I watched the video by David McWilliams called Punk Economics (http://ow.ly/8S2nk) where he laid out his case against the austerity measures demanded by Germany of Greece. He also talks about the a cultural divide in Europe which adds to the acrimony of the debate on austerity vs. debt-forgiveness. At the two-minute mark of the video, he pointed out that most of the debtor countries (Italy, Spain, Ireland, and Portugal) are Catholic. In the Catholic religion, debt is equated morally with guilt, which is dealt with through the ritual of confession. This involves an act of repentance which leads to forgiveness and a sense of starting over. These countries are of the mindset that there will be a short-term financial equivalent of penance which will be accompanied by debt forgiveness. In their eyes, the lender and the borrower are both considered liable for the creation of the problem, and will thus both be required to sacrifice to solve it.
In the Protestant mindset applied by Germany, however, the borrower or debtor is considered the sole sinner in this matter, and must be punished in the equivalent of “eternal hellfire and damnation” through years of austerity. However, in reality this turns out to be counterproductive, like the debtor’s prison of old. He points out that Ireland, which has been under conditions of austerity for three years now, is now less able to pay back the debt than before.
Whether you agree with David McWilliams macroeconomic prescription or not, I think it is important to see how cultural values impinge on the economic debate if you are to gain a full understanding of the negotiations going on in Europe.