Greece is falling down. So is Spain, Italy, and many other Eurozone countries. This IS a serious problem. It has been continously argued that "debt default"(which may sound negative) can alleviate the situation.
Well, can they? We'll find out in both Prop. and Opp. case that I made last week. The one about criminal justice was made yesterday, for your information.
THS sovereign debt default as a legitimate economic
strategy for countries
Why is this controversial?
The Eurozone crisis is primarily a debt crisis. The crisis has impeded investment and growth not only in Europe, but the entire world as well. Currently, several countries in Europe are suffering from heavy debts. Only Spain and Ireland were involved in the beginning, but Greece and Italy soon joined the line. The policymakers of ECB and European nations put their best effort in stopping these countries from default, in an attempt to “alleviate” the situation. Whether the policy of the EU was legitimate or not is controversial. Meanwhile, there have been numerous suggestions of different strategies that might be able to deal with the Eurozone crisis. Sovereign debt default is one of them.
This video here counts the costs of a default. It is quite informational and deep.
<<CASE>>
I. GOV
Overarching Theme: Best possible
Intro: When you lend money to someone, you have an expectation that the money will return soon with additional interests. But sometimes, you might not be able to get the interest. And sometimes, you may not receive the original money as well. Let’s say that the debtor cannot pay back, no matter what. In these cases, you are likely to be frustrated. However, maybe there is a chance for you to get half of the money back. Would you not take this chance? When it’s impossible to fulfill your desires, it is much cleverer to collect what you can. At least it’s better than dragging time until you can get nothing back. Also, it’s beneficial to the debtor because he can work hard for a bright future, not an abysmal crisis which he can do nothing about.
DEF:
TH=International society
Support: Strongly recommending debt default as soon as possible if the crisis is too severe.
Sovereign debt default=a state which a country’s debt is bigger than the asset so that there is a significantly low possibility of repay
Legitimate=Making sense in terms of efficiency, effectiveness, feasibility, and morals
Burden of Proof: Sovereign debt default has the least impact on economy, thus beneficial to both creditor and debtor.
Arguments
1. Justification(only possible)
1-1) Sovereignty of the country
The countries we’re talking about here are nations with independent constitutions. They possess their country’s sovereignty. They have a right to decide what’s beneficial and detrimental for them. Maybe these countries can lose trust from other nations. Still, if they decide that default is better off for them, this should be respected.
1-2) Best possible option yet
How are you going to get your money back from a destitute person? Just accept it-it’s impossible. So it might be wiser to stop struggling for your money and give him opportunities so that he doesn’t create problems. When a country has serious problems within its economy, it affects the world economy as well. In order to minimize impact, the overall economy should be prioritized, not individual loans. Countries facing crisis can’t find motivation to overcome the crisis because there are too much debt to pay. Removing this burden is the best and sadly, the only option we have. We can’t just sit down and demand for repay until the country goes bankrupt.
2. Economic benefits to the country
2-1) Financial stability
When the government gives a notice that they will declare default, the results would be much calmer than sudden bankruptcy. The creditors would be conscious and prepared for the situation. Through decorous default, there will be less impact on the market. You don’t have to worry about the impact of default, because the market has already reflected that possibility. Meanwhile, sudden bankruptcy would completely destabilize the country’s economy, and it would soon suck the funds of the IMF and neighboring countries additionally. In the case of Greece, it would be much better to declare default following the logic above. Since extreme inflation provides an easy windfall to debtors because it reduces the money they have to pay back, countries find this very attractive and inflate their currency until their economy goes blank.
2-2) Relieves the crisis faster than sticking to the crisis
-Default means that a country no longer has the ability to pay back the lent money. Then what will happen in cases of default? Well, the government will certainly carry out financial policies that include lay-offs and tax augmentation. But this will not work in times of crisis, where the country is burdened of a huge debt. That’s because there will be no motivation whatsoever in such an abysmal situation, whereas the atmosphere of society will ameliorate when there is “hope”. Prop believes that it is much better to encourage the will to overcome the crisis and do something in favor for the creditors in the future, when the country’s economy has improved.
3. Economic benefits to others
3-1) Less impact on world when the crisis is smoothly solved within the country
Think of a deep hole that you cannot climb out of. This is what these countries will fall into if they face sudden bankruptcy. In this case, the world economy would directly suffer and be burdened by the recovery cost of that country. If US bankrupts, people would have to admit that all the dollars and US bonds they posses are nothing more than a piece of paper. However, since debt default would bring motivation and “hope”to the country, the problem is likely to be dealt by the painstaking of only the nation and its citizens.
II. OPP
Overarching Theme: Trust
Intro: Suppose you have a friend who often borrows money from you. This guy has records; he has borrowed money from many others, too. But he didn’t repay the money even once. When you have discovered this fact, you are likely to be highly reluctant when he asks for quarters. It can be inferred that he’s not going to pay back neither the quarters, nor the money that he previously borrowed from you. Undoubtedly, your friend will be neglected from his peers since he isn’t honest and has inflicted financial loss to them. Some of them could be very angry, and even smack him in the face. This is the situation that team OPP want to prevent. We do not consider sovereign debt default legitimate, and believe that countries should not be so easily freed from responsibilities for other nations.
Arguments
1. It is not legitimate
1-1) Morally wrong
-Borrowing someone else’s property and irresponsibly saying “sorry” cannot be justified. It works the same in relationships between countries and countries. The motion questions about “legitimacy”,and this concept definitely includes moral values.
1-2) Absence of trust
In any relationship, there is something called “trust”, and this is what enables a relationship. Especially when it comes to money problems, trust is what it’s all about. Allowing sovereign debt default will lower the credibility of the defaulted country, of course. But it may be deleterious to the overall trust among the world as well. Such a twisted atmosphere might be a huge obstacle in any future agendas.
1-3) Undesirable precedent
This is also related to the “trust”issue. Allowing countries to freely announce default means that countries do not have the burden to repay if it’s too big. As a result, countries are not likely to worry about their financial status when borrowing and consuming money. Additionally, since such behaviors are expected, there will be a smaller number of countries eager to lend money. Since money cannot flow, growth of the world economy will be seriously deterred.
2. Harms to the world(creditor)
2-1) Heavy financial burden
During the Argentine economy crisis, the creditors got only 25% of what they had lent to Argentina. This meant that nearly 75% of their precious money was gone. Loaners don’t lend money because their vault deluges with gold. They hope for a better life. Money is just as important to the creditors. Originally, they are supposed to receive additional interests. But they can’t even get their own money back. This must not happen in a liberal democratic society, where your properties and justifiable rights are protected.
2-2) Severely affects world economy
Let’s see the example of Greece. What would happen if Greece went default? Euro’s value would fall, and it will be undervalued compared Dollar and Yuan. This means that countries which use Euro will be burdened of debts much more than before, because their currency is nothing more than pieces of paper. Not only in terms of currency, but default will destabilize the world economy and startle people.
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