Sovereign Debt and Default: A Political Philosophy Perspective
Professor of Political Philosophy

(University of Bayreuth)

Gabriel Wollner studied Philosophy, Politics and Economics (BA, 2005) and Political Theory (MPhil, 2007) at the University of Oxford, Public Policy (MPP, 2012) at Harvard University and obtained his doctorate in Philosophy (PhD, 2011) from University College London. Prior to joining the University of Bayreuth, he was Assistant Professor in Philosophy at the London School of Economics (2013-2015) and Junior Professor in Political Philosophy at the Humboldt-Universität zu Berlin (2015-2018). His academic interests are in political philosophy and ethics, and the application of these inquiries to various issues in public policy and economics.

In this interview, Luc Foisneau and Gabriel Wollner pursue four themes. First, they discuss the existing practice of dealing with sovereign default and high public indebtedness, and Gabriel Wollner argues that the status quo ought to be replaced with an alternative regime. Second, they explore how the contractualist complaint model can be applied when it comes to choosing between different policy options and institutions in the realm of international financial governance. Third, they consider how political philosophy matters to Thomas Piketty’s discussion of inequality. And finally, Gabriel Wollner outlines what a research program of analytical anarchism, building on the notion of agency as central for both Socialism and Anarchism, might look like.

Gabriel Wollner was invited at the EHESS to present his paper “Morally Bankrupt: International Financial Governance and the Ethics of Sovereign Default” (The Journal of Political Philosophy, 2018, Vol. 26, n° 3, p. 344-367) at the CESPRA Séminaire de Philosophie Politique Normative.

This interview was conducted by Luc Foisneau at the EHESS Audiovisual Center, in Paris, 96 boulevard Raspail, on the 11th December 2018.

Edited by Serge Blerald

The problem of sovereign debt and default

Luc Foisneau – Could you, for a start, say a few words about how you came to be interested in the theme of sovereign debt?


Gabriel Wollner – One reason, of course, was that the issue of sovereign debt figured prominently in the news in the aftermath of the financial crisis that started in 2007. In the newspapers, you could read about Greece and about Argentina. Those were important events with tremendous ramifications for the livelihood of people. In Argentina, for example, unemployment rates went up as a consequence of Argentina’s default on its sovereign debt. Unemployment rates went up, inflation skyrocketed, and so on.

But surprisingly, political philosophers had very little to say about the moral and political philosophy issues involved in questions of sovereign debt. So, there was a bit of a silence on the side of political philosophy. And at the same time, the moral arguments put forward in a political context or a political arena struck me as very unconvincing. If you look at the Greek sovereign debt crisis, for example, politicians (e.g., the German minister of finance) made statements like: “Debt has to be repaid, period. Accept that as a norm. Agreements have to be kept, debt has to be repaid. There is no further debate about haircuts, or debt relief, and so on.”

Luc Foisneau – This is what in your paper you call the “orthodox position” or the “status quo position” on sovereign debt. Could you be a bit more specific on this status quo position that says that “debts have to be repaid, full stop”? Where does it come from? Have sovereign debts always been handled in this way? Or is this something new, associated with the European Union?


Gabriel Wollner – I think the norm of pacta sunt servanda (i.e., agreements have to be kept) is an important norm in international law. It isn’t just informing the sovereign debt regime, but matters also in other areas of international law. The sovereign debt regime, as it currently exists, has historically emerged and took its current form, I think, over the past 30 or 35 years. The main form of financing for states, if they become debtors, is through bonds. So, states issue bonds, which are then bought by investors, and if they can’t service the bond payments anymore, they either enter a state of sovereign default, or they try to restructure their debt, to negotiate with their creditors about paying less or about paying at a later time. But the sovereign debt regime, as it exists, is very chaotic, costly and skewed.

Luc Foisneau – What is wrong with it, basically? And what could be the alternative to this sovereign debt regime?


Gabriel Wollner – I think that what is wrong with it is, first, that there is chaos, by the lack of structure, of system. It is a very fragmented bargaining process that takes place between the debtor country (e.g., Argentina or Greece) and its various different creditors. The creditors are organized in the Paris club if they are sovereign creditors, and in the London club if they are private creditors. And it is a messy bargaining process, in which the creditors are usually in a stronger bargaining position. You could see this in the situation of Argentina. Argentina defaulted in the year 2000—I think that was at that point the biggest default in history—and they entered a process of restructuring, renegotiating their debts with private and sovereign creditors, with the IMF, and others. An agreement was reached at a certain point in time, but then these so-called holdout investors appeared.

Luc Foisneau – Could you explain this point? I found it very interesting, but I am not a specialist in the field. On the one side, there was already a renegotiation that had taken place. But the bankers came into the game, with this judgment, in a court in New York, that, basically, if I got it right, forced Argentina to pay all the debts, regardless of the discussions that had taken place before. So how come?


Gabriel Wollner – This is a bit complicated, indeed. I am not an economist myself. It is the philosophy perspective trying to make sense of what is going on in public policy and finance. I think the problem, as I understand it, was the following.

Argentina had many creditors. They negotiated a restructuring and exchange of debt instruments with some of them. So, say, you hold a bond that I issued, and I should repay one hundred dollars. But then I negotiate, and I will pay you back fifty, because I cannot pay the full amount. But there isn’t only you. There are so many others. We negotiate an agreement. Maybe I even negotiate an agreement with the majority of bondholders, which in theory should be binding for everyone, including the other creditors.

But then, these other creditors who bought the impaired bond on the so-called secondary market, they bought the bond after the restructuring had already started. So, they showed up and demanded the full repayment. They said: “We are not satisfied with the fifty dollars. We want the one hundred dollars back.” And then the courts ruled that Argentina had to pay the hundred dollars to the so-called holdout investors, which again meant big financial trouble for Argentina.

But it took ages (almost 15 years) until the debt saga of Argentina was finally settled, coming with tremendous economic costs for the people of Argentina, a stronger bargaining position for the creditors. This is a very chaotic and, I said, costly and skewed process, for both parties involved, actually. But the underlying normative assumption was pacta sunt servanda (i.e., agreements have to be kept, debt has to be repaid). This is, I think, the normative orthodoxy in the context of sovereign debt.

Justice and political economy: the complaint model applied

Luc Foisneau – You say that you are not an economist, but a philosopher. Could you tell us a bit more about what it means to be a normative philosopher entering the field of finance? Or the field of taxation? Because you are also interested in taxation, you have written papers on this topic. So, what does it mean? And, according to you, why do we need the input of normative philosophers on those matters?


Gabriel Wollner – Somebody working in normative political theory or philosophy asks different questions than the questions the economist would ask. I am interested in questions of justice. What would a just solution be? What would a just process of restructuring, for example, look like? It helps if you understand the economics, if you have an understanding of what is going on. So, you are an informed consumer of the finance and economics part of the newspaper. Maybe you can read an economics textbook or understand the basics at least of what is going on. But you ask different questions. And there are things which you might find fishy, or where you start thinking from the point of view of a philosopher.

Here is an example. Pacta sunt servanda (i.e., agreements have to be kept) intuitively seems like a perfectly fine norm. If we make an agreement to meet for lunch at a certain time, I better keep the agreement, right? Agreements have to be kept. Now, I think that the mistake that politicians, and maybe economists, and maybe lawyers too, make, is to take this norm, which seems to be a perfectly fine norm in an interpersonal context, and to straightforwardly assume that it applies where the parties interacting aren’t actually individuals.

It is not you and me, but different sovereign states, or even multilateral institutions, like the European Union, the IMF, and so on. But if you think about it properly, many complications arise. If you just take the norm from an individual context and apply it in a context where collective actors like states are the relevant players, it is not at all clear that the norm keeps its normative force. The number of complications that come up is huge.

Luc Foisneau – Could you be more specific on those complications, and explain to us how the present international system could be reformed in matter of debts along the lines of justice and normative preoccupations?


Gabriel Wollner – I will first say more about the complications that arise with the norm of pacta sunt servanda, and then, in the second step of my reply, I will say something about the reform prospects.

If you go to the bank, take out a loan, and agree to repay the loan in ten years’ time, you are the one who takes out the loan, who is obligated to repay the loan, and who is benefiting in the meantime (you buy a house, let us say). But if you look at the state, the story is much more complicated. Who exactly is obligated to repay the bond in 10 years’ time? Probably the citizenry through taxation. The state taxes its citizens, and that is how the state repays the loan in the future.

But the composition of the citizenry will have changed over the course of 10 years. The people who are obligated to repay the bond in the future are not the same as the people who exist at present times, and maybe, if you take a long-term perspective, even the people who benefit in the meantime are different people. So, the model of entering the agreement, benefiting in the meantime, and then having the obligation to repay, doesn’t travel straightforwardly to the international context.

I think it is actually a mistake to think that the norm of pacta sunt servanda applies in the context of sovereign debt—whatever its merits in the interpersonal context where individuals interact with others.

Luc Foisneau – If I get you right, it means that Greek citizens may raise complaints against their state, or against the European Union, or against the international system. But the fact that those individuals can raise complaints is not enough. Would it be possible to use all those complaints, within a more general model, for assessing international policies? For assessing, for example, an agreement between the European states, or banks, or the IMF, and the Greek government?


Gabriel Wollner – This is one of the ideas of my paper, “Morally Bankrupt: International Financial Governance and the Ethics of Sovereign Default”. We have this sovereign debt regime that exists. And it is unconvincing, in many respects. So, one question is: What could an alternative sovereign debt regime actually look like? What are the right policies? What are the right institutions to deal with sovereign borrowing and lending? And what to do in a situation where countries are on the brink of defaulting? How to replace the status quo with some alternative?

Now, one way to think about this problem is to apply what is called the “complaint model,” which was originally suggested by contractualists like Tim Scanlon as a general framework for figuring out what is right and wrong1, and which I think you can apply to a context where what matters is the hands-on design of institutions, like international financial governance, for example. In this perspective, instead of asking what institutional setup would generate the greatest benefits overall, or would maximize the prospects for positive benefits, you ask a different question. You take the status quo and imagine some alternative to it, and what you ask is what the complaints are that individuals could raise against going for the alternative, or against maintaining the status quo.


Individuals are adversely affected by the status quo or the alternative, which may have an impact on their well-being, on what they can do as individuals who are investing money, saving money, borrowing money, or as citizens of a state that suffers from the problem of high public indebtedness, and so on. So, an Argentinian citizen, on the one hand, would have a complaint against sticking with the status quo and not moving on to some alternative. Whereas somebody who has invested in a hedge fund, who is holding Argentinian bonds, would have a complaint against an alternative system which makes restructuring easier and shifts bargaining power towards the debtor country, which in this case would be Argentina.

You then ask the question: who would have the bigger complaint? And you go for the option that faces the smallest biggest complaint, the option that is most acceptable to the person it is least acceptable to2. That is, you minimize the biggest complaint that anyone has, and that is the preferred policy outcome.

Luc Foisneau – We are in a period of social unrest right now, for instance with the movement of the yellow vests in France, but also in many other countries. How can you evaluate, or measure, the intensity, or importance, I would say, of the complaint? Because you talk about ‘the bigger complaint’. But what is the dimension according to which you make the measure?


Gabriel Wollner – A number of issues matter. The first is: what exactly is the dimension, or the metric, in which you measure the complaint? The generic notion you could apply says that it matters how an institutional policy affects individual interests. Then the next question is obviously: what sort of interests are the relevant interests? What interests matter? I think that well-being interests are important, and that other interests, which you could call agency interests, also matter.

Luc Foisneau – Are those “agency interests” equivalent to what you also call “autonomy interests”?


Gabriel Wollner – “Autonomy interests” are basically what you can do as an individual, or as a collective, in terms of individual or collective self-determination. You can see how one policy may have a positive or a negative effect on your autonomy, or on your well-being.

Luc Foisneau – And this point is very important, because you also add to that, as a third element of comparison, justice, though people generally focus on well-being interests. Would you agree to say that one of the interests of normative political philosophy would be to be able to take into consideration a variety of interests, not only well-being interests?


Gabriel Wollner – Yes, indeed. I think that justice is important in addition to mere well-being interests. If you think about how justice matters in the context of sovereign debt, for example, what is at stake is that we all have an interest in living in a just society.

There would be disagreement about what exactly a just society looks like. But let us take an uncontroversial candidate, the Rawlsian theory of justice, with its difference principle saying that inequalities are just only if they improve the situation of the worst off in society—a fairly ambitious principle of justice3!

Now, state institutions may be better or worse in putting this principle of justice into practice. And I think sovereign borrowing and lending matters greatly for a state’s ability to actually put a principle of justice—not just the difference principle, but any principle of justice—into practice. When you have an economic downturn, for example, you think it is important to keep people in employment, to improve the situation of the worst off, but you don’t want to raise taxes, because you are in a difficult economic situation already. What you will have to do, as a state, is to go to international financial markets, borrow money, use it and invest it to put justice into practice in your domestic context.

Luc Foisneau – But what do you do then, in the present situation? President Macron said on 10th December 2018 that one of the solutions would be to give more money to people who are in need. We could say that, when he says so, he is taking into consideration the well-being dimension of the problem. But is he really taking into consideration the two other elements, which are autonomy—giving more agency to people—and justice, which seem to be at the center of the Yellow vests movement?


Gabriel Wollner – I don’t want to get too much into the details of French politics, as I don’t know what exactly Macron said in his presidential address.

Luc Foisneau – That was just an example to help you characterize more precisely the difference between the three criteria you mentioned, and see how we can take into consideration the dimension of autonomy, or agency. If I need to use my car to go somewhere, is this also a problem of agency, and to what extent?


Gabriel Wollner – Yes, indeed, it is. Mobility might be an important component of individual autonomy. And this may in part explain the fury underpinning the French Yellow vests movement. You may wonder why a tiny increase of the tax on petrol or gas would be that big of an issue. Maybe it is an important issue because it has an impact on your autonomy interests. If you live in the countryside, if you have to use a car to get around or to go to the doctor, then it matters that you can afford using your car.

To distinguish more between the well-being dimension and the justice dimension, a simple proxy for well-being could be GDP, GDP growth and so on. But that ignores the question of how growth or GDP is distributed within the population. And distribution raises questions of justice. I mean, you could have high growth rates, high GDP levels, but these being distributed very unevenly within the population, giving rise to questions of distributive justice.

And, of course, the existing sovereign debt regime, to return to our initial topic, has important ramifications, not only for the ability of the state to put a conception of justice into practice through fiscal policy and taxation, but also for who is how well-off within domestic societies. And I think that all these three things matter when it comes to morally evaluating a sovereign debt regime.

Criticizing inequalities: Piketty and the philosophers

Luc Foisneau – You wrote a very interesting review of Thomas Piketty’s Capital in the Twenty-First Century4. Could you just tell us your analysis of the book, and also the reasons why the economics of inequality suddenly came to the fore? As we know, this is not Piketty’s first book, which was not so well read. What happened in the meantime that explains the present importance of inequality in the political discussion?


Gabriel Wollner – This may actually be one of the occasions where the philosophers were quicker than the economists. There are huge debates about the value of equality, or the problem of inequality, in political philosophy5. Actually, this discussion in political philosophy already ebbed down when, suddenly, Piketty came with the book, making a big splash. But I think that the content of the book also explains its success: growing inequality, at least within domestic societies of the OECD countries, that Piketty analyzed. Growing inequality is an important issue.

My take on the book was that—again, I am not an economist, I take the econometrics and the economic history for granted (extremely interesting results, using historical tax data, advanced econometric techniques to arrive at the insights, or verdicts, that Piketty arrived at)—there are a number of interesting underlying normative questions. Not only normative questions that Piketty’s findings give rise to, but I think some normative questions one could helpfully ask before looking at the data that Piketty collected.

Piketty is not very explicit about why the inequality that he diagnoses is actually problematic from a moral point of view, or from the point of view of justice. In different passages, he says different things. Inequality is undermining the meritocratic ideal underpinning capitalism, with wealth that is inherited—it is not that you actually earned it or that you perform well. The meritocratic ideal is not reflected in the inequalities that he diagnoses. In other passages, there seems to be a worry about the stability of society. If inequality becomes too great, then societies become unstable. There is also a worry about the functioning of democratic institution. If there is too much inequality, how can we still pretend to be politically equal?

Now, there are other reasons to be worried about inequality that you can probably add to the list6. But I am not sure that you would always arrive at the verdicts at which Piketty arrived, depending on why exactly you think that inequality is problematic. So, take the one percent. This may be problematic if you worry about inequality from the point of view of meritocracy. But other inequalities may go to the fore if you worry about inequality for different reasons.

The disappearance of the middle class may be a problem, but it is not exactly clear for what reasons. Is a society in which you have people at the bottom end and then a middle class better, in terms of equality, than a society in which you have a very few people at the top and no middle class and then people at a lower level? Piketty assumes, of course, that the one percent society with a disappearing middle class is a society of greater inequality. But I think once you start asking questions about why exactly inequality is problematic, you may arrive at a different picture.

Luc Foisneau – So your position would be more along the lines of Harry Frankfurt’s7, for whom inequality does not in the end matter so much, and what is important is that everybody has enough?


Gabriel Wollner – No, quite the opposite, actually. I think that equality is an important value, and that many inequalities are problematic precisely because they are unfair. I would subscribe therefore to the more ambitious, sometimes called “luck egalitarian,” principle that nobody should be worse or better off than anybody else through no fault or choice of his or her own. It is not just important that everyone has enough, but inequalities even beyond the level of sufficiency matter, for instance because they are unfair.

Analytic Marxism, analytic anarchism: the agency issue

Luc Foisneau – This brings me to another question about the current direction of your work. One of the current directions of your work, if I got it right, concerns non-orthodox Marxism, and Gerald Cohen who was one of the founding figures of Analytic Marxism. Could you be more specific on why this non-orthodox Marxism has many things to tell us today?


Gabriel Wollner – I think that there is a more academic reason, and a more practical reason. From the point of view of academic interests, I think that there is an important strand in Marxism which has been neglected by the analytical Marxists. They have worked on Marx’s theory of history, for example, and on the notion of exploitation. It developed into the luck egalitarian debate that we just mentioned. Many of the analytical Marxists got involved in this.

But I think that there are interesting elements, for example, in the early Marx, and in western Marxism, which are more standardly associated with the critical theory tradition, and that are worth looking at again with the tools of analytic political philosophy at hand. Notions like alienation, reification, themes from the early Marx, but also from a not strictly speaking Marxist tradition, but more of the tradition associated with anarchist figures like Bakunin, Kropotkin, Proudhon in France. For some reason, analytical Marxism never really took off in that direction.

Marxism was revisited from the analytic point of view in the 1970s, 80s and 90s. But there was nothing comparable going on with regards to anarchism. Just out of academic curiosity, it would be interesting to read these classics and see whether there is anything convincing that could be developed as systematically as analytical Marxism from the point of view of contemporary and political philosophy.

Luc Foisneau – We are coming to the end of our interview. If you had to take just one concept among the concepts developed by Proudhon, Kropotkin and other anarchist thinkers, what would it be? Where would you start this program? What would be the essential concept you would like to tackle first in an analytical manner?


Gabriel Wollner – I think that one concept that is important and that could also inform a politically interesting conception of socialism is the concept of agency, or political agency, free and rational agency8. What does it mean for individuals to act for the reasons that they have? What does it mean for individuals to act rationally and autonomously? And what are the social institutions that make it possible for individuals to act as free and rational agents?

From that point of view, I think, you can develop an interesting and promising critique of capitalism. The institutions of capitalism make free and rational collective action impossible. And you can also think about what alternative institutions would look like. How would we have to organize our economy? How would we have to organize our political life to make it possible for individuals to act free and rationally?

I think it is important that individuals can act with others in the right ways to secure the conditions of free, individual, and rational agency. What do these institutions look like? Would they be compatible with markets? Would they be compatible with private property in the means of production? Would they be compatible with state institutions as we know them? Anarchism enters the picture again. I think that if you look at agency, an interesting perspective opens up.

There is a paper by John Roemer in Philosophy & Public Affairs, where Roemer argues that the idea of socialism has to be revised9. Historically, Marxists, or socialists, have been concerned with exploitation and the elimination of exploitation. Roemer thinks that this is a mistake, and that you have to look instead at radical equality of opportunity. That’s the reason why he says that socialism should be understood as radical socialist equality of opportunity.

I think that there is a third interesting conception of socialism, namely socialism as free and rational agency.

Luc Foisneau – My last question would be about teaching. You have been teaching in Berlin. You have now moved to Bayreuth. Could you tell us something about how you think that the agency of students in higher education—maybe at your new university, or at the Humboldt University—could be implemented? What could we do, as professors of philosophy, to educate our students in the direction of more agency?


Gabriel Wollner – Different levels matter, I think. One thing is what happens in the classroom. How do you interact with students? What formats do you use when you teach? Do you succeed in meeting your students eye to eye?

Philosophy is a very interesting discipline, because even first year students sometimes make arguments that are pretty good arguments that speak against your position, forcing you to admit that it doesn’t work as you imagined. Studying or teaching philosophy is very promising in this respect.

Another issue is: what exactly do you teach? What are the topics that you teach? What belongs into a political philosophy curriculum? We ought to be sensitive to the concerns that students have, and we should avoid just teaching the classics up and down. Of course, the classics have to be taught, but maybe there are other takes or issues that cater more to the concerns of students.

Unfold notes and references
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T. M. Scanlon, What We Owe to Each Other, Cambridge (MA), Harvard University Press, 1998.

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Rahul Kumar, « Risking and Wronging », Philosophy and Public Affairs, vol. 43, n° 1, 2015, p. 27-51, p. 31.

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John Rawls, A Theory of Justice, Cambridge (Mass.), Harvard University Press, 1999 (revised edition), p. 65-73.

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Thomas Piketty, Capital in the Twenty-First Century, Engl. trans. A. Goldhammer, Cambridge (Mass.), Harvard University Press, 2014. See Gabriel Wollner, “Review of Thomas Piketty, Capital in the Twenty-First Century,” Economics and Philosophy, vol. 31, n° 2, 2015, p. 327-334.

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See Ronald Dworkin, « What is Equality ? Part I : Equality of Welfare », Philosophy & Public Affairs, vol. 10, n° 3, 1981, p. 185-246, and « What is Equality ? Part II : Equality of Resources », Philosophy & Public Affairs, vol. 10, n° 4, 1981, p. 283-345. Both of these essays are reprinted in Dworkin’s Sovereign Virtue (Cambridge, MA: Harvard University Press, 2000), p. 11-64 et 65-119, respectively. See also G. A. Cohen, « On the Currency of Egalitarian Justice », Ethics, vol. 99, n° 4, 1989, p. 906-944 ; Elizabeth Anderson, « What is the Point of Equality? », Ethics, vol. 109, n° 2, 1999, p. 287-337 ; and Larry S. Temkin, Inequality, New York, Oxford University Press, 1993.

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Some of which are discussed in T. M. Scanlon, Why Does Inequality Matter? Oxford, Oxford University Press, 2018.

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See, for instance, Harry Frankfurt, “Equality as a Moral Ideal,” Ethics, vol. 98, n° 1, 1987, p. 21-43.

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See Gabriel Wollner, “Socialist Action,” Philosophical Topics, vol. 49, n° 1, 2021.

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John E. Roemer, “Socialism Revised,” Philosophy & Public Affairs, vol. 45, n° 3, 2017, p. 261-315.