Thursday, 28 March 2013

Moral obligations

Yesterday the banks found out how much they have to keep in stock to prevent another 2008 financial crisis and the amount is £25 billon in capital, staggering. It is said that Cyprus should come up with 7 billion Euros on their own as condition for receiving 10 billion Euros from Europe, largely financed by Germany. That is like, if you want a mortgage on a £170,000 house, and the bank asks you to come up with £70,000 on your own as condition for receiving a £100,000 mortgage.

Protesters in Cyprus claim that having to come up with 7 billion Euro is ruinous for the country, and they want Germany to give them the whole 17 billion without conditions and preferably without interest. But maybe the realization that they cannot even afford 7 billion should have come before enacting policies which required a 17 billion bailout package. What the critics are saying is that Germany will earn money from lending money. Just like a bank does. But the fact that you have to pay an interest on a bank loan doesn't result in a moral obligation for the bank to give you a loan under any conditions. In fact a bank has a moral obligation to only lend money responsibly, because giving out loans that have little chance of getting repaid would be a disservice to those who paid money into the bank, in this case the German taxpayer.

The "threat" from Germany is not German bombers, but simply the Germans withholding loans. Which would be no threat at all if the countries in question would run their economies in a way where they could get loans from regular investors. The money that is flowing from Germany via Europe to these countries is in fact cheap compared to the prohibitive interest rate they would have to pay on the free market, in addition to the fact that there aren't enough free market loans available for these countries due to their existing debts and deficit.

In the end, if somebody has large debts and still spends more than he earns, that doesn't give him the moral right to protest against the evil banks who at some point refuse to lend him even more money. People do understand what a "credit rating" is in their personal finances, and that their loan application can be denied by a bank. We just need to get to the point in Europe where countries understand that same concept.

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