Collapse or salvation
Greece is in trouble.
The IMF has approved a bailout, but that requires some tough love for the nation’s bloated public payroll:
…[I]t was left to Giorgos Papaconstantinou, the Greek finance minister, to outline the details of the unprecedented rescue package for a eurozone member.
Painting an even starker picture of the nation’s public finances, the politician predicted that with its economy also contracting, Greece’s public debt would hit nearly 150% of GDP before it even began to drop in 2014. At 120%, Athens has the highest public debt to GDP ratio on the continent. “The choice is between collapse or salvation,” he said.
Under the deal, agreed after 10 days of intense negotiations with the IMF and EU, VAT will also rise by two percentage points from 21%. Duties on fuel, cigarettes, alcohol and luxury goods will similarly increase by 10%.
The Greek government has vowed to rush emergency legislation through parliament by next Friday, which will enable it to enact the reforms.
The austerity measures required by the IMF to advance the loan require a lot of fiscal discipline, something that should have been in place all along. But, as a lot of the economies of the EU are finding out, you can’t keep siphoning the public till forever.
The Greek government is learning these lessons the hard way:
[The] protesters set fire to a building and a witness saw firemen evacuate at least four people. “There are probably people trapped in the building,” fire officials said in a statement before the news emerged that people trapped in the building had died. The police blamed what were called “hooded youths” for setting fire to the building.
The Greek fire brigade reported that three people died in the building, a branch of the Marfin Bank on the route of a protest march into the city center, according to The Associated Press. It had apparently been attacked with gasoline bombs.
The demonstrations were the first major protests since the Socialist government of Prime Minister George Papandreou unveiled belt-tightening changes on Sunday that amount to the biggest overhaul of the state in a generation.
As the 24-hour strike began, German Chancellor Angela Merkel told legislators that the 110-billion euro plan to bail out Greece was “about nothing less than the future of Europe and the future of Germany in Europe.”
There is really no difference between what is happening in Europe and what will eventually happen here in the United States if fiscal house remains in disarray. Already California, one of the world’s biggest economies, has been having the same issues–balancing the ever-growing requests for spending vs. treasury receipts.
Here in New Jersey, Governor Christie is doing a yeoman’s job at trying to stem the tide of red ink.
Unfortunately, the Federal government takes the opposite approach and refuses to learn the lessons of what’s unfolding in Europe. The Obama administration and a partisan Congress are encouraging massive growth in spending, and onerous taxes to pay for it all.
Of course it’s not just Greece, nor even just Europe. Pick a nation, pick a state, pick a city — Los Angeles, say. The game is up. The grand Ponzi schemes of modern public financing have reached the point where Mr. Ponzi packs his bags and heads for Paraguay.
The reckoning is coming. We’re so screwed.