In Brief
A popular paraphrase of a saying recorded by John Maynard Keynes:
“If you owe the bank a hundred pounds, you have a problem. If you owe it a million, the bank has a problem.”
Keynes captured a fundamental paradox of debt: when the sums become large enough, the creditor can become hostage to the debtor.
Leszek Balcerowicz takes this logic a step further. Governments borrow from banks, then tax their profits to finance their own excesses. The debtor ends up plundering its own financier.
The Knights Templar financed the French crown, only to be destroyed by a king determined to free himself from his debts.
Today, there are no more stakes. There are extraordinary taxes, special levies and “temporary” taxes that become permanent.
The method has been refined: creditors are no longer burned at the stake; they are smoked out through taxation. And when debt becomes systemic and the entire financial system depends on refinancing, even central bank independence may ultimately depend on how much smoke it can withstand.
The Debtor Robbing the Creditor: The New Fiscal Bonfire
A popular paraphrase of a saying recorded by John Maynard Keynes:
“If you owe the bank a hundred pounds, you have a problem. If you owe it a million, the bank has a problem.”
Strictly speaking, Keynes wrote: “Owe your banker £1000 and you are at his mercy; owe him £1 million and the position is reversed.” The former is a popular variation of the original, but that does not make the underlying insight any less valid. Keynes captured the paradox of debt: when a debt becomes large enough, the creditor can become hostage to the debtor.
Leszek Balcerowicz takes this logic a step further: the state borrows from banks, then taxes their profits to finance its own excesses. The debtor ends up plundering its own financier.
The Polish case brings this contradiction into sharp focus. The government finances a substantial budget deficit through treasury bonds, many of which are purchased by banks. Yet some politicians criticise those same banks for their profits, while the government has raised the corporate income tax on the banking sector from 19% to 30%.
The question Balcerowicz raises is simple: is the debtor robbing the creditor?
The issue goes beyond the level of taxation. It concerns the relationship between governments and the financial institutions on which they depend. Banks are expected to provide credit to households and businesses, maintain financial stability and absorb substantial amounts of public debt. At the same time, when their profits become politically inconvenient, they can find themselves singled out for additional taxes and public criticism.
This creates an uncomfortable tension. Governments need banks to remain profitable, well-capitalised and willing to lend. They also need buyers for their bonds. Yet the more dependent a government becomes on debt financing, the greater the temptation to treat the financial sector as a convenient source of additional revenue.
Poland is not alone. Italy, Spain and Hungary have also introduced special levies on banks in recent years, although the measures differ in design and scope. Governments have justified such interventions on various grounds, including exceptional profits, the uneven transmission of higher interest rates to depositors and the need to raise public revenue.
The political appeal is obvious. Bank profits are highly visible, while the costs of additional taxation are often less immediate. Higher borrowing costs, tighter lending conditions or weaker investment may emerge gradually, making them less politically salient than the prospect of collecting more tax revenue today.
None of this means that banks should be exempt from taxation or that every increase in profits is justified. Extraordinary profits can legitimately raise questions about competition, market power and the distribution of the gains from higher interest rates. The more fundamental question is whether taxation follows stable, predictable rules or becomes a discretionary instrument whenever governments face fiscal pressure.
That distinction matters because the relationship between sovereign debt and the banking sector runs in both directions. Banks purchase government bonds, helping finance public spending. Their balance sheets, in turn, are exposed to the financial health of the sovereign whose debt they hold. A deterioration in public finances can weaken banks, while problems in the banking sector can force governments to intervene. The two are connected in a relationship that can become increasingly difficult to disentangle.
When governments rely heavily on domestic banks to absorb public debt, fiscal policy and financial stability become even more closely intertwined. Measures intended to extract additional revenue from banks may therefore have consequences beyond the institutions directly affected. Depending on their design and the wider economic context, they can influence lending, investment decisions and the cost at which banks are willing to hold or purchase government debt.
The same tension is relevant to Romania. The state relies on financial markets to fund its borrowing needs, and banks are important participants in the market for government securities. At the same time, bank taxation remains a politically sensitive issue, particularly when strong financial results coincide with pressure on public finances and demands for additional budget revenue.
The question is not whether governments have the right to tax banks. They plainly do. Nor should profitability place any institution beyond scrutiny. The issue is whether fiscal policy recognises the financial interdependence between the state and the institutions financing it.
A government that repeatedly changes the rules to capture a larger share of bank profits may obtain additional revenue in the short term. But investors also assess the predictability of the tax regime, the stability of regulation and the likelihood that exceptional measures will be repeated. When temporary levies become permanent fixtures, the distinction between an emergency measure and the normal cost of doing business begins to disappear.
This is where Balcerowicz’s question acquires a broader significance. The problem is not simply that a debtor may impose costs on its creditor. It is that a heavily indebted state can become increasingly dependent on the very institutions whose capacity to finance it is affected by its own fiscal decisions.
The historical parallel is striking. The Knights Templar financed the French crown, only to be destroyed by a king determined to free himself from his debts.
Today, there are no more stakes. There are extraordinary taxes, special levies, and “temporary” taxes that become permanent.
The method has been refined: creditors are no longer burned at the stake. They are smoked out through taxation.
And when debt becomes systemic and the entire financial system depends on refinancing, even central bank independence may ultimately depend on how much smoke it can withstand.
There is a further implication for monetary policy. When public debt is high and refinancing needs are substantial, pressure can build for monetary policy to accommodate the government’s financing requirements. Central bank independence is not automatically lost under such conditions, but preserving it becomes more difficult when fiscal sustainability and financial stability are increasingly entangled.
The essential question, then, is not whether banks should pay their fair share. It is whether governments can maintain a credible and predictable fiscal framework while relying on those same banks to finance their deficits. A state that weakens the institutions on which its borrowing depends may ultimately undermine the conditions that make its own financing possible.
The paradox is not that creditors sometimes make large profits. It is that the more indispensable they become to the debtor, the more tempting it may be for the debtor to treat them as a source of revenue rather than as partners in a financial relationship on which both sides depend.
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