The financial news has been dominated these past few weeks by the Greek debt crisis. It is hard to believe that the Greek debt totals 360 billion Euros and it seems clear that Greece cannot repay it. Some say a Greek default is a certainty because it is impossible for Greece to repay that level of debt.
This crisis gives us an insight into the ethics of debt. With all the bluster of politicians and the way they use words to manipulate and cover-up what is really going on, it is sometimes difficult to get to the heart of the ethics of debt. So let’s keep it simple and straightforward.
On the one hand debt is useful – it helps businesses and people achieve things that might never be achieved without the finance and it helps achieve things more quickly. On the other hand, if people take on too much debt at rates of interest and they get into difficulty, and their house or car has to be repossessed, debt seems to be a bad thing. THis means that the ethics of debt is not about debt itself but the actions of people who lend and those who borrow.
Is charging interest unethical?
Some people say it is and prohibit the charging of interest. But if I lend someone £10,000 I do not have use of that money and it will lose some buying power when it is eventually paid back so why not charge a fee for lending it. However, surely it is unethical to a) charge rates of interest of 1000% or 2000% ? In addition, is it not unethical to lend to people whom we know will not be able to repay on time or at all? Doing this would enable unethical lenders to roll over the debt and make the borrower pay more than initially intended. If the borrower cannot pay you take their house, car and even their business and sell it and make money that way. Indeed, some banks have been accused of deliberately making businesses bankrupt in order to gain the assets.
Ethics of debt – refusing to pay
I am sure whole books have been written about the ethical implications of not re-paying a debt. Surely it is unethical to take on a level of debt you know you will not be able to pay? Perhaps this applies to the previous Greek Government. Why did they allow the level of debt to accumulate and such an immense level?
It is understandable that unexpected things happen and the project for which the debt is borrowed fails and one has difficulty repaying the debt. Here is where another aspect of ethics of debt comes in.
1. An ethical person would sit with creditors and work out a repayment scheme, which may include the creditor taking a “haircut” – increasing some of the debt.
2. An unethical person (managing director, householder or Prim Minister) would say .. “tough .. you lent to me… it didn’t work and I am declaring bankruptcy and you get nothing!” Some business people do this – renege on the debt and then go and start a new business. Perhaps this is what Greece will do.
However, there is a deeper layer or ethics of debt at place in the Greek debt crisis. Notice how some Greek politicians are using words to accuse the lenders of being immoral, of reducing the dignity of Greeks and re-introducing slavery. Surely, the dishonest of trying to renege on your debts by accusing others of being immoral is the worst kind of unethicalness?