By now, just about everyone is aware that Greece has issues. But what’s a bit appalling is how little we know about what is really happening with that country. The knowledge most people have boiled down to two points; Greece has run out of money and the people there are rioting in the streets. However if one digs a little deeper, you’ll realize that Greece is essentially no longer a sovereign country – it is a country led by a technocrat and more or less owned by the EU and ECB. Before I get into the implications of what that means, let’s first go through the brief history of how Greece got to where it is today.
Between 1999 and 2008, Greece’s real GDP was hovering between 3-4% while their debt percentage hovered in and around 100% until 2008 where it stood at 113% during the global recession. In 2009, the newly elected Prime Minister George Papandreou came into office and soon after revises the country’s budget projections, indicating the government had been understating its deficit for years. That year Greece’s debt percentage shot to 129% and is currently standing at 173% projected. After several credit downgrades in 2009 and 2010, Papandreou agrees to implement harsh austerity measures in exchange for $152 billion in loans from the European Union and the IMF. Riots ensue as the Greek population does not want to give up anything. Despite Greece meeting the austerity requirements of 2010, credit ratings continue to be downgraded so Greece pushes through another set of highly unpopular austerity measures June 2011 to qualify for a second bailout package for $157 billion in loans. Shortly after this, the Greek parliament agrees to new highly unpopular taxes, cutting public sector jobs, decreasing public sector wages, decreasing pensions for high-income workers and scaling back collective bargaining rights.
In addition to this very brief recent history, it is also important to note how Greece got to this point in the first place. Ironically, it began 30 years ago Papandreou’s father Andreas began building an unsustainable civil service in order to continue winning elections. Additionally, Greece had spent the last few decades erecting social safety nets producing cradle to grave benefits such as government healthcare, a generous welfare system and a retirement age of 61, (social security). In fact, the entitlement mentality is so firmly entrenched in Greek society, the population there does not understand anything else and seems perfectly willing to give up its’ national sovereignty while devolving into a cesspool of pain and misery grasping at the last reed it can find while drowning. And because they have no basis for understanding true freedom and liberty, they are willing to live through the degradation of their country in the hopes that things might magically get better. Here are a few of the things that are going on in Greece that are getting very little press in the US.
- After the collapse of the socialist party in November 2011, an interim prime minister, Lucas Papademos was sworn in to lead Greece through the economic crisis. Papademos is a technocrat and was previously vice president of the European Central Bank. (Could you imagine Ben Bernanke being sworn in as interim President?)
- Having lost its fiscal independence, Greece is now required have the permanent presence of a Eurogroup Task Force with strong onsite monitoring capabilities. (In other words, it’s their money and they have the right to manage their money. Who owns the bulk of the US debt?)
- This EU presence will ensure that state revenues will flow into a segregated escrow account for state revenues.
- The Greek constitution will be amended to ensure that priority will be given to serving debt payments. This includes the right for European banks to seize Greece’s gold reserves, 111.6 tons.
- Public sector salary cuts are so deep and because they are retroactive to November 2011, up to 64,000 workers will have to work without salary for a month and some may even be asked to return money.
There is far more to the Grecian condition than what I can post in this blog but the point is obvious. Greece’s socialistic experiment has been a complete and utter failure and from a practical perspective, they are no longer a sovereign country. And despite all of this, Greece is virtually assured to default anyway, only now with zero gold reserves.
Socially, the Greeks are feeling completely hopeless and are turning bitter towards the EU and specifically Germany. There are riots and lootings in the streets. Well dressed Greeks have been reported rummaging through the garbage for food. Clinics that were set up to service the immigration population in Greece have seen a 22% jump in the domestic population. And still, they’re clinging on to an idea that didn’t work – hoping against hope that it will all just go away
Understanding what is happening in Greece is essential when looking at our current economic situation. From a GDP perspective, the US is in a worse economic condition than Greece but we have the ability to print money. However, eventually every country will have to pay back the debt that they owe and Greece gives us a better understanding of what can happen when we fail to make the tough choices today. We cannot afford our current social programs and Obamacare begins to hit its stride in full in 2013. That means higher taxes and still more debt. Despite what’s lacking in our current healthcare system, Obamacare literally means the destruction of economy.
We have an opportunity this year to elect real leaders that will face our issues head-on. We need to repeal the healthcare bill and we need to seriously manage the scaling back of all of our social programs – social security, Medicare, food stamps, etc. We either face up to our issues with honesty and determination, or we will wake up one day and realize our country isn’t even ours anymore.