by: Bryan Baumgart
November 7, 2012
In late 2009, Greece had found itself removed from a long period of unprecedented economic prosperity and cast into the throes of a severe economic collapse. The Greek Ministry of Finance, in a 2010 report “Stability and Growth Program” highlighted FIVE main causes of the economic collapse.
1. GDP plunged due to lack of competition in the private sector.(Gross Domestic Product is the total value of all goods and services produced over a specific time period, usually calculated by adding the total income or the total amount spent by a nation).2. Budget Deficits skyrocketed when spending over a six year period (from 2004 to 2009) dramatically outpaced income, mostly to finance public sector jobs, pensions, and other social benefits.3. Government Debt Levels reached unsustainable sizes. Debt levels rose so dramatically that in April 2010, rating agencies downgraded the Greek economy to “junk status”, which caused the private capital market to freeze and bailout loans (from IMF) were required to avoid default.4. Budget Compliance was nonexistent.5. Statistical Credibility was compromised. To keep within monetary guidelines, the government misreported official economic statistics, even paying Goldman Sachs and other banks for helping them hide the actual level of borrowing. Flawed statistics made it impossible to predict accurate GDP growth, budget deficits, and public debt which turned out to be far worse than anticipated. Trust among financial investors was lost.
In May of 2010, Greece avoided default when the IMF (International Monetary Fund) agreed to a bailout of $163 billion dollars (110 billion euros). The conditions of the bailout required Greece to comply with:
1. Implementing austerity measures (cutting spending on benefits and public services/welfare).
2. Privatizing government assets worth $68 billion dollars (50 billion euros) by 2015.
3. Implementing outlined structural reforms aimed at improving market competitiveness and growth (moving the public sector back to the private sector).
Greece failed to comply quickly enough and another bailout of $171 billion dollars (130 billion euros) was required and offered in February of 2012, with a requirement of even further austerity measures (more cuts to benefits and public services/welfare), a rise in taxes, and even more privatization reform.
The tax increases resulted in record numbers of Greek businesses going bankrupt. In 2011, Greece lost a total of 111,000 businesses (up 27% from 2010). The unemployment rate jumped from 7.5% in 2008 to over 25% in July of 2012. During that same period, the youth unemployment rate skyrocketed from 22% to 55%.
As Jon Henley stated in a March 2012 issue of The Guardian:
“In an economy without a welfare regime to speak of, the impact of five consecutive years of recession has taken its toll. Charitable foundations that used to fund educational programs have taken a big hit themselves and have now shifted to paying for soup kitchens. Neighborhoods are marked by buildings that owners are desperate to sell or rent and a major increase in the homeless sleeping rough. Almost half of Greece's young people are unemployed, as are one in five of their older peers. Despondency is everywhere, despite the "rescue". If future Greek governments keep to the terms of the bailout, by 2020 public debt will be back to what is was when the crisis erupted in 2009.”
But the leftist government of Greece refuses to face reality. They have promised to hire at least 100,000 more people in the public sector, to restore all the budget cuts made over the past two years, and to offer free health care and social services to all illegal immigrants. To date, no real reforms have occurred in Greece. Not a single privatization has taken place. There have been no important changes in the labor market and no simplification of the tax system. Instead, the government has put nearly all of its energy into squeezing more taxes out of the overregulated private sector. The economy is in its fifth year of contraction, half of all young people are unemployed, the suicide rate is going up by double digits every year, and hundreds of thousands of people working in the private sector have not been paid for months.
Greece snubbed a policy of wealth creation for a policy of borrowing and subsidies. They have now reached such high levels of debt and government dependency that a realistic solution to their economic crisis is impossible. Riots and violence rage every time necessary spending cuts are made, because the citizens of Greece are now completely dependent on social assistance. The UN warned that Greece may be charged with human rights violations if necessary cuts are made as citizens could be left without food, water or shelter. The only solution is temporary; borrow while you can because it’s only a matter of time before it all comes crashing down! Then human rights go out the window and chaos ensues!
How does the United States compare to our European neighbors? Much like Greece, we found ourselves plunging from prosperity into an economic crisis in 2008, brought on by manipulation of economic statistics by the government backed mortgage giants Fannie Mae and Freddie Mac and the removal of market competition allowing Fannie and Freddie to issue high risk loans without fear of failure.
Since our plunge into recession we have acted much in the same manner as Greece, repeatedly bailing out private companies branded “too big to fail” with tax dollars, and removing competition by nationalizing private industries from banking and mortgage to school loans and healthcare.
Over the past four years the United States has dramatically increased government dependency, setting records for disability and food stamp rolls. Under the Obama administration, just short of 15 million people have been added to food stamp rolls while total welfare spending has already exceeded $1 trillion dollars annually.
The country’s debt has increased by $5.63 trillion dollars leaving us over $16 trillion dollars in debt. For every $1 dollar added to the economy, this administration has added $3 dollars in debt. We have carried an annual deficit over $1 trillion dollars each of the four years Obama has been in office. Like Greece, much of the deficit has stemmed from entitlements and outrageous pensions and benefits packages cut over crony deals between elected officials and union leadership. Our debt has become such a liability that in September the United States joined Greece in having its credit rating downgraded.
Much like Greece, we have not complied with a budget. In fact, this administration has not even passed a budget since President Obama took office. Our country’s sluggish GDP figures (well below the 3.5% annual growth indicating an improving economy) indicate the poor jobs situation won’t improve anytime soon. So many people have given up hope looking for jobs the BLO actually dropped the unemployment rate down to 7.9%. The actual number of Americans whom now are without jobs totals almost 27 million for a REAL unemployment rate of 14.6%. The actual youth unemployment rate pushes 17%. Yet, for every ONE job created, 75 Americans have been placed on food stamp rolls.
The President’s signature achievement, Obamacare, hasn’t even kicked in yet and employers have begun involuntarily dropping employees down to part time to avoid the fines they would face under the law; potentially leaving up to 5.9 million Americans without benefits. Not that medical coverage would do Americans any good, as Bloomberg points out, the United States is looking at a doctor shortage exceeding 15, 230 primary care physicians alone under the new healthcare law.
Much like in Greece, austerity efforts to curb spending in the United States were met with strikes and resistance. Inflation is up, food and gas prices are way up, tuition and insurance preimiums continue to skyrocket, and household income continues to plunge.
Yesterday, voters turned down Governor Romney’s policies to create wealth in favor of continuing President Obama’s policies of increases in taxation, entitlement spending, and borrowing. As we approach the fiscal cliff early next year, our government faces the same predicament Greece did. Experts widely agree, if the tax hikes and cuts to public spending are allowed to kick in, the country will likely fall in to a much deeper recession. Like Greece, the United States has reached the point of no return, and there is no indication that we will choose a different strategy.
*Where does Greece stand today?
Headlines from USA Today (November 6, 2012): “Strike Hits Greece in Bid to Derail Austerity Plan”