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Nosemonkey's EUtopia

In search of a European identity

The Grexit, fairness, and the English Poor Laws

The New Yorker highlights the primary point that advocates of the “being able to devalue their currency would have saved Greece” / “they should just return to the drachma” / “let’s abolish the eurozone” crowd have yet – that I’ve seen – to adequately answer (emphasis mine):

“a devalued currency would make Greece’s exports cheaper and attract tourists, [but] it would do so at a terrible price, destroying huge amounts of wealth and seriously harming the country’s G.D.P. It would be costly for the rest of Europe, too. Greece owes almost half a trillion euros, and containing the damage would likely require the recapitalization of banks, continent-wide deposit insurance (to prevent bank runs), and more aid to Portugal, Spain, and Italy, which seem to be the next countries in line to default. That’s a very high price to pay for getting rid of Greece, and much more expensive than letting it stay.”

The same article goes on to note a key point that advocates of a more integrated eurozone in turn need to address (again, emphasis mine):

“Rationally… this standoff should end with a compromise — relaxing some austerity measures, and giving Greece a little more aid and time to reform. And we may still end up there. But the catch is that Europe isn’t arguing just about what the most sensible economic policy is. It’s arguing about what is fair.”

Further fiscal integration allowing transfers of money from richer parts of the eurozone to the poorer seems increasingly to be the course being advocated by commentators who want to avoid the likely horrors of a currency collapse. Why? Because it works, and there are any number of examples to show that it works.

But although transfers from rich to poor areas are integral to pretty much any properly-functioning country – from the rich south east of England supporting the poorer north to New York supporting Nevada – there are very few people with money who like to see that money given to poor people they perceive of as “undeserving”. It’s the “I don’t give money to beggars – they’ll only spend it on drugs” attitude, only on a much larger scale. And the meme for the last several years has been precisely this – Greece has been consistently portrayed as having brought this mess on itself.

PoorHow to challenge this? The concept of “the undeserving poor” has been around for centuries (see, for example, the various Tudor Poor Laws in England with their references to “idle persons” and “sturdy beggars” who “refuse” to work and contrast with some of the language that’s been used about Greece in the last few years), and isn’t going anywhere any time soon. It’s been hard enough to convince people on a national level that ensuring that the poorest in society aren’t abandoned to their fate is in the interest of society as a whole – and recent drives in the UK and elsewhere to cut back on “benefit scroungers” shows that even there it hasn’t been entirely successful. How on earth do you go about convincing people of the need for a similar system on a continental scale?

(Worth noting as an aside – the increasing anger in Britain about the idea of contributing to another Greek bailout, even indirectly via the IMF, is another wonderful example of how the safety net rhetoric most often used to support the concept of state benefits can be forgotten. After all, which was the first EEC member state to require an IMF bailout? Yep – the UK back in 1976…)

A combination of short memories and a sense that others have brought their troubles on themselves are not conducive to anything like objective assessments of “fairness”. Because “fairness” is almost always a subjective concept, as the New Yorker notes:

“German voters and politicians think it’s unfair to ask Germany to continue to foot the bill for countries that lived beyond their means and piled up huge debts they can’t repay. They think it’s unfair to expect Germany to make an open-ended commitment to support these countries in the absence of meaningful reform. But Greek voters are equally certain that it’s unfair for them to suffer years of slim government budgets and high unemployment in order to repay foreign banks and richer northern neighbors, which have reaped outsized benefits from closer European integration. The grievances aren’t unreasonable, on either side, but the focus on fairness, by making it harder to reach any kind of agreement at all, could prove disastrous.”

Tudor beggarIgnore fairness – we need to focus on what works best for everyone. The evolution of the English Poor Laws provides us with a perfect illustration of what works and what doesn’t. Put the “idle vagabonds” in stocks to publicly humiliate them, and then banish them (as was introduced with the Vagabonds and Beggars Act of 1495) is effectively the policy that’s currently being proposed for Greece. It didn’t work then, and it isn’t working now. Increasing the punishment also doesn’t work (in 1530 it was scaled up to whipping, in 1572 came the death penalty for persistent begging). Trying to make it a problem for the local area only (as the Poor Laws of 1597 and 1601 did, levying poor relief at parish level) also didn’t work – then poor areas only get poorer, and the poor from those areas simply leave for richer areas (hence the current UK plans to limit Greek immigration in the event of a collapse).

Indeed, the constant reforms to the various systems until the introduction of universal benefits in the 20th century – where all are treated as equal, all have equal rights to access benefits, and richer areas subsidise the poorer for the benefit of the stability of the economy at large – give us many lessons in what will and won’t work for Greece. The key lesson – and not just from England’s experiences? Demonising and penalising the poor – “deserving” or not – has not only never made the problem go away, but also only ever bred mistrust, resentment, and social unrest. This damages everyone, the rich included. It’s a lesson Merkel and Germany should heed.

3 Comments

  1. “Ignore fairness – we need to focus on what works best for everyone.” Ok, the crucial practical argument you neglect in saying Greece should still get the bailout in return for less austerity is that this will incentivise other debtor countries eg Portugal, Spain, Italy to also ask “why should I?” when faced with unpopular but necessary conditions to their bailout and continued Euro membership.

    Your proposed approach, as well as
    a) continuing the suffering of the Greeks (albeit at reduced pain levels),
    b) failing to solve their massive structural issues and
    c) allowing the crisis conditions of them not meeting the Euro compliance rules

    to continue, would help to spread the problem elsewhere and make the bailouts even less effective than they already are.

  2. I think you’re inferring rather more about my views than I’ve actually revealed in this piece.

    First, I don’t believe I’ve advocated continuing with bailouts at any point here. If anything, I’m suggesting that the bailouts aren’t working.

    Second, I say nothing whatsoever about the need for Greece to reform its economy, via austerity or whatever. But certainly at no point do I say whether I think that Greece should *or* should not get bailouts with *or* without austerity, as you seem to think.

    Finally, I don’t think I explicitly condemn or condone any proposed solutions. I’m merely saying that treating Greece like a pariah is helping no one, just building resentment.

    If anything, I’m implying that I think that some kind of formalised fiscal transfer system within the eurozone would be an improvement on the current system of bailouts (perhaps following this week’s Economist’s suggestions), as this would provide a level of reassurance and stability that is sorely lacking (a safety net similar to that provided by universal benefits).

    But I’m deliberately not explicitly advocating this, as I’ve yet to make up my mind.

  3. While debt-sharing has to involve some moral hazard, there’s no reason why a shared counter-cyclical policy has to do so in general. If I understand correctly, the point about a depression is that virtually any spending would work against it. So there is no reason for the Germans to have to simply hand over the money. Imagine a eurozone counter-cyclical investment agreement, as follows:
    A formula is agreed for an amount to be invested by each country in the private sector of each of the other countries depending on the current state of imbalance. The investing country has complete discretion as long as they make sure that the money does not immediately flow back out of the receiving country. So, whether the German investment makes or loses money is solely dependent on how wisely the German investment managers, accountable to the German electorate, choose to invest it.