Are Europe's Debt Wars Religious?

One official quipped that attitudes to debt are determined by religion. He's kind of right.

How do you like your debt?

Alessandra Tarantino/AFP/Getty Images

French Economy Minister Emmanuel Macron says there's a "religious war" over debt going on in Europe, in which each country's dominant religious denomination determines the side it picks. Macron's remarks were lighthearted, but they're also grounded in historical fact.

Speaking at a conference of German diplomats on Tuesday, Macron said the war he was describing pitted a "Calvinist" view of debt, against a "Catholic" one. Under the former, puritanical approach, countries that "didn't respect their commitments" had to pay "till the end of their life," he said. For Catholics: "We failed, but we go to church, we explain the situation and we can start another week the day after."

Macron was using humor to bridge the Franco-German gap in attitudes toward fiscal responsibility, which nearly prevented euro area leaders from reaching a deal on Greece last month. It's the kind of approach that Professor Lupin taught his pupils in J.K. Rowling's "Harry Potter and the Prisoner of Azkaban": when faced with a boggart -- a creature that appeared in the shape of its beholder's worst fear -- one must shout "Riddikulus" and imagine that fearsome shape altered in a comical way.

I'm not sure the charm is going to work, though, because religious divides on the matter of debt are real and difficult to erase. 

In a 2002 paper, Rene Stulz and Rohan Williamson established that traditionally Catholic countries -- from Austria to Argentina -- afford weaker protection to creditors than do Protestant ones, such as the Nordic nations. The Catholic cultures are also worse at enforcing creditor rights. This holds regardless of a country's legal system type -- common or civil law -- or wealth level. Stulz and Williamson trace that to the prohibition of usury in the medieval (pre-Protestant) church, which aimed to protect the weak from the strong:

The medieval church was intent on restricting economic transactions to those where one of the parties would not be taking advantage of the other because of greater bargaining strength. The Calvinist Reformation viewed the payment of interest as a normal part of commerce, thereby making it possible for modern debt markets to develop. In the aftermath of the Calvinist reformation, creditor rights differed sharply across Protestant and Catholic countries.

This difference has persisted despite the declaration of Pope Pius XII in 1950 that bankers "earn their livelihood honestly": Catholic social thought doesn't consider private property and private gain as absolute values; it subordinates them to the good of society as a whole. I might add that Orthodox Christian thought is similar, which might explain the Greek case to some degree. Protestants, by contrast, are individualists and put little faith in anyone who claims to know what the common good is.

Interestingly, Catholics, who put a greater onus on the lender, are also more willing to take on debt. In a 2013 paper, Mufaddal Baxamusa and Abu Jalal found differences in the capital structures of firms in predominantly Catholic and Protestant countries: In Catholic ones, companies use an average of 3.26 percent more debt. This finding also holds for mostly Catholic and mostly Protestant counties in the U.S. A 1 percent increase in the Catholic religiosity of a county (measured as the share of practicing Catholics in the general population) leads to a 0.39 percent rise in the leverage taken on by local businesses. A 1 percent increase in Protestant religiosity decreases leverage by 0.41 percent. Religious affiliations and traditions, Baxamusa and Jalal conclude are an important reason why many companies maintain less than optimal capital structures. 

Pope Benedict XVI criticized the modern debt-heavy culture, but he did so on the grounds that "living at the expense of future generations" is bad for society. Besides, he's from Germany -- a country that has as many Catholics as Protestants, but a strong Lutheran tradition. Chancellor Angela Merkel's father, for example, was a Lutheran theologian.

The connection between religious denominations and finance is difficult to study, because there is so much statistical noise that may affect the results: ethnicity, history, geography, economic development -- which itself may be affected by religion -- are all variables that can distort any correlations found. Still, researchers traveling along different paths appear to arrive at the same Catholic-Protestant divide.

I doubt that Europe's current argument about debt stems from this dichotomy. For one thing, Stulz and Williamson point out that openness reduces the cultural influence on creditor rights, and the debt habits of Catholic countries with more international trade tend to converge with those of their Protestant trading partners. That should be especially true within a bloc such as the European Union. 

Research also shows that the more religious people are -- whether Catholic, Protestant, Muslim, Jewish or other -- the less inclined they are to take on too much debt, or to default on it. Here are some charts from a 2012 paper by Dan Hess of Seattle Pacific University, who studied the effect of religiosity on personal financial decisions using a U.S. sample (Vantage Score in the first chart refers to credit rating):

Source: Journal of Religion and Society


Hess found that people living in areas where religiosity levels are high were "more risk averse and ethical in their personal financial matters."

The main reason Greece borrowed too much before 2008, that the French and German banks lent it too much, and that Goldman Sachs enabled the whole disaster was surely greed. Similarly, the main driver for the opposing German and Greek views on debt relief is surely self interest. Would that they all did believe in something bigger than their bottom lines -- regardless of the flavor of their religions.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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    Leonid Bershidsky at

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