Thomas Piketty and the Trap of Nationalism

by Raša Karapandža

In a recent interview with Die Zeit (translated by Gavin Schalliol), economist and author of bestselling book “Capital in the 21st Century” Thomas Piketty said: “When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations.”

What struck me was that Mr. Piketty’s statement was neither leftist nor socialist but a nationalist statement. Let me clarify: ascribing morality to nations or states is the essence of nationalism. What does this statement mean? It means that not all countries can take the same moral ground when addressing certain issues. So then it would be more correct for a French official than for a German one to adopt a “moral” stance on debt? Such statement runs counter to the basic principles of logic and rational thought. But perhaps Mr. Piketty did not mean Germany per se and instead meant that Angela Merkel has no right to lecture other governments? Why would that be? Because her grandparents lived during (and may have participated in) unjust wars? Yet Mr. Piketty believes he has a higher moral ground when lecturing other people; evidently neither he nor his ancestors has ever defaulted on any debt. Elevating those who are rich enough to be unaffected by debt to a higher “moral” ground is a dubious proposition—and one that does not accord with morality as that term is usually understood. Unless, of course, one believes that “the golden rule” means “those with the gold make the rules”.

Even more problematic is Mr. Piketty’s claim that Germany has never repaid its debts. Germany has serviced its debts since 1953 on a daily basis, and even debt accumulated during the great wars has been repaid in part. Therefore, claiming that Germany has never repaid its debts is false—as Piketty should know, since he is a historian of economics. But even if Mr. Piketty’s claim were true, that would still not justify his statement that Germany does not have the same moral ground as other nations.

Mr. Piketty can hardly claim that Germany never paid its debts. The truth of certain other facts, however, is irrefutable. For instance: even though pensions in Slovakia and Slovenia average €448 and €550, respectively, the average pension in Greece is €883. Even though Slovakia’s GDP per capita and prices are similar to those in Greece, the Greek government is somehow able to pay roughly double for pensions and salaries. Slovenia, a country to which Greece owes the most (in relative terms, as a percentage of Slovenian GDP), is more expensive and has higher GDP per capita than Greece; nonetheless, pensions are much lower than in Greece and the difference is even greater when one considers public employee salaries—which have doubled in Greece over the last decade. Mr. Piketty and Mr. Tsipras have given the world a new definition: austerity—when one spends twice as much as necessary and then borrows like there’s no tomorrow.

Another truth is that less than 48 hours before calling for a referendum—which was organized because Greek debt is unsustainably large—the country took out another loan worth €1.7-billion; then, on the day after the referendum, Mr. Tsipras asked for new loans amounting to €7 billion. Another incontrovertible fact is that, in 2012, 46% of Greek debt was canceled while interest rates were reduced on the rest. Extending the debt’s maturity by two decades had the effect of canceling more than 80% of what Greece owed. Meanwhile, interest rates continue to fall and are (in the case of ELA loans) converging to zero.

Why does almost every company’s CEO hate the month of February? Because it is two days shorter than the other months, and those missing two days make it difficult for many companies to pay February salaries on time. However, Mr. Tsipras barely blinked before deciding to shut down the Greek economy for two whole weeks. This likely created the greatest negative shock ever suffered by the country’s economy in such a short period—even as Nobel-winning economists praised the move. Another issue is the referendum. It may have seemed democratic, but the referendum was asking Greeks to make a decision on a poorly translated document that was not even the final version and that practically required a PhD degree to understand! The referendum campaign relied on false promises of a deal with the Troika that was made by minister Varufakis. Varu who? Varu who disappeared as the results of the referendum came in. Varu who, together with Mr. Tsipras, managed to crash the Greek economy into a wall at full speed. From December to June, Greece’s economy expanded for the first time since 2008; in fact, it was among the fastest-growing economies in the EU. July’s post-referendum figures will, undoubtedly, be abysmal.

How does one identify populists? They are supported both by the far left and by the far right, a feat they achieve by creating a virtual enemy (an unfortunately time-honored tradition). That is exactly what Mr. Tsipras was doing and Mr. Piketty failed to notice. Creating virtual enemies such as the Troika, Goldman Sachs, and Germany resulted in the overwhelming “no” at the referendum and put Greece and its prime minister in an awkward position since Greece has received more from the Troika than from any other source of aid in its long history.

It is important for Mr. Tsipras to understand the danger of falling into a nationalist trap (judging from his latest proposal he probably understood that danger) and for Mr. Piketty to restrain from giving false ideological and moral justifications for such disastrous moves.