Poor Greece is on the verge of defaulting on its bills and declaring bankruptcy. Credit rating agencies S&P, Moody’s, and Fitch long ago downgraded Portugal, Italy, Greece, and Spain (the PIGS) and gave them negative outlooks, with Greece getting Cs across the board. (Cuba, Pakistan, and Burkina Faso are a few of the nations with better ratings than Greece.) If Greece runs out of money and fails to pay €14.5 billion to service its debt on March 20, European markets could be badly shaken.
Greece’s financial woes are the result of its unsustainable social welfare entitlement state, whereby working adults are promised generous pensions and early retirements, and younger generations must cough up the money to pay for these, though they won’t receive similar benefits when they retire. (Sound familiar?) The government has been borrowing to subsidize these pensions, but it’s not enough—partly because Greece has one of the lowest birthrates in the world, and partly because swaths of young educated Greeks are fleeing the country and emigrating elsewhere to find work.
The European Union—the ill-advised, 27-member collective of largely Western European nations—adopted a common currency among 17 of its members to facilitate trade. Greater economic stability was supposed to result from the fact that if certain members were in trouble, other members would better be able to bail them out until they got back on their feet. But the PIGS’ problems are long-term, structural flaws that will lead to greater financial ruin with each passing year.
The wealthier, larger, more financially secure countries—especially Germany—resent perpetually having to rescue these flailing nations. They’re suspicious that bailing the PIGS out will be temporary fixes, that these nations won’t enact reforms needed to right their economies. Given that parties to the left of Greek Prime Minister Lucas Papademos’ Socialist Party have been dominating the polls ahead of April’s early national elections, who can blame Germany for mistrusting Greece?
For a while, it seemed German Chancellor Angela Merkel would decline Greece’s request for a bailout—their second since 2010—and let the country declare bankruptcy. Merkel relented, on the condition that Greece enact widespread austerity measures, subject its spending to greater EU scrutiny, and reduce its public debt to “only” 120% of its GDP by 2020. Austerity measures would include cutting government agencies, jobs, and wages; pensions; higher education subsidies; and health care benefits. In return, private holders of Greek bonds would take a 70% cut in the value of their holdings.
Meanwhile Germany is drafting backup plans, whereby Greece would leave the euro if it fails to reduce its debt and implement austerity cuts and privatization of state functions. German Finance Minister Wolfgang Schäuble and nations such as Austria and Finland openly question Greece’s potential to rebound.
Everyday Greeks, steeped in the European entitlement mentality that promises them a comfortable living their entire lives, are livid. For weeks, thousands of citizens have protested, rioted, and looted in a display of spoiled petulance that makes Occupy Wall Street look like the Tea Party. They have fomented violent clashes with police, instigated mayhem and injury, and caused millions of euros of damage to public and private buildings. Protestors came out en masse on Sunday before decisive talks among the Eurogroup in Brussels over whether to implement the Grecian bailout.
In Greece as in the U.S., everyday folks blame the government for not collecting enough taxes from the rich—which would only stifle job creation and do little to alleviate Greece’s debt crisis. They scapegoat banks for mismanagement, and lament the government’s failure to prosecute financial executives—as though throwing a few bankers in jail would solve their problems.
The mainstream media have conspired in the protestors’ mission by labeling the austerity cuts “punishing,” as though not getting as much as you want for free is an intolerable deprivation. Prodigality appeasers insist we rescue Greece and blindly trust their commitment to reform.
One New York Times commentator concluded a lengthy profile of struggling Greek citizens thusly: “Greece’s traditional infrastructure may not be the ultimate answer to its problems… but it may make difficult times less painful.” Yes, and Greece’s traditional infrastructure is what brought about those difficult times in the first place.
Just as Paul Krugman and other leftists repeatedly, recklessly exhort the U.S. government to spend even more money it doesn’t have on stimulus, lest the country slip further into recession, EU bailout critics warn that austerity cuts will further hobble Greece’s economy. The Guardian’s Fabian Lindner declares, “Europe is in dire need of lazy spendthrifts” to whom countries like Germany can export goods. Lindner predictably argues that because Greece has instituted five sets of minor austerity cuts that haven’t yet worked, it should reverse course and ramp up government spending again.
Defenders of statism praise communism, and its relative socialism, by gushing, “It’s a great idea in theory; it’s just never been implemented properly.” In fact, communism and socialism are terrible ideas, and have been implemented squarely in line with their supporters’ intentions, minus any desperate freedom defenders’ last-ditch efforts to fight off government’s encroachment on citizens’ lives. What we’re seeing in Greece is exactly what we could have expected after a half-century of full-fledged implementation of the modern welfare state.
If the U.S. continues down its current path—Social Security, Medicare, and Medicaid going broke, new entitlement programs like the prescription drug plan and ObamaCare being piled on, and Democrats and many Republicans unwilling to consider reforms—then we’re going the way of Greece. The major credit rating agencies have already downgraded the U.S. and threatened to devalue us again if we don’t address our debt. But when the U.S. defaults, there’ll be no one to bail us out.
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- As Greece awaits bailout, southern Europe seethes (csmonitor.com)
- Germany drawing up plans for Greece to leave the euro – Telegraph (jobmarketmonitor.com)
- Cartoon: Greece Goes Off A Cliff (englishblog.com)
- Stocks up on Greek bailout hopes (bbc.co.uk)
- Austerity, Technocracy, Autocracy… (delong.typepad.com)