March 17, 2010

Greek Bail-Out Not a Good Idea

After the American Century

Greece cannot pay its bills, even in the short run. With a national debt that is more than 110% of its gross national product, and a deficit of more than 10% for this year, Greece's debt will only get worse unless and until it enacts real reforms. So far it has failed to do enough, and the deficit will only get worse.

Had the Greeks been hit with a natural disaster like Haiti, they would deserve sympathy and charity. But the Greeks  insist on spending more than they can afford. They have given massive pay increases and early retirement to state employees that are not funded by taxation. They reportedly have a massively inefficient bureaucracy. There is no  reason for the other European states to give or to loan them money unless they show that they can live within their means. Giving them a handout will solve nothing, and will only delay for a short time the day of reckoning.

Indeed, the EU has made a major blunder by even letting this become an issue. Its own laws clearly state that nations who overspend will not be bailed out.

Consider, by comparison, the plight of California. It is also a part of a federation of states that have a common currency. But no one in the US is suggesting that Ohio, Nebraska and Maine should help fund California. Instead, since California voters refuse to raise taxes, they are closing libraries, firing workers, and forcing those who remain to stay at home several days a month because there is not enough money to pay them. Admittendly, this is ridiculous, since California is a rich state and could afford to fund its education system and its services, but this is the choice the state's citizens have made. The rest of the United States will not bail out California, and as a result the state is a less desirable place to live than it was a few years ago. Eventually, the voters will realize that they have made a mistake, and in the meantime loaning them money will actually prevent them from confronting that mistake.

So why are Europeans wringing their hands over Greece? You don't get an alcoholic to reform by buying another round of drinks.