Tuesday, May 25, 2010

Gary Palmer: Greek debt crisis a warning to U.S.

  The focus of the 2010 elections is shaping up to be about the importance of limited government and, of all things, the country of Greece gives us a working example of why this is so important.

  Greece functioned as a “super nanny” by providing expensive lifetime entitlements to all of its citizens and is a government that abandoned any pretense to limits. It is also a government that is flat broke and now dependent on the European Union and the United States to save it. Thus, Greece is the latest example of the failure of socialism.

  According to IMF estimates, Greece’s budget deficit is 13 percent and its national debt is 133 percent of its gross domestic product (GDP). In other words, Greece’s national debt is almost 1.33 times the nation’s entire annual economic output. A major drop in the value of the Euro and a 1,000 point drop in the Dow Jones Industrial Average on May 6th sent a clear signal that Greece’s problems now belong to everyone.

  In an effort to avert a crisis, the European Union, European Central Bank and the International Monetary Fund (IMF) have cobbled together a $39 billion international bailout for the Greeks of which the U.S. must provide 17 percent. Thus, the United States contribution to the Greek bailout is $6.6 billion. The IMF is also creating a $321 billion stabilization fund for Eurozone nations with debt problems such as Spain, Italy, Portugal, Iceland and Ireland for which the U.S. will have to shell out another $54.6 billion.

  The irony of the United States’ helping to bail out Greece and other nations is that the money we are sending adds to our deficit. Because of the massive deficit spending by this Congress and the Obama administration, every additional dollar we spend on bailing out Greece or any other country is borrowed money.

  In order to receive a bailout, Greece had to commit to serious cuts in spending to reduce their deficit. Among the cuts that Greece has already announced are reductions in public employee pay and pensions. In Greece, all employees work 12 months but get paid for 14. Greek law mandates that they receive an extra month’s salary at Christmas and a half month’s salary at Easter and before the August summer holidays. In addition, Greek workers can retire with full benefits at age 53, some as early as 50. When the Greek government announced they would be cutting benefits and raising the retirement age, thousands of Greek workers, urged on by their unions, took to the streets in violent protests that resulted in the murder of three bank employees.

  Greece’s ability to grow their economy is seriously limited by the fact that, out of 183 nations, they rank 109th in terms of the ease of doing business; 140th in terms of starting a business; and 154th for protecting investors. Because they adopted the Euro as their currency, they can’t devalue their currency as a means of increasing exports and domestic consumption. The only way Greece can reduce their national debt is to cut spending.

  In that regard, what should be noteworthy to Americans are the prerequisites for bailout funds imposed on the Greeks by their EU financiers. According to The New York Times, the EU bailout partners informed the Greek government that it needed to commit to making major cuts in spending in order to get the bailout. Again according to The New York Times, among the suggestions made to the Greek government by the bailout partners was the privatization of government-run transportation and energy as well as its government health care system.

  In fact, The Washington Post reported that enforcing the conditions imposed on Greece and other debt-ridden nations in the EU would force “European governments [to] rewrite a post-World War II social contract that has been generous to workers and retirees but has become increasingly unaffordable for an aging population.”

  The debt crisis in Greece and other Western European nations is the result of unsustainable government spending that threatens to cascade into a worldwide crisis. Consequently, the situation in Greece and other EU member nations along with the record deficits being rolled up by Congress and the Obama Administration should be of great concern to every America.  With some estimates projecting that the U.S. national debt will reach 123 percent of GDP within ten years, it is evident we are headed in the same direction.

  This should add even more emphasis to why the 2010 elections should be a national referendum on the proper role of government… what its essential functions are, what we should expect from our government and what we can afford.  If we don’t, eventually the U.S. debt burden will become so great even we can’t pay the tab.

  About the author: Gary Palmer is president of the Alabama Policy Institute, a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families, which are indispensable to a prosperous society.

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