Great idea!

I have a mortgage and some credit card debt too. It would be great to have this cancelled. I'm sure that the millions of other people in the UK whose pension funds have some of their assets in banks won't mind helping.

Come on, everyone!
Make 2012 a default jubilee for me too!

Which is all great, but you'd better radically and proveably have changed your behaviour the next time you want to borrow money. Oh....and be prepared to pay more for the privilege to make up for the shit you caused last time.

"But economic reality has been no match for the stranglehold bankers have on European politicians" ... very observant look to Ireland for a symbol of the futility of debt repayment for banks that are dead and burried

Your argument would have a better chance of standing if it were applied to a country which, unlike Greece, hadn't defaulted its economy on several occasions over the last 150 odd years at great cost to the economies surrounding it.

No. I think the logical thing to do is to fine nations with a budget deficit of over 3%. Anyone who disagrees hates Europe and is probably racist.

"Something similar is happening in Britain. David Cameron came to office with the primary goal of paying down debt"

Absolute nonsense.

Nobody is suggesting repaying one penny of debt.

Nobody is suggesting doing anything but borrow still further sum for the foreseeable future (currently around 8-9% of GDP per annum).

The problem is the deficit not the debt.

This writer immediately discredits himself with this foolish basic error.

Hmm, simplistic, bashes bankers and encourages consumption now? Yup must be another Guardian economics article. There are valid arguments as to why Greece is an exceptional case, but the idea that widespread debt default will lead to anything other than economic chaos is ludicrous.

Greece could default on its loan repayments but then don't be surprised if the German and French governments (who would then probably have to provide taxpayer support to their own banks which were encouraged to lend to Greece in the interests of Euro solidarity) then decide that they have had enough of the Greek problem and either kick it out of the Euro or make life so unbearable for the Greek government that they voluntarily exit, partly pour encourager les autres...

You present default as a victory for the underdog, a poke in the eye to "the haves", what about the US? A hugely indebted country that happens to owe trillions to amongst others, the Chinese. Do you think it would be OK for the "have nots" of the US to default on their obligations to "the haves" in China?

We are in this mess because of financial irresponsibilty and not just on the banker's side. Just watch TV ads for a few minutes and it's either Wong aoffering you a loan at 8000% or Littlewoods convincing mums unless they rack up a load of debt with them their kids will hate it.

And what a worse message to send out than to say "don't worry if your borrow irresponsibly, we'll just cancel the debt if you get in trouble".

This is actually what Britain and the US are doing rather stealthily by Quantitative Easing.

The result is that our creditors - the hard-working, prudent people of countries like China and Germany - will be worse off so that we get to pay less for all the tat we bought during the boom years.

It is open to question whether they will be stupid enough to lend to us again on such generous terms.

I don't think being a creditor makes you a "have" and a debtor a "have not".

Surely it's the other way around.

The Gasparinatos' have 10 kids. Their story isn't primarily one of the Eurozone sovereign debt crisis, it's of people having far more children than they could ever afford to rise on their own, regardless of the cost of these children to either the state or the environment. Forgiving debt forgives the feckless.

The creditors have the money and therefore the whip-hand over the borrowers.

The borrowers have the money, having borrowed it from the creditors. The 'creditors' may have the right not to lend any more to borrowers who refuse to pay the first loan back, but that isn't the whip hand.

".......the parents had been pushed by the economic crisis into outright poverty; and just before Christmas Dimitris and Christina put four of their children into care"

Call me heartless but perhaps Mr & Mrs Gasparinatos should have considered whether they could afford to look after their first four children before they went on to have another six!

Well said "SpinningHugo" ...

By the way,
Aditya, there's are two very easy ways to avoid being strangled by "creditors" as you manage a nation's finances:

1. Control your own currency: Greece (et al) aren't in crisis because of their debts *per se* but simply because they have to create real Euros to service existing debts.

2. Don't rely on foreign investors to fund your current account deficit: Japan, for example, runs persistent deficits and has a debt-to-GDP ratio of nearly 220% and it's central bank is executing massive Quantitative Easing. Yet it's interest rates are near zero and there's little if any inflation. Why? Beacuse 90 percent of Japan's debt is held by Japanese investors.

If you run a responsible financial ship (Canada, New Zealand, Switzerland, Norway) and/or control your own unpegged currency (Japan, the United States) you can essentially avoid any overt investor pressure from the bond markets.

It ain't, as has been said, rocket science.

The same goes for countries. Regimes sunk by revolutions don't repay their debts; nor do countries that lose wars. (When they are made to, as with Germany after the first world war, terrible things can result.) Over the past couple of decades, campaigners have successfully won debt relief for poor countries in Africa and Asia. Other nations, such as Ecuador or Argentina or Iceland, have simply declared they cannot repay all that they owe.

Germany suffered terribly after the first world war and created the conditions that brought the fascists to power. These facts are ignored by Cameron because he has his neo-liberal agenda to pursue. The coalition are hell bent on using the deficit argument to roll back the state, (socialism) in Thatcher's words.

When it comes to funding the financial sector we can print as much money as we like, but, not when it means tackling the core problems in the economy.

The major problem, which the author. seems blissfully ignorant of is the absence of any formal bankruptcy procedure for nation states. So, American Airlines can go into corporate bankruptcy because there is a legal process in place to enable it to do so. There is no such formal system in place for countries. Hence the growth of culture funds, buying up the debts of countries which default and enforcing against any assets they (ever) have anywhere else in the world.

It would indeed be a good thing if we had a bankruptcy regime in public international law, but the suggestion that defaulting is consequence free, as the author does, is silly in the extreme. A country will permanently damage its credibility in relation to the market. Greece, for example, has a very large deficit which it needs to continue financing now.

Another problem is the systemic one. One person's debt is another's asset. It is not consequence free to default for the lenders.

The result is that our creditors - the hard-working, prudent people of countries like China and Germany - will be worse off so that we get to pay less for all the tat we bought during the boom years.

It is open to question whether they will be stupid enough to lend to us again on such generous terms.

They have another choice which is increasing the value of their own currencies. Of course China would be hit by civil unrest and potentially collapse. Germany would export this effect to the Med states. As for hard working, the Germans don't work any harder than Brits, they are just more effective when they do work.

I think the logical thing to do is to fine nations with a budget deficit of over 3%.

Agreed Poppy, but there are already rules that run along those 3% lines. Only problem is though, that the country which arguably did the most to push for their implementation - France - was also among the first to break them.

Jesus, Guardian, where do you exhume these people?!

You do not want to see, or live in, a world where everyone just defaults and tells their creditors to suck it up. Trust me on this.

Dreadful stuff: do you not have any editors left who can spare your paper's blushes?

Default is not necessarily a bad idea for some countries, but the "past vs future" notion is specious. It is in fact, more mundanely, just a dispute between one approach to the future and another. Do we default on our debts and suffer the consequences - and are we comfortable with the damage that we do down the chain by not meeting our responsibilitie - or do we pay our debts and keep our reputation intact?

Anything that looks like a very easy solution is likely to be fool's gold.

Sigh.

Wish it were that simple, I really do. But if Greece 'sticks it to the bankers', it will, since Greek banks hold much of the debt, screw itself.

Debt cancellation has been a huge issue in the field of economics ever since the incompetent lending of the World Bank in the 1970s. It is a nice idea and would unquestionably aid the poorer nations of this world and give them a bigger share in the global market. However, there are more complications to debt cancellation than meets the eye. It may seem like a good idea on the surface, but it could do more harm than good because of the reasons which I will now outline.

First of all, there is the issue of where the limit will be. Some countries are in more debt than others so for the IMF and the World Bank to decide how much debt they can write off will take time and will lead to a pretty heated debate between those organisations and the governments of the countries concerned. The World Bank and the IMF have to set a limit for debt cancellation- otherwise their loans will not be paid off and these organisations will actually lose money which would harm the developed economies of this world.

The second reason is that, as soon as countries see debts being written off, they might chance their arm and run up incredible amounts of debt in the expectation that it will be written off. This again would harm the global economy and could decrease the standard of living in developed economies.

The third reason is that debtors who get their debt written off now might simply run up the same amount of debt in the future and expect it to be written off. This again would mean that the Lenders would lose money and may have bigger consequences for the developed economies.

The fourth reason is that poor countries have borrowed ridiculous sums of money from both developed and developing economies. Countries like China, for instance, have pumped billions of dollars' worth of FDI into Africa, in particular, and they would not be best pleased if the money that the African nations owe them were to be written off. In the scenario that the debt owed by African countries to the Chinese government and firms were written off, the Chinese economy would slow down and, at a time when China's growth is needed to help Europe through its woes, this would be most unwelcome. Aside from economics however, if the IMF and the World Bank, organisations on which the US has major influence, Chinese-American relations could deteriorate still further and that could lead to all kinds of things, including a trade war, which is completely out of the question if the West wants to get itself out of this mire in which it currently finds itself.

The fifth reason is more blunt. Half the blame for these huge debts some nations find themselves in is down to the World Bank, but half of it is down to corrupt government officials. If nations used the money to good effect, which they were supposed to, instead of government officials dividing it among themselves and not caring one jot about the people, they would not be in this debt. So, corrupt government is just as much to blame as the World Bank.

I can see that debt cancellation is a nice idea and all, but I think it would do more harm in the LR becuase of the reasons previously explained.

Would be nice too if he did not justify this article by reference of another article also written by him.

So, some of the debts were accrued under reportedly strange circumstances. So take that up with the people concerned.

Why is the size of the deficit so important to you?

I know where you are coming from. Sure the article is a bit polemical and overstated. But I think you are going too far the other way.

I think we are all aware of the costs and risks you mention and that this will be an extremely painful process.

But despite that it is a simple fact that one way or another non-performing debt, including with sovereigns, usually gets cancelled, and this will happen here as well. More commonly it happens through negotiation than outright default. As that minimises the costs for debtor and lender. Extended maturities, rollovers to debt with adjusted terms - there are a whole box of tricks we see time and again in sovereign defaults to dress up what is really happening and make it all just a little less painful for everyone. But happen it will. And, the article is quite right to point out, given we are where we are and not where we would want, that is an extremely important part of the way forward out of this mess.

But in this case that's only half the problem. Even if the "stock" problem of dud debt can be dealt with that still leaves the "flow" problem of the structural imbalances between the surplus and deficit countries. And if those aren't tackled plainly the money will drain out of the bucket all over again....

That's why the Germans, for example, are insisting on their fiscal compact as a quid pro quo for further support for the EU periphery. Shame their solution is mad, as Poppy23 has laconically pointed out. But the thought is there...

Let's say you have five invoices waiting payment from Gruniad accounts, should they cancel that debt?

I'm sure you'll keep on writing out of love.

I'm sure that we can all cancel our mortgages, o/d, credit cards and just carry on as if nothing has changed.

JFC, is this really the level of 'critical thinking' we are to expect in 2012?

Let us suppose that Greece does default on its debt - the result would be that no-one will lend money to them or they would have to pay crippling interest rates. So realistically they would have to run their state on their own tax revenues. And surely that would be much worse than the austerity now?

This guy is the lead economics writer here? Jesus.

As Michael Hudson always says:

"Debts that can't be repaid, won't be repaid".

That's pretty simple to understand isn't it? Once you accept that, the question is how to write down those debts in an orderly way. A jubilee is one way to do this. There may be others.

What a silly article - demonstrating a complete lack of understanding of the nature of the economic problems facing Greece, as well as the actual history of countries defaulting (which has been universally catastrophic for the people involved).

Greece's issue is not historical debt - it is the enormous budget deficit that the country has been running since joining the Euro in 2001. Even if you were to cancel all of Greece's debts tomorrow, they still would have to undertake yet more austerity than has been undertaken thusfar, just to balance their books. Since joining the Euro, Greek wages have increased by 30% compared to German wages (according to the Greek Finance industry and the Eurostat agency) and more in the public sector - all paid for with borrowed money. The debt is generally not historical, it is debt accrued to pay for Greece's party in the last decade - now they have to pay the bill.

In terms of the impact of defaulting, Ecuador's default, according to the International Labour Organisation led to a 30% increase in levels of poverty; in Argentina it was much worse - the World Health Organisation estimated that its default led to over 10,000 additional avoidable deaths, due to the complete collpase of the economy. Indeed, some public sector workers went without any salary for 6 months, and the economy reverted to a system of barter, such was the economic chaos that ensued. As bad as things are in Greece, it's as nothing compared to what will happen if they default. If the author conducted even some basic research into the issues, he might realise this, the facts don't lie...

And as I always say, if someone doesn't pay me back, I'm not lending them money again.

Have you heard of the concepts of credit score , credit reports, and court ordered wage garnishment? Those are the whips

The creditors have the money

It depends on what you mean by "money". Perhaps you should study some bookkeeping and the accounting rules on the recognition of assets.

The debtors have, or had, the money.

The creditors have a contractual right to receive the money back, with interest, in due course, and they may reflect that in their balance sheets as they see fit, but I know what I would do.

Bankrupcy involves putting a company into the hands of receivers. In this case, Greece would need to (at least temporarily) dissolve as a sovereign nation and become a territory for some other nation. Greeks hate their debt, but they're also extremely proud (sometimes to excess) -- given the choice of being a territory with no debt or a nation with catastrophic debt, I'm not convinced they'd be willing to give up their identity no matter what.

The other side of the issue is that most of the debt problem for Greece is a culture of non-payment of taxes by the rich -- an issue the austerity measures don't, amazingly, consider. It might not solve all their problems, but I suspect Greece would find itself in a lot stronger position if it cut to the chase and seized assets equal to the taxes owed, and demanded that countries holding Greek debts do likewise on those who have sought havens outside Greek territory, offsetting the seizures against monies owed.

It won't. If it was going to, it would have done so already. You can always replace moguls, they're two-a-penny, but it's much harder to replace national infrastructure and impossible to replace a hostile citizenry.

A more sophisticated idea applicable to cases like that of, say, British mortgage debt might be that of the Australian economist Steve Keen, who proposes what he calls a modern debt jubilee, under which everyone in the country would receive a flat payment, say 100,000 pounds, which would have to be used to pay off debt if the person receiving had any. it would probably expand the money supply, causing inflation, but at least people without debt would not be subsidising those with debt. The slate would be wiped clean at a higher price level and people who were not indebted to begin with would have extra cash.

Will Mr Chakrabortty lend me £50,000, then cancel it?

NeverMindTheBollocks, spare your sarcasm for when you may have to face the grim prospect of having to give up your own children because you can't feed them. I don't wish that upon anyone,not even an hassle like yourself.

Great article, finally someone is reporting on the real human cost of this horror show. I support the concept of debt default, because frankly I see all this disaster and feel its a cat and mouse game. I think the mouse is always smarter by the sheer fact that it had to survive all along with a very small frame to support it. So the bullies are out, the dominatrix is working hard telling Southern European how they should live (in abject poverty), all the popular responses have been going against this humiliating turn of events.

It's not all them and us, yes they are poor and people in Northern Europe are still managing, but historically can anybody afford to be arrogant and laugh at other's pain?

People can choose their tone but ultimately it's not over yet, there 's more to come.

I stopped paying nearly all of my debts ($150k+) almost 2 years ago. 2 more years to go and the creditors or junk debt buyers won't be able to touch any assets or earnings due to the statue of limitations where I reside.

Oh and guess what my quality of life has improved and I get to spend 100% of the cash I make on me and my life, rather than sending half or more away...

You forgot two things:

Firstly the address where to send bills.

Secondly the waving of debt what is the cut off date before christmas or after.

Can we send all bills to scotland before they can idependence.

Yep even absolute failures are allowed to start over, well done.

In the case of Greece and the rest of the Eurozone, there should have been a mechanism agreed for an administrator to be appointed, there wasn't and that was one of the points upon which the lack of credibility of this project revolved.

As far as resolving the current debt burden, the holders of debt should have recourse to the Country's assets and property which should be sold to pay down the debt if not redeemed. Additionally, the streams of taxes should be securitised and matched off against Sovereign debt. The sale of assets and property will re-gig the Country's economy and oneof the better aspects of this securitisation is that the holders will sue for say property taxes, duties etc..

Of course this leaves the Country a little short so will have to adopt small Government and radically reduce State disbursements. But it is a good lesson to be learned and will set an example to other countries, with "regulation lite" and overself indulgent politicians.

This is actually what Britain and the US are doing rather stealthily by Quantitative Easing. The result is that our creditors - the hard-working, prudent people of countries like China and Germany - will be worse off so that we get to pay less for all the tat we bought during the boom years.

True to a point, except most US & UK debt is domestic.

There isn't even any need to default.

Via QE the Bank of England has bought up over a thurd of UK public sector debt. £275 billion of the debt Cameron rattles on about is sitting in the wholly publicly owned Asset Purchase Facility. This debt can be cancelled any time that the Givernment wants with no negative effects.

It is a sign of the Tories utterly ideological approach to austerity (an excuse fur public sector privatisations and pay restraint) that this isn't being done.

The Michael Hudson quote came via Steve Keen's blog (probably the leading advocate of a debt jubilee). Here's what he says on the issue:

"Michael Hudson’s simple phrase that “Debts that can’t be repaid, won’t be repaid” sums up the economic dilemma of our times. This does not involve sanctioning “moral hazard”, since the real moral hazard was in the behaviour of the finance sector in creating this debt in the first place. Most of this debt should never have been created, since all it did was fund disguised Ponzi Schemes that inflated asset values without adding to society’s productivity. Here the irresponsibility—and Moral Hazard—clearly lay with the lenders rather than the borrowers.

The only real question we face is not whether we should or should not repay this debt, but how are we going to go about not repaying it?"

Aditya Chakrabortty

I find it staggering you write such nonsense under the title of "economics leader writer for the Guardian"

Cancel ALL DEBT????? Are you assuming that all of the lenders are so rich they can afford to write it off?

What about the vast majority of people in the UK that are forced to 'invest' their pension savings with money managers that invest in things such as Greek debt? Should I sacrifice part of my pension?

Before anyone writes off any Greek debts, the government of greece really need to sort out their tax collection system since it would appear that paying income tax in Greece is currently 'voluntary'. An inadequate tax collection system is the main reason why Greece is in such dire straits.

Good article. Rather less good comments thread, on avergae.

"Debt" is one of those words that we use all the time, as if we know what it means, but becomes more and more amorphous as you examine it in more detail. "Money" is another such word. Like a cloud. So distinct a thing, from a distance, once you're in close quarters, impossible to pin down.

In fact, both words mean and have meant very different things in different times and places. And the meaning we attribute them is socially constructed. It can, and does, change, frequently

Anyway, I recommend the Graeber book. It's one of those books that really does shake your world view up.

Also, the work of economist Steve Keen, on debt and recessions. If you want to get a handle on the jaw-dropping size of mess that the great neo-liberal credit-economy has dumped on us. And then you might understand why seemingly counterintuitive ideas like debt jubilees might be the least-worst option.

@stephen stafford: there is absolutely no legal framework for a country to go bankrupt, appoint an adminstrator and share assetts etc, as you suggest. So it couldn't have happened. When you lend to a State, it's on trust alone. If it lets you down, you have to take it on the chin. The perceived risk of this happening is reflected in the bond yield - an expectation of defualt is already priced into the contract. Anyway, what are you going to do, send in the bailliffs?

It would be helpful to stop talking about money as if it is something that really exists, governed by quasi natural laws and that we need more of it. The money system is purely a belief system - which can be changed.

Focus on the goods and services needed for a peaceful society and create appropriate exchange mechanisms and structures to enable fair trade to take place. This will need dealing with the tricky issue of sovereignty but the current act of chasing after debt-based money allied to compound interest attached to rights based on capital assets will merely drive rich and poor further apart, leading to civil unrest and if unchanged to more wars.

It's time for greece to hold new elections. And if the winning party has a mandate to default, then so be it.

Certainly they're not going to be able to repay. And certainly the creditor banks will come running to their respective governments. And then the world will go on.

It's going to be grim as hell for the greek people, of course. Presumably the family that Aditya is so concerned about aren't that well-served by all the greek banks imploding - which they will.

But they're onto a hiding to nothing on the current course.

A big part of the problem is that the dice are loaded.

If lenders act responsibly they get repaid by the debtor. If lenders act irresponsibly they get repaid by stealing the money from those who had nothing to do with the borrowing.

The fraudsters running the banks were complicit in criminal deception - they knew that a vast proportion of the 'self-certified' loans were misrepresentations of the facts but they lent the money and took the bonuses.

Now, as was inevitable, those loans have turned sour the people are continuing to fund the bonuses and extremely high salaries of the fraudsters.

Many who borrowed are making money as they have not only got property but they are benefitting from historically low interest rates. those who didi't borrow and lived within their means and tried to save are being shafted as real returns on savings are now negative.

Both on the way up and the way down those who behave the worst gain the most.

On a national level the USA in particular has been turned into the world's largest debtor nation through following the right-wing policies of cutting taxes again and again for the rich, tax breaks for the largest corporations such that companies such as General Electric actually get more back in tax relief than they pay.
After 30 decades of this the tax base is no longer large enough to cover the bills and what happens? - the tax cuts for the rich remain whilst the ordinary people face foreclosure, schools are shut down, public workers are laid off etc etc

"The essence of all slavery consists in taking the product of another's labor by force. It is immaterial whether this force be founded upon ownership of the slave or ownership of the money that he must get to live"

-Leo Tolstoy