Debt and Guilt: Moral Economics and Europe’s Division between North and South

Bo Stråth (University of Helsinki)

This project aims at exploring the moral dimension of economics and political economy. The focus will be on the concepts of debt and guilt, in the Germanic languages contained in one term: Schuld, skuld. The interest is in the oscillation between these two meanings, between economics and political economy in a rather technical sense of debt and in the moral(istic) sense of guilt.

Debt in the technical sense is based on trust, between a creditor and a debtor, which can be individuals, organized interests, states or generations. Some form of mutual agreement or a generational contract provides the trust.  Agreements and contracts are valid under the circumstance prevailing when they were made although they argue to be of a more or less permanent validity. What happens when the contract conditions change, for instance through emerging new kinds of social problems in the wake of economic performance?

This question is the pivot in the oscillation between technical and moral economics and political economies. This question is at the theoretical centre of the essay. Social pressures for change of the agreement clash with interests in maintaining it. The issue at stake is a matter of social power relationships. If the contract does not offer any solution to the problem, and if there is no agreement on how to change the contract, a new problem formulation based on power relationships emerge, in particular discursive power. This is the situation where debt might become guilt, historical guilt, where the past becomes an argument for shaping the future and where debt is proclaimed to be invalid against the backdrop of historical guilt. The contract is cancelled instead of revised. The arguments of the defenders of the contract have ever more a dimension of orthodoxy. This is the situation where moralism, puritanism, and austerity are mobilized as arguments for or against change.

In the dynamic genealogy of moral (Nietzsche), stereotypes of Self and Other emerge. The stereotypes can have a generational  or a spatial dimension, such as between North and South, West and East around imageries of progressive and backward. They underpin moralism.

These theoretical considerations constitute the point of departure of the project. In empirical terms the framework is the political economy of the European integration since the 1970s. Debt meant until then, since 1945, under demarcation to the experiences of the Great Depression and Weimar, state debt in a Keynesian/ordoliberal social market economic theoretical framework with a clear social dimension. Political allegiance for representative democracies based on political provision of welfare and confidence in the prospects of the future. At the same time as the term of state debt was an expression of solidarity it was a technical term which did not provoke much debate as a principle. This was the time after the Second World War with expanding welfare state economies. The European solidarity dealt with a post-war break with its martial past. There was general agreement (a “social contract”) that this break required social solidarity brought about by active government interventions in the economy.

The project will begin by an investigation of the emergence and at the end achievement of a more or less hegemonic status of this view on the political economy and on the distribution of labour between the member state and the European levels when it was applied in the European integration (Milward: ‘the European rescue of the nation state’).

This expression of social solidarity through a political economy of income redistribution became in the 1970s exposed to great pressures against the backdrop of the collapse of the Bretton Woods order of the international economy around the dollar. The 1970s were a period of radical social protests, claims for the cancellation of the old labour market contract, and a conflict about how to formulate a new contract. The 1970s brought a dramatic rise of the state debts in response to the collapse of key industries like coal, shipbuilding and steel in the 1970s.

The breakdown of the connected Keynesian and ordoliberal paradigm, and, by the end of the decade, the emergence of Hayek’s neoliberal paradigm brought a more moralistic dimension to the concept of debt, although yet not under connection to the issue guilt.

The book will explore how the legitimacy of the order established in response to the era of the world wars eroded in the 1980s and how the social dimension declined and the market orientation became more pronounced with consequences for the view on debt in terms of budget and foreign trade deficits.

The years around 1990 are of particular interest. The negotiations of the German reunification and the connected negotiations of the Maastricht criteria for the planned European Monetary Union, the double-edged instrument for the fulfilment of the European unification and for the taming of reunified Germany through the europeanization of the German Mark, established the connection between debt and historical guilt. The Maastricht criteria with their political economic thought of moralism and rigidity did not only aim at the guarantee of a European Germany  – as opposed to German Europe – but the target was also, and in particular, to enforce fiscal discipline on Italy. The EMU and the euro got from the beginning a North-South dimension of moral geography. The issue of trust in the new Europe was at stake. The technical economy moved towards a moral economy.

The Wiedervereinigung and the French interest in the europeanisation of the German Mark spilt over into a question of financial moral and discipline which connected the East-West dimension in the German reunification to a North-South division. The discussion of this question gave the connection between debt and moral a new spin. Previously the moral of debt was expressed in terms of social solidarity. The new spin hinted towards a connection to financial rigidity.

As an intermediate step between the comparison of the German reunification and the Greek crisis, two cases where the moral issue of solidarity came back on the agenda massively, the analysis will focus on the transformation of the language of debt during the outdrawn attempts to come to terms with the collapse of the financial markets and the powerful intervention by the European governments to save failing banks which resulted in the state debt crisis culminating in the Greek crisis. This part of the book will map the conceptual dimension of the shift towards politics of budget rigidity accompanied by a new kind of austerity moralism. This development deals with the  transformation of the moral of social solidarity towards the moralism of austerity. The austerity campaign provoked, in turn, the emergence of the language of guilt against the rigid language of debt. The issue at stake became ever less technical and ever more moralistic under reinforcement of the North-South divide in Europe.