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Greece: A cautionary tale with a moral for America

Post by Patrick O'Callahan on May 4, 2010 at 7:46 pm with No Comments »
May 4, 2010 5:49 pm

This editorial will appear in tomorrow’s print edition.

Deficits matter.

Just ask the Europeans who’ve been forced to bail out spendthrift Greece to protect their own economies. Just ask Americans who are suddenly seeing the Euro-scare drag down the U.S. stock market.

Wednesday’s 2-plus percent hit on U.S. stocks was largely driven by growing anxiety that Greece’s flirtation with catastrophe could spill over into Portugal, Spain, Ireland and perhaps Italy – all countries threatened by a general erosion of confidence. The ripples could hurt banks and investors around the world who have a financial stake in those countries.

Serious, sustained damage seems less likely now that other European countries – after much grumbling by the fiscally prudent Germans – have agreed to offer Greece $144 billion in undeserved credit. Disaster was staring everyone in the face. Greece’s credit rating had been cut to junk status; its bonds were turning toxic, and it was within three weeks of default.

The lesson for America, whose national debt has now exceeded $11 trillion, is that government cannot run up the VISA bill forever. A binge of deficit spending is sometimes necessary in a dire crisis – World War II and the credit panic of late 2008 come to mind – but the binge can’t become business as usual.

That’s precisely what happened in Greece. Under socialist Prime Minister Andreas Papandreou, its government rapidly expanded public spending in the 1980s. Since then, the country has been as indulgent as the old General Motors. Government workers were promised jobs for life; pensions were passed out to people who’d never contributed to the retirement funds; the public sector ballooned.

It wasn’t exactly a tax-the-rich-and-give-to-the-poor scheme, because tax evasion continued as a way of life.
Europe was shocked last winter when it saw the full extent of Greece’s predicament. Now the world is shocked at seeing Europe’s predicament.

The kind of pit Greece has dug itself into is hard to climb out of, even with big loans from the neighbors. To get those loans, Greece has been forced to raise taxes and make crash reductions in public spending.

The people who’ve been benefiting from that spending and will have to pay those taxes don’t like the austerity measures. Some of them are taking to the streets in Athens, protesting the cuts; they should be protesting the fact that their sugar-daddy government has spent itself into ruin.

The United States as yet is still far from the brink, but adding another trillion to our public debt every year or two is a guarantee we will ultimately get there.

Aesop was a Greek, but he’d have spotted that moral in a heartbeat.

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