The Productivity of Debt: Terry Vassalos

Underlying the debates over how to resolve Greece's debt crisis is the assumption that the country’s debt poses a risk to the credibility and strength of Europe. On that premise, the looming insolvency of Greece’s banks seems to beckon the unraveling of European integration.

Terry Vassalos at the counter. Photo courtesy of Tip Top.

From the corner booth of his perpetually crowded restaurant, Tip Top, Terry Vassalos too is worried about Europe. But debt? Not so much.  Debt is what keeps his restaurant full. “Four or five years ago one of our customers, an older guy read in the newspaper that Carmax was opening in the area. He must have assumed that they were taking over our location. He walked in the door  and in the middle of a full house he started cussing me out ‘I cannot believe you sold the restaurant.’ He didn’t give me time to explain. ‘I come here every day and you sold the restaurant. No respect.’ Finally I said to him, ‘no I didn’t. It’s next door.’ It was at that moment that he realized the deep network of obligation he had fostered over the fifteen years he has owned Tip Top. Yes, he’s running a business where you give money in exchange for a meal but the contract of hospitality doesn’t end with check when you’re building a community. The warmth of that community, however, doesn’t blind him to the woes of Europe and his home country of Greece.

At the end of January the SYRIZA party came to power promising the end to austerity measures (including higher taxes and cuts to public spending) imposed as a condition of the country’s bailout in the wake of the European debt crisis in 2010. This reversal on the country’s commitments to international creditors came just as the country’s latest bailout agreement was set to expire on Feb 28. The pressure to come to an agreement on the terms for disbursement of the last bailout tranche before the end of the month was bearing down on both parties as Greece’s banks would quickly become insolvent without new credit (debt).

When I met with Terry last week there was still uncertainty over whether Greece would reach consensus with its European creditors, who were calling for a renewal of the lending program. On the other hand Greece’s finance minister, Yanis Varoufakis, who attributes the country’s “humanitarian crisis” to the austerity measures was resistant to the idea of taking out another loan with the imposed reforms. He was fighting for a renegotiation ofthe whole bailout: “Would you advise them that they should continue to take these tranches of loans from the credit card in order to deal with what is essentially an insolvency problem?”  As the auditors responsible for ensuring the Greek government meets the reform demands of the bailout, the troika—the European Commission, the European Central Bank, and the IMF—has become the focus of the country’s ire.

Terry is sensitive to the consequences of the austerity measures on his family still living in Greece and the country as a whole. He notes that his sister and brother are seeing their retirement benefits cut. They avoid using their cars as much as they can with oil prices skyrocketing. “This country deserves much more than where it is now.” But Terry locates the origins of Greece’s current trouble to a period way before the last five years of supervision by the troika. He points to years of corruption at the government level that has trickled down to make bribery and payoffs a constant part of his family’s business life.

But he is hopeful that SYRIZA’s election will herald a new beginning in politics. “One thing for sure is the new government is not corrupt. They’re never been in power. They have enthusiasm.”

That enthusiasm has been worrying Greece’s European creditors who have been stressing that the country is bound to repay the loans by the rules of the market. Whatever freewheeling leftist ideas SYRIZA may have a democratic mandate for, finance ministers from Eurozone countries (which own 60% of Greece’s debt) insist that the many rounds of bailout loans are a contract established in the free marketplace. A market where you cannot trust the other actors to pay their debts is one without credibility, or so the mantra goes. And who’s going to invest in a market without credibility? This is where the language around the economy reveals that it is a fragile construction based on confidence. Among other things, markets only work if investors have confidence that debts will be repaid. If Greece defaulted on its loan payments, it would break that underlying premise and “Grexit” would have been the only option.

When I asked Terry for his predictions on an outcome to the negotiations he told me about his last visit to Greece two months ago. “The oil price was $7/gallon. Heating oil was $5/gallon. They’re not buying it. They’re not going to buy if they don’t have the money. Everyone knows Greece cannot repay loans. You can’t beat a dead horse. You have to give them a break.” The suggestion that Greece default on its loans seems pretty radical (until you realize ajubilee isn’t just a feature of the bible).

After all the idea that one must pay one’s debt is ingrained into our conception of market exchange. But it carries such weight because, as anthropologist David Graeber points out, “it’s not actually an economic statement: it’s a moral statement.” In other words it’s not a given that borrowers must pay back their debts incurred on the market. It requires heavy reinforcement by our moral code. Debt becomes inherently bad when leaders draw on regional stereotypes to explain the crisis as a struggle between irresponsible borrowers and prudent lenders. In this line of thinking austerity measures must be painful. They are penance for accumulating debt.

Of course as many have pointed out, an irresponsible borrower is only possible with an irresponsible lender. It is only through taking the risk inherent in investment that production and growth is possible. Credit or debt relationships enable investment and production. So what is the productivity of Greek debt? According to Terry, bailing out Greece represents an investment in the European project: the conceit that shared prosperity builds peace and democracy. It’s a risky investment but one that Terry believes in.

Terry points out that the strategy behind European loans to Greece is multifarious. “What they have done so that the European banks do not go bankrupt is to loan them [the Greek government] more money so they can pay the interest back.” This echoes arguments made since 2012 that loans to Greece represent a bailout of its creditor countries. Ultimately, the benefits of these loans are intended to bolster Europe as a whole not just the immediate recipient.

When Terry brings up Germany’s occupation of Greece during World War II, he isn’t calling for reparations. Many have pointed out the futility of blaming others for the current state of Greece. He’s well aware of the damage that generations of government corruption have wreaked on his country. No, he harkens back to the history of loans and debts made between European countries to give context to the current discussions. “I mean that’s in the past but it’s not so far in the past.”

There are debts at the heart of the European project and accounts don’t balance out when people are involved. Debts create enduring social bonds.  

Currently Greece’s debt crisis is testing the strength of those bonds. Terry understands the argument that reducing Greece's debt might damage Europe's credibility by undercutting the truism that debts will be paid. But by acting as Germany's debt collector, he feels the Eurogroup is compromising the interests of the Greek people. “How can you say you’re bringing growth across Europe when there are so many poor people? Isn’t that the point of the Eurozone, that we’re stronger together?”*

A moralized understanding of debt makes shared prosperity seem impossible. It reduces the debate to two options: European growth against Greek growth. The two should be intertwined, at least according to the principals of the European project. In this ambiguous statement German Chancellor Angela Merkel seems to agree: “but one must add that Europe’s credibility depends on sticking to the rules and that we are reliable for each other.” 

So how do you bring about shared prosperity? Terry freely admits that he doesn’t have the answer. Instead he offers a reminder of the risk inherent in investing. “I think they have to be more flexible. You invest your money and then it’s going to take time to get it back. Maybe it’s going to take a bit longer.” The European community took a risk on Germany; it took a risk on Ireland etc. These credit debt relations have been productive and they have the potential to bring about further prosperity that is fundamentally shared.

Back at Tip Top, Terry Vassalos is pointing to a corner table where residents from a retirement home in the area eat twice, if not three times a day, every day of the week. “I don’t understand why because I love this place too but I cannot go to one place everyday. But it’s ok they know people. They meet people.”  Together they are swapping cold weather horror stories, bemoaning the latest road construction mayhem, and imagining the new and improved downtown cinema. Seems like the perfect incubator for negotiating a shared prosperity. Wishful thinking? Well, have you tasted their buckwheat pancakes?

*This gets to the question of whether individuals should be held responsible for repaying government debt through austerity measures in order to, so the argument goes, keep the markets, banks and economy going.