Sir, – There are several ways by which wealth can be transferred from those who are rich to those who are less rich. Progressive taxation is a traditional means, as is philanthropy. For the less patient there are more direct approaches such as theft or extortion.
An often overlooked form of wealth transfer is the loan default. In this case those who have money lend to those who do not and who cannot or will not pay back what they have borrowed. While the debtor may be thrown into prison or have his assets confiscated, in many cases the debt ends up being wholly or partially written off thus completing the wealth transfer process. While it is possible to drag a debtor through the courts, this often only adds to the expense so many creditors elect to take the hit and write it off to experience.
The present state of play in the euro zone is precisely this. Some rich people, mostly in the central countries, have foolishly lent rather a large amount of money to some not so rich people, mostly in the peripheral countries. Some, possibly quite a lot, of this money is never going to be paid back.
In this case, rather than dragging the debtors through the courts, the creditors have fixed matters to as to drag the fellow citizens of these debtors through something called austerity. This too is expensive since, as long as this goes on, these citizens will have less money to buy all those Mercedes and expensive cheeses that the creditors want to sell to them.
At some stage, the creditors will have to face reality. The amount of pain experienced by all is directly proportional to the length of time that it takes the creditors to arrive at this point. – Yours, etc,