Opinion     

Applying the Talmud logic to restructuring

Updated: 2011-08-26 By

• There are two ways to look at Greece's unsustainable sovereign-debt mountain.

  There is, first, a pragmatic and short-term perspective, which focuses on ensuring some form of orderly restructuring (possibly for other vulnerable European states as well) without bringing down the eurozone.

  And there is a "moral" perspective, which focuses on the nature of debt and on the long-term economic consequences of failing to honor it.

  Neither perspective is wrong; on the contrary, the problem is how to reconcile them.

  In these circumstances, the Talmud, the ancient repository of Jewish legal commentary - and one of the oldest sources of human thought on morality and economic activity - might hold the key.

  An oft-quoted passage provides a fresh, if not exactly new, perspective on Greece's debt and the best way to address it. The passage concerns sales, divorces, and offerings, and specifies that these acts are legally valid only if a person performs them voluntarily. Nevertheless, under certain circumstances, courts may force an individual until he says that he is, indeed, willing.

  The verse says, literally, "We (the court) force him until he says that he wants to do it willingly."

  Understanding this apparent contradiction sheds light on the controversy surrounding the question of private bondholders' involvement in the Greek rescue package.

  It is argued that, to avoid a default, private creditors should agree to shoulder part of the cost of the bailout.

  But how does one impose a financial loss on bondholders without it being classified by credit-rating agencies as a default? The prevailing answer is that one coerces bondholders to accept the deal "voluntarily."

  One could dismiss this dispute as being mere rhetoric. But, using the Talmudic logic, one can also show that there are mechanisms that can - and should - be used to place pressure on the parties in the interest of obtaining superior voluntary outcomes.

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