Let Them Stew In Their Own Greece
If you ever start thinking no place could suck harder than the good ol' U.S.A., just look to the glory that is Greece. The Greek government is responding to its self-inflicted debt crisis by doing just about every single thing wrong.
That might not be clear from most of the media coverage. To comprehend any of the popular descriptions of Greece's public debt problem, you need to be a yes man as mindless as the guy whose job it is to keep saying "Certainly, Socrates…You're quite right, Socrates…" in the Platonic dialogues.
The New York Times blames the investment banks that held a gun to the crowned heads of Europe and forced governments to take on more debt. The Guardian says it was deregulation and privatization of state enterprises that caused public spending to, um, increase? (Just go with it.) Greek tax collectors say the problem is that tax collectors need to be paid more. And because he knows that being able to print your own money always encourages fiscal responsibility, Paul Krugman says it's because Greece went off the drachma too soon. (That problem may be working itself out faster than anybody planned.)
But the beauty of Greece's looming default is that it is a totally straightforward story of uncontrolled public spending and the determination of governments to run up impossible debts. In this case, as the above Times article spells out, those debts were run up in duplicitous ways that in fact violated the public debt rules of the EU from which Greece is now trying to get a bailout. Your worst nightmare of a wastrel American politician—call him Barack Schwarzenegger—would have a hard time mismanaging state finances this badly. Since getting on the euro in 2001, the Greek government has apparently been fudging its budget statistics, a practice countenanced by both conservative and socialist governments. To its credit, the current government kicked the current crisis into high gear when it released a deficit-to-GDP number of 12.7 percent—double the previously announced figure, and by far the highest in Europe.
You get to a number like that by spending too much. And the Greek government's response to the crisis is to continue spending too much. Even under the so-called austerity program necessary for bailout consideration, Greece is set to raise public sector pensions this year by 1.5 percent. If all the proposed spending cuts are completed, that will still leave Greece's deficit at more than twice the EU's allowable debt ceiling.
So if Greece isn't serious about cutting spending, what can it do? Of course: Raise revenues! Under the government's new plan, the top tax bracket of 40 percent will be lowered to include people making an annual salary of 60,000 euros. That's $81,588 a year. Now, more than $80,000 is still a lot of money, even in a place that is more expensive than most American coastal cities. But does anybody think an income like that is huge enough to justify having to forfeit 40 percent to the government? You could reanimate Lenin's corpse and he would tell you that's excessive.
Throw in a few more wealth-destroying initiatives, including the pure cockamamitude of outlawing all cash transactions above 1,500 euros, and you have the worst of everything: a socialist economy trying to reform itself to comply with the demands of government-guaranteed megalenders.
Fortunately, there are signs of hope. The political climate in France and Germany has turned the Greek bailout, which seemed to be a done deal last week, into a longshot. The media have begun to pick up on the general dissatisfaction: Reuters argues that the least-bad outcome is for Greece to default, let its creditors take the hit (and for a clear explanation of why Goldman Sachs would be able to survive this default too, try this piece by John Carney), and deal with the new world of reduced credit, just as any recovering alcoholic must adjust to a world with no more booze. Or in this case, ouzo.