Few weeks ago it happened to have around a table and, of course, in front of few cups of excellent coffee, a group of people of different nationalities, and a Greek guy among the others.
The conversation focused on the Greek public possible default and the consequences for the euro zone.
Some interesting insights emerged that are not so obvious for everybody.
A vast majority of us stated the obvious : we have to repay our mortgages every month, or repossession is behind the corner, so why this rule should not apply to a country that has clearly cheated on the national budget for years?
But is this the right question?
A less easy one is : what is the purpose of national debt? Is it to be repaid?
Apparently not, given that nobody around the table had knowledge of a single country in History that repaid his national debt at any time. The investors themselves would not be happy to get their capital back and not producing any profit. They rather prefer not to see a penny of their capital as long as a fat interest is paid.
So when and how the mechanism breaks?
It happens when, due to some turmoil in the economy, the country stops growing and therefore enters in a vicious circle of increasing borrowing, not to support the economy, but to repay a raising level of interest on the existing debt debt. That triggers an unstoppable race between interest rate on the national bonds and the amount of debt which is necessary to keep the boat afloat.
The irrational solution adopted so far has been to loan further money to the Greek banks in order to buy the increasing risky national bonds (relieving therefore the foreign banks from their so far lucrative investments), in exchange for imposing to the general population a set of draconian measures that further depressed the already shrinking economy. The results: a famishing population, a spiralling interest rate on the national bonds and a public debt out of control (to know more about damage caused by austerity click here!).
But who started the financial crisis that depressed the economy of the world for five or more years, making the public debt of several countries, such as Greece, Spain, Italy and others, all of a sudden, “not sustainable”? The same financial institutions who profited for years on the fat interest paid on those country bonds, and managed to transfer the cost of the crisis to the general population when the storm hit.
They obtained virtually free bailout from governments all over the world, not a single banker being fired, waited for the storm to pass, started again to make huge profits in a still unregulated market, and left the tax payers to deal with the national debt increase they caused in the first place.
And they are going to be ruthless as ever if we skip a payment on our mortgage.
Not a bad deal! Not at all.