Friday, July 24, 2015

Greece: A cautionary tale

As Greece prepares to enter another round of seemingly endless negotiations with its creditors, it’s a good time to consider how the cradle of Western civilization became a bankrupt and broken nation.  

While its adoption of the Euro has clearly damaged Greece’s ability to respond to its various crises, the core problem is that the Greek government ran up hidden, unsustainable debts. It turned to international creditors for a series of bailouts and had to adopt austerity measures such as higher taxes and spending cuts. The fiscal crisis spiraled into an economic, social, and political crisis punctuated by the following:

·         A disastrous rise in long-term unemployment.

·         The closure of banks, causing major economic disruptions.

·         The rise in support for a far-right extremist party, and the assumption of power by a far-left Marxist party.

·         The emigration of 3 percent of the population, mostly young people, between 2010 and 2013.
How did Greece reach this point? A 2010 exposé in Vanity Fair describes how the government was shoveling money into the public sector, which had doubled in size over the previous decade. Taxes from private sector workers, who earned on average just one-third the salary of public employees, could not cover the bill, especially since tax evasion and bribery had become a kind of national sport. The writer explains the damaging moral effect this collectivist system had on the Greek people:

No success of any kind is regarded without suspicion. Everyone is pretty sure everyone is cheating on his taxes, or bribing politicians, or taking bribes, or lying about the value of his real estate. And this total absence of faith in one another is self-reinforcing. The epidemic of lying and cheating and stealing makes any sort of civic life impossible. . . . The structure of the Greek economy is collectivist, but the country, in spirit, is the opposite of a collective. Its real structure is every man for himself.”      

At a time when the U.S. national debt is approaching $19 trillion, and when the country continues to accumulate tens of trillions more in unfunded liabilities on entitlement programs, Greece offers a cautionary tale showing that government over-spending is not generous or charitable – it’s destructive and it’s selfish, since it imperils a nation’s future generations. Balancing the budget is not just the first step in correcting our own perilous fiscal situation, it is a moral imperative.