The country of Greece is in catastrophic economic chaos due to a history of irresponsible spending. This is where the U.S. will be in few years unless drastic changes are made. The question is no longer if, but when. At some point, there will no longer be any low-interest credit available to continue letting Santa Claus run the U.S.; the interest owed on existing debt will exceed tax revenues.
We can get a feel for what will happen to us by looking at Greece. When Greece reached that point six years ago, the Greek government was forced to impose painful austerity measures, with little success, in order to try and rein in the spending.
Living conditions in Greece have become shocking. Greece’s universal coverage health insurance, which no doubt was a significant contributing factor to the overspending, is now utterly unaffordable, so the country is relying on volunteer doctors and medical personnel to work for free. It is estimated that 100,000 children are working – illegally – just to help their families get by. It is reported that 70,000 children dropped out of school in 2012 to do so.
In June, the prime minister shut down the state-owned public radio and television broadcasting corporation, ERT, in order to block criticism of the austerity measures. By 2010, the government was still spending 12% more than it was bringing in from revenues. An emergency property tax was implemented and collected through electric bills. In 2011, a “solidarity levy” was levied twice on households. Excise taxes were increased by one-third on fuel, cigarettes and alcohol. 1,978 schools were closed or merged.
Unemployment continues to rise, and is now over 27% – that’s one out of every four workers. Unemployment is above 60% for those age 25 and under. The restaurant sales tax increased to 23%, and only recently did the government agree to reduce it to 13%. The number of homeless people has increased from 7,720 to over 20,000. Almost one quarter of Greek workers and pensioners are living below the poverty line.
25,000 government employees will have their wages cut by the end of the year, and their jobs eliminated next year. This is a massive number of employees, considering the population of Greece is only 11 million. Government employee pensions were cut last year by 12% for all but the smallest pensions, and in 2011, public sector wages were cut by 20 to 30%.
How did this financial meltdown come about? Greece’s unsustainable bloated spending on social welfare programs finally caught up with it. In addition, Greece has the ninth highestminimum wagein the world, at $5.06/hr, which used to be even higher until the government was forced to reduce in it 2012. Germany and Italy do not have a minimum wage. Compounding the problem was Greece’s high defense spending, a result of its hostile relationship with Turkey, and the sensitivity of its main industries, shipping and tourism, to economic downturns.
Consequently, Greece developed massive deficits and debt worse than the U.S. during the 2000’s. The government’s primary spending increased by 87%, while tax revenues increased only by 31%. By 2009, Greece had the highest deficit of any country in the European Union, also known as the eurozone. The interest rate on Greek government bonds increased from 4% in 2007 up to a staggering 177% in 2012. Similar to past Democratic administrations in the U.S., the government had over-optimistically predicted its GDP would increase. When the global recession hit in late 2008, foreign investors lost confidence. Greek’s government debt was downgraded to junk bond status in 2010.
In order to avoid Greece defaulting on its debt, the other countries in the eurozone agreed to billions of dollars in bailout loans, conditional upon Greece implementing austerity measures, structural reforms and privatizing governmental assets. Since eurozone countries share the same currency, a Greece default would badly damage their economies. Unlike the U.S., which just prints more money to delay the inevitable crisis, Greece cannot print additional money as part of the eurozone currency.
Both bailouts have not had much success. The second bailout required private creditors of Greek government bonds to accept a lower interest rate and a loss of over half the face value of the bonds. Greek’s current government continues to make excuses and ask its creditors for more lenient terms. A third bailout will probably be implemented later this fall, enabling more fiscal irresponsibility and essentially sticking it to the other eurozone countries who are footing the bill. Maybe they are finally realizing that losing half their sovereignty to join a eurozone wasn’t such a good idea after all.
Germany is Greece’s largest creditor, and this has resulted in strained relations between the two countries. Greece is still so unstable there is speculation it may be forced out of the eurozone, and a word has even been coined to describe this, “Grexit.” At this point, there is no end in sight to the misery.
There is virtually no way the U.S. will escape this slide toward economic calamity. Americans continue to elect Santa Claus Democrats who are not living in reality, who refuse to make the necessary cuts in spending to avoid this doomsday. Although Democrats are amenable to raising taxes to high levels, at some point taxes become so oppressive they destroy living standards and business. If Americans don’t start paying attention to who they are electing to office, and instead start electing Republicans who are willing to make the steep cuts in Santa Claus entitlement spending, we will become just another former superpower. A nation of freebies is unsustainable. We can learn a lot from the Greeks. As a wise old Greek saying goes, “He who is not satisfied with a little is not satisfied with a lot.”