Here is an interesting (but not altogether clear) piece about Cyprus and ‘national insolvency’ by Stephen Kinsella at Harvard Business Review:

… national borrowing on the modern scale really only began around the seventeenth century. Before that in the monarchical era, so-called “court bankers” provided cash-strapped sovereigns with loans and quite often served as royal tax collectors and handled other fiduciary matters for them. Monarchical debts, when they were paid, were usually paid at the people’s expense. For example the land now known as Pennsylvania was given by the Crown to William Penn to repay a 16,000 pound debt.

With the passing of the monarchical governance structure, responsibility for a nation’s debt moved from the rulers to the ruled. Henceforth these were the people’s debts, issued by a national bank, the Bank of England — in return for the privilege of producing its own banknotes — on behalf of the people, to their elected rulers.

I believe the analogy between national finances and insolvency is damaging. If politicians and policy makers believe their country is, literally, insolvent, then they behave differently towards their creditors. For politicians of debtor states, suddenly vast privatizations make sense, because of course you’re selling some of your remaining assets.

Suddenly the will of the people of the debtor nation becomes secondary to the will of the nation’s creditors. Suddenly democracy is an expensive irrelevance in the face of an overwhelming technocratic desire for a speedy, and market-friendly, solution.

Hmm.

There’s more (my emphasis):

The single European currency project, in depriving member states of the ability to issue their own currency, has created the conditions for something close to national insolvency when economies slump. With high debt-to-national output ratios, current account deficits, fiscal deficits, and, putting it mildly, shaky banking systems, the debtor countries of Europe look very much like insolvent firms to the markets.

Their sovereign power to issue currency is gone, meaning only painful deflation through the wage channels are possible. Leaving the currency union is very, very costly. The solution is national austerity. Indeed, in some cases, like Cyprus, Ireland, and Italy, the banking systems are so big relative to the rest of the economy as to make the sovereign itself almost vestigial.

The saving of the banking system and the system as a whole is the prime concern of Europe’s policy makers — typically representing the interests of creditor countries — but what will take its place?

A more or less autocratic system of coercion is the logical outcome of these policies. They come from using ideas like national insolvency to reduce the grip a people have on their sovereignty.

But there is no asset valuation concept in the founding documents of any nation state; nor should there be.

That last sentence is curious. Why ‘should’ there be no asset valuation concept in the founding documents of any nation state?

There is in fact always an implicit asset valuation, namely the ability of the state to coerce its own people to extract more taxes and so pay off debts. The ‘asset’ is the future work of the populace and the ability to extract value from it. Without that why would anyone lend money to a state when that state wanted to spend more than it was taking in from taxes?

The author is right to identify the emerging ‘more or less autocratic system of coercion’ as the logical outcome of EZ policies. And he’s right that this reflects the fact that the EU/EZ projects do require people to have less grip on ‘their’ (sic) sovereignty. But that’s not a bug. It’s the key feature!

Nasty parochial national sovereignty is now required to give way to bold shiny higher EU-level sovereignty, in which the mass of Germans heavily outvote the puny Greeks and Cypriots – democracy! I have added a comment to the piece in this sense.

So, question. Is ‘national sovereignty’ (putting to one side the increasingly tricky of what a ‘nation’ is these days) a conservative, old-fashioned, obstructive force? Or is it something progressive and noble, the one unfailing must-be-maintained-at-all-costs barrier between the masses and the brutish technocratic markets?

Both?

Who should have more say in how the EU deals with its currency and its debts? Large numbers of Germans or small numbers of other countries’ citizens? What does democracy as a basis for sovereignty mean in this context?

And, as usual, the only question that matters: who decides?