Jubilaeus. Giubilere, in Italian, has the double meaning of celebrating and removing. Curiously the same ambivalence existed in ancient Egypt. According to some historians, the first pharaohs, once they reached a certain age which rendered them incapable, were physically eliminated. During funeral ceremonies the priests wished the deceased pharaoh to receive great celebrations in the afterlife. At a certain point, however, the pharaohs get stronger and manage to bring the festivities to the hereafter. Thus, at the end of the thirtieth year of the reign, the great feasts of the Sed, the first form of jubilee, take place. The use of the jubilee is resumed in Babylon and assumes, in addition to the religious value, an economic character. At a certain point in his reign, the king declares the remission of debts, the return of the lands to the former owners expropriated by creditors and the release of slaves made slaves due to debts.
The dual religious and economic character of the jubilee is evident in Leviticus, which prescribes a sacred year of regeneration, rebirth and debt forgiveness every seven sabbatical years, i.e. every 49 years. When the sound of trumpets announces the jubilee throughout the kingdom, the slaves are freed again and the expropriated lands are returned to their former owners. The same concept of canceling the penalty for sins and a new beginning is at the basis of the Christian jubilee instituted by Boniface VIII in 1300. However, as Kant says, from crooked wood such as that of which man is made nothing entirely right can come out, the practical application of the jubilee has often left something to be desired. And so the Jews, as soon as they arrive in Canaan, manage to calculate the jubilee year so as not to have to give the newly reconquered lands back to the Canaanites. Over time, they also transform the ownership of land expropriated from debtors into something very similar to the common law leasehold. In other words, the value of the land and that of a slave become less and less as we approach the jubilee year and economic rationality once again prevails over religious significance.
In any case, the observance of the prescription of Leviticus was soon definitively abandoned. As for the Christian jubilee, the sadly earthly aspect of the sale of indulgences during the Holy Year of 1500 outraged the monk Luther and made the revolutionary theory of justification by faith, one of the cornerstones of the Reformation, germinate in his head. Nowadays, in the West in fiscal crisis, the idea of a sort of great financial jubilee in which the debt is restructured, forgiven or repudiated is becoming increasingly strong. The paradoxical aspect is that this idea gains strength at a time when interest rates are at zero, central banks monetize the entire annual public deficit (and more) through Qe and when the renewal of maturing debt is made very simple by the abundance of liquidity. Krugman reminds us every day that life for debtors (we are talking about the big ones, not the small ones) is not so difficult, who argues that debt is beautiful and that we need to do more of it, since it costs nothing.
Despite this, in the European periphery, the issue of debt has entered the platforms of all radical movements and exerts a strong influence on public opinion. The basic idea is that once debt has been reduced or eliminated, economies and societies will be able to miraculously turn the page and regenerate. The debt that is spoken of in the political debate is always and only the stock of gross debt. No one ever distinguishes between gross and net (the one that deducts government debt held by public institutions, including the central bank), even though in Japan, for example, gross is at 250 and net is a much more acceptable 150 percent of GDP. No one distinguishes between nominal value and net present value, i.e. the fact that 100 euros to be paid tomorrow weighs and is worth more than 100 euros to be paid in 50 years' time. No one bothers to calculate and update the actual cash flows, which can be reassuring or alarming depending on the case. No one distinguishes between debt owed to the market and debt owed to state or supranational entities.
No one compares the stock of debt with the stock of real assets that could guarantee it. No one, in any case, explains how an economy relieved of debt could quickly restart if not by contracting new debt. And with whom? In this climate of growing irrationality, how much should a holder of European debt worry? Very little as long as the ECB remains active as buyer of last resort, certainly more otherwise.
The Greek case. The Greek debt is almost entirely sealed in a closed circuit with the European institutions. The creditors know that in the current circumstances it is uncollectable and that they will have to service the debt themselves, by lending Greece the money for coupons and repayments. In this totally artificial construction that the Greek debt is 100, 200 or 300 percent of GDP has a symbolic and political value (both for the debtor and for the creditors) but it has no economic value. If the debt were canceled and Greece was still kept in balance, the practical benefit to the debtor would be close to zero (the interest burden is very low). The case would be different if Greece intended to return to a budget deficit. In this case, however, who would finance it? None, unless they restore monetary sovereignty, return to the drachma and be financed by the Bank of Greece's rotary presses.
Drachma. Those who occasionally go to the local supermarket may have noticed that feta, tzatziki and yogurt presented as Greek are actually very often produced by the burgeoning dairy industries of Denmark, France and Germany. Greece, in other words, struggles to be competitive even on its typical products. In practice, simplifying, we can say that Greece only exports tourism, while it imports everything else. A 50 percent devaluation of a hypothetical drachma would make tourism more competitive, but would double the cost in drachmas of all imports. However, the extra tourism would be poor tourism which would at least partially push away the rich tourism. Arguably, therefore, the devaluation, far from making it more competitive, would return Greece to current account deficit. The Greeks know this very well and that is why they are all against taking back monetary sovereignty, i.e. the drachma. They would pay double for their cars in exchange for a few extra bucks from the campers.
Transfer merge. The Greek affair may have shown Europe's worst face, but it was in fact a further step towards the Eurozone model so opposed by the Germans, that union of transfers in which rich states transfer resources to poor ones. In the United States, transfers occur automatically through the enormous federal machinery and centralized pension and health care systems. In Europe, on the other hand, they have to be negotiated from time to time, but they happen. Greece, moreover, has cost the rest of the Eurozone 400 billion euros so far and many more will cost in the coming years. Germany knows perfectly well that it will have to spend more and more on Europe in exchange for a diminishing veto power and try to sip the concessions. However, a federal unemployment benefit is already in the drawer, perhaps financed by a federal tax on financial transactions. Germany, a country with full employment, will be the net payer. The banking union, with its associated federal deposit guarantee scheme, will also benefit the periphery at the expense of the centre.
Practically. The acute phase of the Greek crisis is clearly over. Many important, but not decisive, aspects remain to be defined. The dispute over the restructuring of the Greek debt between the Franco-American-led IMF and Germany does not deserve too much attention. It is an all-political dispute that does not aim to help Greece but to put Germany in difficulty to obtain concessions on other fronts. Moreover, the IMF has never restructured anything and has always limited itself to reprofiling the debt of French-speaking Africa from time to time, a much weaker debtor than Greece. Many portfolios that lightened during the Greek crisis are still underweight and can provide fuel for a continuation of the ongoing tradable rally. China, which continues to be waved as an immediate danger despite its stock market recovery, certainly has a stock market bordering on expensive, but that's the condition of nearly every major stock exchange on the planet.
Equity and credits they will slowly float up. However, room for upside is limited by the Fed's desire to prevent bubbles, by possible (although not certain) hikes in US rates and by the slowdown in profit growth. Europe, penalized in recent weeks by Greece, has more room for recovery. The modest potential for the upside can make investors spoiled by the great movements of recent years turn up their noses. Moving forward, however, sideways markets will be more the rule than the exception. Whether or not to exploit the swings within this lateral range will make the difference (alongside the ability to select stocks well) between good and mediocre performances.
