European debt crisis goes, the clearer it will be that debt crisis, economy and money are societal matters. The economy is not just some money changing happening outside of politics. The rough treatment of Greece´s crisis has been logical economic politics, but it only reflects one choice among many.

Ignoring the democratic demands of the people increases confrontation between citizens and the EU elite. If an average Greek person has no voice even by voting, then the elections are pointless. If the Greeks decide not to pay the debts or to abandon the European Union, then we may well end up with a long line of countries that are shaken up by these debts and economic predictions will suffer. Traditional thoughts about the economy are turning upside down, and there are no reliable answers. EU leaders have to rethink whether it is always so wise to collect debt.


Social media push:

How does skipping the debt fulfill democracy?
Greece´s debt is challenging classical economic theories.

More material:

Helsingin Sanomat reviews the history of Greece's debt crisis (in Finnish): 

New York Times reviews the cause and effect of Greece´s debt crisis (in English): 


English sources:

Paul Krugman: Why Economics Failed, International New York Times. 

Krugman: Notes on Greece 

Greek Crisis Fallout is an Opportunity for Health

World Health Organization: 

Is Greece Heading For A Recovery? Levy Economics Institute of Bard College. 

Greece’s Debt Crisis Explained, International New York Times. 

Greece. An Update of IMF Staff’s Prelimanary Public Debt Sustainability Analysis. 

Former Central Bank Head Karl Otto Pöhl: Bailout Plan is All About 'Rescuing Banks and Rich Greeks’. Der Spiegel. 


Finnish sources:

HS: Jos Suomi olisi kokenut Kreikan hevoskuurin, keskipalkka olisi noin 2 000 euroa 

Raha ja talous: Kreikka-keskustelun tolkuttomuudet

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