May 19, 2015 by Paul Goldsmith
Good news, I have just received a mandate from my loyal subjects not to pay back my mortgage.
In the car the other day, my daughter, who is seven, was telling me about a holiday to a tropical island her friend had just had. It sounded amazing. She asked why we didn’t have holidays like that. I explained to her and her brother (aged 5) that we only have a certain amount of income and we have some outgoings that we can’t avoid, like a mortgage, and we didn’t have enough money to spend after those outgoings to go on holidays like that. She asked me what would happen if we didn’t pay that mortgage, and I explained our house could be taken away from us. “Definitely”? She asked. “Probably”, I replied. There was then some debate in the back of the car, and my daughter spoke up again. “Daddy, we think you should try not paying the mortgage and then we can go on better holidays, and there are two of us and one of you, so you should do what we say as that’s how you said politics works.”
So there you go then, I have a mandate from my children to tell my bank that I won’t be paying my debts. I mean, we had a vote and they said they wanted to have higher living standards so I should try to avoid my liabilities.
Of course, we all know that the reality doesn’t work like that. What I should have done then (and obviously have done now!) is tell my children the truth, that just because they don’t want me to pay our debts doesn’t mean I can’t do so. I should also tell them that receiving a mandate from them doesn’t mean that my bank has to respect that mandate. After all, they lent me the money in good faith, having spent a while checking I could pay it back, looking at my outgoings as well as my incomings.
You may have guessed where I am going with this now. When Syriza were elected in February by the Greek people, they were given a mandate to end the austerity and political reforms imposed by the ECB as conditions for a bailout. The problem is that the mandate doesn’t actually extend outside the borders of Greece. So, as Alexis Tsipras, the Prime Minister, and Yanis Varoufakis, the Finance Minister have found out, they cannot actually tell the ECB that they won’t make those reforms and expect the ECB to do nothing about it. They have thrown the kitchen sink at this, revoking reforms the previous government were making, trying to raise the minimum wage, threatening to delay payments, and of course, given the ECB is dominated by Germans, invoking Second World War vocabulary and ideas to try to change their approach. My favourite was working out that the Germans owed Greece for War reparation just slightly more than Greece owed the ECB.
Ultimately though, the Greek public were sold a lie. Finally Tsipras has admitted that. He has said that he cannot institute the reforms over pensions, labour markets and other areas of the public realm without a referendum from the Greek people, because he doesn’t have a mandate (permission to legitimately implement policies normally received because you put the policies in your election manifesto) to do so. “If the solution falls outside our mandate, I will not have the right to violate it, so the solution to which we will come to will have to be approved by the Greek people,” he told Star television in the interview.
Telling people what they want to hear, like an optimistic (or lazy) parent might do in order to make their children like them in the short term, just kicks the can down the road in terms of the problems you will have to solve. I have always found it odd that politicians announce that “the people reject austerity”. Ask anyone whether you should spend more on them and they will generally say yes. Greece’s debts are huge, and whilst they can probably be rescheduled in return for some progress towards the reforms needed to leave Greece able to pay their way in the world, if they are released from their obligations before that then there will always be a moral hazard that they will continue to think they can get out of debts with constant threats.
The irony that this has happened in the birthplace of democracy is not lost on me.