Opinion: (Mario I. Blejer, a former Governor of the Central Bank of Argentina and former Director at the Bank of England): “There are two ways to look at Greece’s majestically 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 …might hold the key….

“The verse says, literally, ‘We (the court) force him until he says that he wants to do it willingly.’ So, ‘in divorces (if the man refuses to grant it), we exercise force on him until he says “I want to do it voluntarily.”‘ Similarly, if a court forces a person to sell his property, the sale is valid because it is considered to have been carried out voluntarily.

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?…

“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.

There are two preponderant interpretations of the Talmudic passage. One argues that coercion can change minds. When a court forces an individual until he surrenders and says that he wants to follow orders, his compliant actions are to be considered voluntary, because, ultimately, he has made the conscious decision to agree….

“The alternative is to seek a cooperative resolution, consistent with the benign interpretation of ‘forced willingness.’ This can be achieved by adopting some features of the model used in Eastern Europe, known as the “Vienna Initiative.”…

“The first pillar of that model is simultaneous involvement all parties in designing the scheme from the start…. The second ingredient is proper incentives to participate, including direct financing from bondholders’ governments…. The third component is the exercise of suasion on bondholders to achieve maximum participation, obtain binding pre-commitments, and eliminate free riders.

Since this scheme would imply losses for bondholders, substantial official muscle and peer pressure is needed….

“Therefore, under this model – and despite the initial pressure – the behavior of bondholders could be considered truly voluntary. And, while rating agencies might still regard a Vienna-type outcome as a default, the Talmudic sages show us why a more thoughtful classification is required.”
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