The term draconian, meaning ‘excessively harsh,’ traces back to an ancient Athenian statesman from the late 7th century BCE – Draco. In response to social strife generated by an economic crisis, he instituted laws whose very severity was supposed to bring peace. It is said that he wished he had a worse punishment than the death penalty available to him, as he had mandated it already for offenses as minor as petty theft.
Debt, then as now, was central to the crisis. As part of his laws, Draco mandated that members of the lower classes who could not pay their debts be enslaved to their creditors. This relation did not work the other way – that is, those of the upper classes could not be enslaved for their debts. Furthermore, the law did not work period – the crisis worsened.
Almost thirty years later, Solon (another statesman) was called upon to completely reform Athenian law. He called the centerpiece of his reform the Seisachtheia, which means the ‘shaking off of burdens’ – namely, the burden of debt. Not only did he prohibit future debt slavery, he freed all those so enslaved and canceled all outstanding debt. The crisis abated.
There are fewer differences between this situation in Ancient Greece and the crisis in the Eurozone today than you might think. The draconian imposition of “austerity” upon the middle and lower classes undermines the ability of the Greek economy to pay its existing debts. Meanwhile, the creditors (transnational banks) are being coddled.
Debt forgiveness for the Greek public would mean that powerful people and powerful institutions who made bad loans would have to pay with their careers and their profits. So it’s unlikely to happen without every other option being tried first.
The solution du jour is a nightmare of financial engineering – a host of acronyms meant to confuse and pacify (the EFSF, which is essentially a SPV operating as a CDO squared). It’s not accidental that the proposed policies are directly analogous to the financial instruments integral to the generation of the crisis in the first place.
These machinations do not get to the heart of the situation: the critical need for massive debt forgiveness. Covering over debt with more debt (as the EFSF is meant to do) is essentially a Ponzi scheme that will generate crisis after crisis. But perhaps that is meant as well.