Sovereignty and debt in the modern era

Independence and self-determination come first

We have gone through several years of economic crisis. The chilling effects are still felt across the population, especially those on the lower end of the income distribution. The debt hangover will persist for decades to come, limiting the capacity of governments to meet social needs. Meanwhile, the relocation of educated people in search for stable employment—brain drain—leads to a permanent loss for the country of origin.

Europe’s response to its sovereign debt crisis was to protect the interests of international lenders over those of public borrowers. Rather than cancel debt, the establishment preferred to force policies of impoverishment on the population.

False ethics, pernicious politics

Countries should pay their debt in full out of some misguided notion of necessary punishment. Such is the narrative concealing the promotion of oligopolistic interests. Punitive ethics and capitalist machinations are masked by long economistic commentaries about the pressing need to avoid ‘moral hazard’. This is the concept where doing something, including if it is for the general good, can create a bad precedent for others to exploit. It produces incentives that are not aligned with the current expectations regarding the settlement of debts.

Yet it is never noted that the ‘bad precedent’ is only detrimental to reckless creditors and greedy financiers. What about the upsides of avoiding the bondage of interest, of eliminating debt prisons, of not forcing the degradation of public services and, ultimately, of not undermining democratic institutions?

The euphemism is “austerity”, but what was/is actually being implemented is a pro-creditor agenda. An upward distribution of wealth and control. This has nothing to do with some dubious virtue of frugality and parsimony. Learning to live with less is a myth that is being fed to those who see the rich among them become ever-richer.

Whether there is some inherent good to a minimalist lifestyle is beyond the point. That is a matter of choice, not orders backed by threats by some “troika” of unaccountable technocrats.

Inequality is on the rise. What really is at stake though is a power equilibrium within society and across countries, with creditors at the epicentre. The owning class has the means to consolidate its control over all industries it operates in. Hence the emergence of mega-corporations with an international presence, who pay little to no tax, and who manipulate markets by buying up other companies, start-ups, former competitors.

This is not just a matter of degree of the poor becoming poorer and the rich richer. A new social order is in the making. The super-rich evolve into the modern equivalent of feudal lords. They own or have unencumbered access both to the relevant factors of production and the political power to mould society in accordance with their economic interests. The rest are forced to conform under the pressures of precarity and “emergency measures” imposed by complying rulers.

Sovereignty must take precedence

Against this backdrop, policy-makers have seldom paused to think about the overarching rules of the world order. They have failed to question the effects of the rising international plutocracy on the core principles of statehood and sovereignty. Instead, the public debate continues to focus on the misinformed morality of the sanctity of debt, with the corresponding duty to protect creditors from ‘hazard’.

There is a trade-off involved. Safeguarding the interests of creditors comes at the cost of diminishing the independence of nations. Any decision should not only consider the needs of the creditors but also those of the countries affected.

This is where the Westphalian conception of statehood reveals its limitations.1 Our world differs profoundly from the one that existed one, two, three centuries ago. There was nothing akin to the international financialised system we have today. Corporations could not siphon their profits to tax havens and engineer complex legal schemes to erode their tax base, thus paying little to nothing. There were no bond markets for unscrupulous financiers to aggressively speculate against a country’s creditworthiness with the ulterior motive of forcing a government to apply a certain regime of measures.

The Westphalian world view is one of symmetry. It concerns relations between states. Whereas our time is characterised by asymmetry. Certain private actors are simply too powerful. They have the means to force sovereign nations into submission. They can escape taxation by moving their money abroad. They can put pressure on countries by speculating against them. They can employ an army of apologists, posing as experts and ostensibly morally-neutral technocrats, who will forward their public relations agenda by arguing for such misleading notions as “moral hazard”.

Underlying the policy-making inertia is a misunderstanding about countries as persons. The whole idea of applying inter-personal norms to nations is riddled with fallacies. It conflates micro- and macro- economic spheres. It assumes the homogeneity and uniformity of nations and of national economies. It reduces complex, multi-faceted issues to a simplistic binary of reward and punishment, where there are no collateral damages, longer-term implications, and inter-generational injustices.

As such, it is considered morally permissible to curtail the independence of nations in order to service their exorbitant debt burdens. This omits the crucial detail of the Westphalian order: the personhood of nations/states only makes sense in a symmetric system where nations/states are the units of all things related to politics and will-formation. In other words, personhood is not inherent to nation/states, but a heuristic with which we can make sense of international politics.

Whereas the modern era of the internationalised and financialised economy has blurred the lines between the commercial and the political. International lenders do have a political agenda which they forward through their seemingly business-only decisions. They know full well which set of policies is aligned with their money-making schemes and who are the politicians willing to do their bidding on the legislative and policy-making fronts. The idea that corporations only care about money is overly simplistic. Indeed, naive.

Overcoming such misconceptions means updating our understanding of international norms. We must move from the narrow conception of the symmetrical order between state actors to the current reality of the asymmetric world. Applying the principles of independence and self-determination thus requires us to look at the relationship between public and private actors.

A country that is forced to service its debts at the expense of its independence is, in fact, facing economic warfare. Its sovereignty is at risk, its institutions are deprived of their legitimacy to serve the public interest. Depending on the specifics of the case, the issue of international debt is not just about the relationship between a public actor and private lenders. Rather, it is between the indebted state and private interests that are intertwined with some other country’s stratagems.

Consider the overarching framework

To this end, I encourage politicians to think about the bigger picture. To avoid the pitfalls of punitive morality, to stop treating countries as individuals, and to let go of the misbegotten notion that debt is sacred.

We are at a historical crossroads. Either we take pause and think of our political, legal, economic, social structures anew, or we mindlessly march to a new Dark Age; a new world where the vast majority of us become serfs—even if seemingly middle class—to some corporate overlord, some financial enabler or platform provider, who operates in between the jurisdictions of states across the globe, reaping the rewards and avoiding the consequences of their egregiously harmful conduct.