Greece has voted strongly, but not overwhelmingly, to reject the European Union's financial package and defy its creditors.
Good. This mess had to end, one way or another. This result may finally allow that to happen.
There's more than enough blame to go around on all sides. Greece borrowed money like there was no tomorrow, and spent it like a whole fleetful of drunken sailors. Its creditors lent it money like there was no tomorrow, despite knowing that the money would be poured down a bottomless pit and Greece would soon be back for more. It got to the point where the vast majority of loans made to Greece were for no other purpose than to repay existing loans, as we pointed out this morning. That sort of wilful misbehavior makes both sides equally guilty of the present situation, IMHO. Neither had any sense of responsibility.
That's now come back to bite both sides in the ass. If Greece refuses to go along with the only rescue package so far offered, it's facing really serious economic hard times - worse than the past five years. It'll almost certainly have to leave the Eurozone and revert to the drachma, it's pre-Euro currency. There's talk by some in Syriza that Greece could simply print its own Euros, but if it does that will devalue the currency throughout the entire Eurozone, because there'll be no control over the number of Euros in circulation. (Then again, Syriza might not be averse to such a result.) Other debt-burdened Eurozone nations such as Italy, Spain and Portugal might seriously consider following Greece's example and defaulting. Even a threat to do so would probably force concessions from their creditors, because their debts are vastly greater than Greece's and a default would be correspondingly more harmful.
As for the USA, the New York Post states the obvious.
Most Americans look at the rerun of the Greek euro crisis with something between smug amusement and condescending disapproval. When will those profligate Greeks get their economic house in order and stop looking to others to bail them out?
But, should people living in glass economic houses really throw stones?
After all, just like Greece, the United States government has been living beyond its means, running up an enormous debt that will eventually need to be repaid.
. . .
Our national debt currently approaches $18.2 trillion, roughly 101% of GDP. That’s right. We owe more than the value of all the goods and services produced in this country every year. It is as if your credit-card bills exceeded your entire pay check.
That’s not quite as bad as Greece, of course, whose debt exceeds 177% of their GDP. But it is worse than countries like France or Spain.
And give us time! Like Greece, the driving force behind our debt is the growing cost of entitlement programs for health care and retirement. If one includes future unfunded liabilities for Social Security and Medicare, our real debt exceeds $90 trillion. That’s more than five times our GDP. Greece is still in worse shape — their unfunded liabilities top 875% of GDP — but we’re gaining.
At the heart of Greece’s problems lies a government grown too big, too intrusive, and too expensive. The Greek government spent nearly half of the country’s GDP last year (49.3%), and that actually represents a decline from the 51.8% it averaged since 2006. The Greek’s may complain about austerity, but they’ve hardly practiced it.
Our government is far smaller than Greece’s today. Federal spending is just 20.5% of GDP. But, according to the Congressional Budget Office’s alternative fiscal scenario, that could rise to almost 34% by mid-century. Factoring in state and local government spending, which already accounts for roughly 14.4% of GDP, total government expenditure in the US could reach 48% to 50% in 2050, roughly Greek levels.
There's more at the link. Sobering reading.
The next week or two are going to be interesting times for the whole economy of Europe - interesting in the sense of the fabled Chinese curse. My earlier caveats and precautions still apply. Anything could happen. If fiscal contagion spreads, or bursts out of control, things could happen with breathtaking speed. Who, just nine days ago, would have foreseen a Greek referendum that might yet rip apart the Eurozone?