Republicans, The Germans, and Creditor Ethics

by Benjamin Studebaker

The republicans and the Germans have a lot in common right now. Ordinarily, comparing an American political party to the industrious Germans would be quite the positive thing, but right now the republicans and the Germans do not have industriousness in common–what they have in common is the hypocrisy of the creditor ethos.

So what are creditor ethics? Creditor ethics are the inverse of debtor ethics. Creditor ethics assert that, when a creditor loans a debtor money and the debtor fails the pay back the money, the debtor is to blame because he tricked the creditor and made off with his money. Debtor ethics assert that instead, the creditor is to blame for carelessly loaning money to someone who could not or would not pay it back. Of course neither perspective is wholly correct–both creditor and debtor share the blame when a debt cannot be repaid. The creditor made a bad investment, and the debtor failed to use the loan to long-term fiscal benefit. The two mistakes unite together and create the problem of debt that cannot be repaid.

In Germany, the debt in question is the public debt owed by the Spanish, Italian, and Greek governments to US, British, French, and German banks. In the USA, the debt in question is private debt owed by mortgage-holders to banks and, additionally, money the state governments owe to their employees through the pension programmes. The Germans believe that the Spanish, Italians, and Greeks are wholly responsible for their debts and that the German government should not have to send them a penny. Republicans believe that the mortgage holders must be made to repay their debt, and that state governments who find themselves struggling to pay their employees should fire said employees. It is unfair, from the German or republican perspective, for the debt to be restructured or for the German or US federal governments to relieve these debts, because that would reward the flagrantly risky borrowing of the debtors.

But it’s more complicated than that, isn’t it? The debt that the Spanish and Italian governments owe (and, to a lesser extent, the Greek government) was originally debt owed to the banks in those countries by those countries’ citizens that the citizens could no longer repay. The Spanish and Italian governments chose to relieve those creditors rather than allow them to fail, rather than to force them to take responsibility for their risky lending. In the meantime, the Spanish and Italian people were forced to default on their loans to the banks, losing their homes. All the while, people who were not even involved in the debt circle, ordinary, working people in Spain and Italy, lost their jobs and livelihoods as the Spanish and Italian governments spent all their money bailing out the creditors and cutting spending that would have supported debtors and ordinary citizens. The foreign banks that lent money to the Spanish and Italian governments gave this plan their blessing–their willingness to lend money to support that plan makes them endorsers of it and parties to it. The German, French, British, and American banks contributed to the building up of state debt in Spain and Italy by willfully providing loan money to save creditors, but now that the debtors and citizens are in trouble, they are no where to be found. Instead they demand repayment. In the meanwhile, the poverty created by debt relief for creditors but not for debtors has led to mass unemployment and falling tax revenue. The creditor relief scheme that the Germans, French, British, and Americans were all part of in Europe has failed to rescue the Spanish and Italian economies, which remain unable to repay the debt. Rather than take responsibility for the failures of their banks’ investments, Germany seeks to punish the Spanish and Italian people and governments for taking money freely offered, to force them to repay the German banks at any cost. There will be no aid from Germany to Spain or Italy, the Germans  say. What they do not realise is that it is only with Germany’s help that the crisis was created in the first place, and that Germany is therefore jointly responsible.

The same thing has happened in the United States minus the public debt crisis (contrary to popular belief, the USA is not suffering a debt crisis because, unlike Spain/Italy/Greece, the USA controls its own currency–read more here). Banks lent a pile of money to home-buyers, the housing market collapsed, the homeowners couldn’t repay their debt, the government rescued the banks and did nothing for the homeowners. Creditors were saved; debtors were spurned. The economy remains depressed as debtors struggle to repay their loans with almost no help from the government. That weak economy has kept state tax revenues low, and state governments are struggling to pay their employees–everything from police officers to firefighters to teachers. The answer from the republicans is the same as the answer from the Germans–the debtors will be made to suffer for their mistake of taking the money, but the creditors will not be blamed and will receive bailouts. Homeowners must continue to struggle and state governments must continue to lower standards and lay off employees. People like Ed DeMarco (more here) militantly oppose debt relief for homeowners, and Obama has been unable to pass more federal aid to state governments through the republican congress.

What does the creditor ethos end up doing? It ignores the role bankers play in the outcomes of their loans, making the state responsible instead, while fully embracing the concept of personal responsibility for debtors. It is a different set of expectations and a different way of treating debtors and creditors despite the equal culpability of both for the mess we are in. If it is justified to help one of these groups to bring about economic recovery, then it is justified to help the other as well. Germans and republicans, who represent the interests of creditors, are not impartial in this debate over how to fix the economy, yet both are afforded tremendous power in deciding what policies the European Union and US government will undertake. It is as if two men go to court to resolve a dispute, but one of them also gets to be the judge. A fair outcome is impossible, and a fair outcome will remain impossible as long as creditors are deciding how to resolve the financial crisis. That means that political organisations that professionally advocate the creditor position–the Germans and republicans–not only have nothing to add to the debate, they actively detract from it through their tremendous bias. The German government and republican party must both either stop acting as mouthpieces for the bankers’ interests and start working on real solutions for the Eurozone and United States as a whole, or they must be made to allow others to solve the pressing problems of today.