The Euro crisis has opened insights into the nature of the European society: it is built on debt. But what do we owe each other? The recent move towards ‘Eurobonds’ as a means to share the burden of the crisis cannot be understood without considering the background of legal and economic relations which already oblige individuals and collectives with regard to one another across the continent. This transnational network of bonds ‑ European bonds – will be at the centre of the project. Combining the expertise of social science and legal scholarship, we will use the law as an indicator of the state of solidarity in Europe. The result of our research will be a more sophisticated understanding of the moral economy of debt in Europe. The project emerged from the Centre of Excellence “Foundations of European Law and Polity” at the University of Helsinki, will run for four years (2013-2017) and include four postdoctoral researchers.
Europe is in a crisis, a crisis of its idea, identity, and institutions. With the Euro at stake, the project of European integration is facing one of its biggest challenges so far. Is not Europe, an integrated European economy, polity and society, but an illusion? Indeed, the European society is built on debt, which is a powerful social fiction. The foundations of today’s Europe are law and money, notwithstanding more charming visions of Europe’s infinite ‘becoming’. The recent move towards ‘Eurobonds’ as a means to solve the European sovereign debt crisis cannot be understood without considering the background of legal and economic relations which already oblige individuals and collectives with regard to one another across the continent. This transnational network of bonds European bonds – will be at the centre of the project. Combining the expertise of social science and legal scholarship, we aim to shed light on the normative quality of factual interdependencies, or what we call the ‘moral economy of debt’. Drawing on historical scholarship (from Savigny’s jurisprudence to Durkheim’s sociology), law will be used as an indicator of morality, i.e., of the state of solidarity in Europe. Drawing on economic sociology (such as Simmel’s, Weber’s, and Polanyi’s views of monetary capitalism), we will expose the function of law in a modern transnational society, in which everybody is in everybody’s debt. In doing so, we will substantiate the ‘economic sociology of law’, which links law, economy, and society, with regard to transnational debt relations. These will be approached from four different angles: the commodification of debt between private actors, the instrumentalization of debt between EU member states, the institutionalization of financial solidarity in EU law, and the moralization of debt (into guilt) in a community of faith. The result will be a more sophisticated understanding of the European ‘society of debt’, and of how policy choices are shaped by this ‘shared destiny’, which has become evident in the crisis.
Debt relations fall neatly between the disciplines. This is why an inter-discipline, such as the ‘economic sociology of law’, seems particularly apt to study them. Located at the interface of three scholarly disciplines (law, economics, and sociology), and three less ‘disciplined’ research fields in-between (economy & society, law & society, law & economics), the economic sociology of law explores legal, economic, and social aspects of a problem – such as credit and debt – and integrates them in a coherent analytical framework. This overall approach is presently gaining profile, with an increasing number of scholars engaging in boundary-spanning work. The PI has systematically elaborated on theoretical and practical dimensions of this venture (Frerichs 2009; 2010; 2011a; b; 2012 a; b; c; d). Her postdoctoral dissertation (2012e) is the first monograph, the explicit aim of which is to further the economic sociology of law. The core idea of this book is that law ‘constitutes’ the market society. Supiot (2007, xv) speaks in this respect of the “dogmatic foundations of the market”. Accordingly, “the economy, insofar as it involves exchange, is above all concerned with credit (etymologically credere: ‘to believe’); and, in its free trade form, is based entirely on legal fictions such as legal personality or the circulation of debt claims, that is, the circulation of beliefs” (ibid.). This is Polanyi’s famous argument of ‘fictitious commodities’ taken to the law. In this view, land, labour, and money – here including credit and debt – are artefacts of law and economics. Hence, to understand the formalization and ‘financialization’ of debtor-creditor relations in today’s market economies, economic sociology has to turn to the law.
Credit and debt integrate societies, both within and across national borders. However, with the expansion of financial markets, debt relations have become increasingly transnational. The ‘commodified’ give-and-take may basically follow economic criteria, but it also has a moral dimension. In Europe, internal market and monetary union have created unprecedented financial interdependencies. The recent crisis only reveals the existing entanglement between individuals and collectives all over the continent. From a Durkheimian point of view (Frerichs and Münch 2009; 2010), private and public debt relations form a network of financial solidarity, which can be understood as the backbone of European society. This fairly abstract form of solidarity, which develops alongside economic and financial exchange, is in conflict with more conventional forms of solidarity based on shared life worlds or national identities. The clash of national and transnational solidarities is manifest in different approaches to managing the Euro crisis, including the institutional design of ‘Eurobonds’.
The crisis exposed Europe as a ‘society of debt’ – but as a society nonetheless. In sociological perspective, a crisis lays bare what is otherwise taken for granted. The normal state of affairs suddenly becomes problematic; established patterns or presumptions are experienced as precarious. A diagnosis is needed. In this sense, the Euro crisis offers a chance to advance the sociology of Europe, which still risks falling into the trap of ‘methodological nationalism’. Accordingly, the European society would have to match the organized solidarity of national welfare systems – or, otherwise, would not exist. While financial crises are typical understood as a result of market failure, government failure, or even system failure, the economic sociology of law offers a different point of view that focuses on the social and legal bonds of obligation which debt creates. These are the same in normal times and in times of crisis, which only differ by a ‘loss of credit’. The liberal ideal is to be “in nobody’s debt” (Polanyi 1957, 258).
Accordingly, individual freedom means “[t]o owe nothing to anyone, to be able to walk away from a social bond and discharge an obligation just as you change tradesmen when you’re not satisfied” (Godbout and Caille 1998, 63). In reality, it is just the opposite: in ‘financialized’ societies everybody is virtually in everybody’s debt. Weber thus argued already in 1894 that stock and commodity exchanges increase not only the number of “securitized claims”, but also the extent of “mutual owing-of payments [Tributpflichtigkeit]” (2000, 320; emphasis omitted). Put differently, everybody owns (shares or bonds) and everybody owes (dividends, interests, or simply taxes) at the same time.
In this project, a group of social scientists and legal scholars will collaborate in order to illuminate the moral economy of debt in Europe. Our main interest is in transnational debt relations, which link individuals and collectives across borders. We thus look at Europe as a prototype of a transnational society. As a ‘society of debt’, Europe cannot be confined to the Euro-zone only, or to the internal market. Instead, it is the network of debt relations which defines Europe, or the interdependencies experienced in the crisis. The term ‘moral economy’ is used in an analytical and not in a normative sense; our approach to the economy of debt is empirical. However, our material is inherently normative: the moral framework that regulates debt relations, the legal obligations that the act of borrowing or lending entails. Importantly, we do not contrast ‘moral economy’ with ‘market economy’, neither in historical nor critical perspective. Instead, our starting point is that also market economies do have a moral dimension, which the economic sociology of law seeks to illuminate. To arrive at a better understanding of the European ‘society of debt’, we will employ four different perspectives which consist, at the same time, in particular hypotheses, or ‘claims of relevance’. Our truth criterion is that of a ‘science of culture’; we thus do not aim at general laws but at the ‘cultural significance’ of the insights gained.
3.1. Commodification of debt between private actors
The first perspective is concerned with debt relations between private actors, as expressed in substantive private law, private international law, and financial markets regulation. A precondition for the growing network of transnational debt relations between individuals and legal persons all over the world is the commodification of debt, which is a process where debt (receivables) becomes a tradeable asset, that is, a good which can be bought and sold, used as collateral for new debt, and so on. Such commodification is premised on the creation of exclusive and transferable property rights in debt; it involves turning debt into a type of intangible property. Historically speaking, this is a relatively recent phenomenon, and has its function, notably, in a transnational market society. As late as in the nineteenth century, von Jhering still got to ridicule his colleagues for perceiving creditor’s position as a personal attribute (comparable to, say, beauty or health), and thus non-transferable. In a Polanyian perspective, private law as modern market law underwent a great transformation from its ‘universalist’ origins in the nineteenth century, to its national ‘closings’ in the twentieth century, and its transnational ‘openings’ in the twenty-first century (Frerichs 2012). Whereas the commodification of debt within national legal systems seems nearly complete, in cross-border constellations property rights in debt are, as yet, fraught with problems, both in terms of their exclusiveness and transferability (Juutilainen 2012). Despite these problems, financial markets have developed new ways to extract the risk inherent in debt relations and repackage it as transferable assets, financial products, through techniques like securitization and derivatives (secondary and tertiary commodification). Securitized debts, however, have proved ‘insecure’, prone to ruin private persons and even trigger financial crises. The resulting conflicts need to be studied in legal and sociological perspective: for the market society to expand, private law has to pave the way.
3.2. Instrumentalization of debt between EU member states
The second perspective addresses debt relations between public actors, notably states, which are, in this case, the EU member states. Our focus will be on the European Monetary Union (EMU), the debt regime of the Euro-zone, which now includes the European Financial Stability Facility (EFSF), which is a special purpose vehicle, actually a company, and the European Stability Mechanism (ESM), which is a special purpose international organization. The decision to provide aid (creating a debt relation between the member state and the EFSF or the ESM) is taken according to EU law and international law, respectively. In monetary matters, negotiations are often characterized by an interest-based strategy of ‘bargaining’, which reflects pre-existing relations of power, rather than a deliberative mode of ‘arguing’. The bargaining patterns in the EU are strongly affected by the respective positions of the member states as creditor or debtor states. Weber once argued that the science of political economy is “a servant of [national] politics”, which advances “the interests of national power” in an international context (1980, 438; emphasis omitted). Moreover, he also agreed with the characterization of “jurisprudence as ‘the handmaiden of political economy’” (ibid., 439). Accordingly, both law and economics are linked to the national interest. In such perspective, the law regulating sovereign debt has to be studied not only in its own right but also in its political and economic functions. In the case of the EMU, references to legality (or the rule of law), while the applicable rules are, at the same time, redesigned and reinterpreted, only worked to conceal these contingencies. The ‘moving’ target of our socio-legal approach is thus the debt regime of the EMU, both with a view on the history of debt relations between EU member states and on recent developments as regards the common issuance of Eurobonds. What needs to be unpacked, in this context, is not least the legal concept – or legal fiction – of state debt and state insolvency.
3.3. Institutionalization of financial solidarity in EU law
The third perspective likewise deals with the EU; however, this time the focus is not only on relations between member states but also on relations between Union citizens, i.e., mobile and ‘static’ Member State nationals. These relations are indirect in that they are mediated by solidarity claims with regard to national or transnational collectives. Solidarity can be taken as formative principle underlying the EU legal order and all obligations flowing from joining the EU. It can be considered instrumental in that through Union citizenship it grants, to a limited extent, rights of access to national welfare systems to citizens of other EU member states. The introduction of Union citizenship was a logical continuum of the internal market development (free movement of persons), but its legal operationalization was left to the Court of Justice of the EU (CJEU). In this context, solidarity is brought up in two different ways (Sankari 2011): first, in a positive sense, as justification for extending nationally organized solidarity to economically non-active citizens from other member states, and second, in a negative sense, arguing that limiting nationally organized solidarity is an objectively justified public interest reason for measures restricting free movement. Other cases, in which the CJEU has considered solidarity claims, include early infringement cases concerning failure to fulfil Member State obligations, some specifically to producing steel and iron under price and quantity restrictions in times of ‘crisis’, and later on exclusion of activities from competition and state aid regulation. What is at stake in all these conflicts is the scope of financial obligations within the EU. Solidarity is used as an argument both for a transnational ‘opening’ and a national ‘closing’ of existing national welfare regimes, or social market economies. This ambiguity can be solved by distinguishing, with Durkheim, between ‘organic’ forms of transnational solidarity, which develop alongside economic interdependencies, and ‘mechanical’ forms of national solidarity, which are still based on shared identities. CJEU case law thus lends itself not only to legal but also to sociological interpretation.
3.4. Moralization of debt (into guilt) in a community of faith
The fourth perspective goes beyond debt relations within the institutional context of the EU, but is equally relevant for an understanding of the European ‘society of debt’, which is, in this case, framed as a community of faith. The aim is to explore the religious, or spiritual, dimension of debt relations, which comes into play when debt is equated with guilt. The link between guilt (Schuld) and debt (Schulden) suggests itself first of all in the German language, and already inspired Nietzsche. For Benjamin, “capitalism is probably the first instance of a cult that creates guilt, not atonement” (2004, 288). But why guilt, if what capitalism needs is credit and debt (which are productive fictions, but lacking the moral sting)? Interestingly, it is also the Germans who stood out in the Euro crisis for blaming the Greeks, who had only followed the capitalistic logic and absorbed the credit surplus of other nations, as ‘debt-sinners’ or ‘deficit-sinners’. This is reason enough to find out about the religious background of such notions. Is it still the cultural cleavage between Protestant north and Catholic South? The approach undertaken here is a genealogy of debt which retraces contemporary conflicts in deeper layers of the occidental culture. In such a perspective, the selling of indulgencies by the Catholic Church in medieval times, the excesses of which helped to trigger the Reformation, can be understood as a prototype of banking in an ‘economy of salvation’. Accordingly, banking was not yet about mediating credit and debt in today’s sense of the term, but about balancing good and bad deeds. The good deeds of Christ, apostles and saints were stored by the Church as spiritual assets and could be used to redeem sinners from their guilt. What was premised on a belief in and fear of God, can also be understood as a technique of government, which found its continuation in a more secular context (Hurri 2011). As Foucault’s work demonstrates, modern government is premised on a shift from law to economics, or from homo juridicus to homo oeconomicus (Frerichs 2010). The genealogy of debt cuts across both and uncovers the roots of ‘governability’ in religious practices: the birth of homo indebitus (Lazzarato 2012).
4. Research Method
This project seeks to advance the ‘economic sociology of law’ and exemplify it with regard to the moral economy of debt in Europe. As a cross-disciplinary project, it will combine the methods and approaches of two different disciplines, namely law and sociology. Inasmuch as the intersections of law, economy, and society are concerned, there are also links to scholarship in political science and political economy. The project has a comprehensive, or even ‘holistic’, sociological framing, which may at first look rather theoretical. However, in the implementation phase, the emphasis will be on empirical work in the four strands, or orientations, identified above. By ‘empirical’ we refer, first of all, to the use of law as an indicator of morality which reflects a given division of labour in society (Durkheim 1984), in short: law serves as a proxy of the moral economy which stabilizes (or jeopardizes) the European ‘society of debt’. This method – the turn to the law – is at the core of the economic sociology of law. Whereas much work in the sociology of law, socio-legal studies, or law-and-society research follows a ‘positivist’ or ‘empiricist’ approach which conceives of legal behaviour from an external point of view only, our starting point is a more ‘interpretivist’ understanding of law as subject of the science of culture. This means that also the internal point of view of legal actors and legal scholars has to be taken seriously. Accordingly, legal theory and legal practice are intertwined in the language of the law, which has both normative and performative effects. Hence, we do not exclude but include legal discourse as material of our studies. The whole challenge of the project is to switch from legal arguments which are valid within legal discourse to a sociological interpretation of law as an instance of the morality of society.