Neither a Borrower Nor a Lender Be

Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.

Shakespeare, Hamlet, I,iii

Well might these immortal words be ringing in Angela Merkel’s and Mario Draghi’s ears, for Shakespeare nicely encompasses the arguments for and against actions in Europe quite succinctly, 400 years later.

The borrowers in today’s Europe: Greece, Italy, Spain, and possibly France and Portugal, are in deep trouble, with high unemployment, contending with enormous debt loads, and in some instances huge proportions of the population dependent on government jobs and pensions for survival. The lenders, notably Germany and the ECB, are faced with the impossible task of guaranteeing sovereign debt to stabilize the costs of borrowing, or directly lending in certain circumstances, both of which are distinctly unpopular with large swathes of the population not directly affected. (insert current German poll indicating that Greece is “ a lost cause”)

If, then, Ms. Merkel follows the Bard’s advice: “to thine own self be true”, implications for the Euro and the EU itself are envisaged to create social, economic and political chaos. The support, it is argued by many, provides no incentives for the debtor economies to take the hard steps to reduce debt and cut expenditures: the very concept of “borrowing dulls the edge of husbandry”.

The decision played out today, for the ECB to continue to purchase bonds to support the struggling economies, is based on the central belief that all the EU economies are inextricably linked, and, indeed, the reaction in the US market to good and bad news out of Europe suggests that the markets understand the linkages to be very strong.

In that way, Mr. Draghi and Ms. Merkel are channeling John Donne:

No man is an island,
Entire of itself.
Each is a piece of the continent,
A part of the main.
If a clod be washed away by the sea,
Europe is the less.
As well as if a promontory were.
As well as if a manor of thine own
Or of thine friend’s were.
Each man’s death diminishes me,
For I am involved in mankind.
Therefore, send not to know
For whom the bell tolls,
It tolls for thee.

Time will tell if the decisions taken this summer will take root and assist Europe in avoiding deeper recession.

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