“The rich rule over the poor, and the borrower is servant to the lender.”
(Proverbs 22:7, New International Version)
This proverb is understood all too well by anyone who has become impoverished by severe indebtedness. I thought of this proverb as I read a Reuters article titled “Eurozone gives Greece 30 days to show good on deficit.” This article featured a few accusations from George Papaconstantinou, Greece’s Finance Minister, that suggested “the market” is bent on attacking and destroying Greece:
“If we announce new (Greek fiscal) measures today, will that stop markets attacking Greece?…My guess is what will stop markets attacking Greece is a further, more explicit message that makes operational what has been decided last Thursday at the European Council (summit).”
Papaconstantinou also called for European solidarity against these attacking armies of well-capitalized lenders:
“…Today it is Greece, tomorrow it can be another country. Any European country can be prey to speculative forces.”
Perhaps this feeling of solidarity is what prompted Jean-Claude Juncker, Luxembourg’s prime minister (and chairman of the finance ministers’ meeting in Brussels), to warn the advancing hoards:
“Financial markets are completely wrong if they think they can destroy Greece.”
(Economist and Nobel laureate Joseph Stiglitz has also blamed speculative forces for pressuring Greece).
Last time I checked, no global mandates exist to buy Greece’s debt. I suppose if buyers decided to stay home at the next auction, they would be blamed for their lack of generosity and charity.
It is the very need for (massive) debt-financing that makes Greece (and so many other countries on the planet) vulnerable to capital markets. The pressure of rising interest rates is the market’s main tool for enforcing discipline on their clients. Prevention is always the best medicine – fiscal discipline is typically a very reliable method for sidestepping an infestation of “madmen” in the markets. In other words, blame the government debt, not the lenders and not the markets that make this financing possible in the first place.
Be careful out there!
Full disclosure: no positions