Greece’s Problem Is Our Problem
You’ve probably been hearing quite a bit about Greece in the news lately. Well you better be paying close attention because it could soon be our problem.
When Greece entered the European Union, they were required to keep their spending and debt in check as a condition of membership. But in the end, they weren’t as forthcoming regarding their finances than they should have been. Now the bill has come due and with $28 billion coming due in April and May, they are at risk of default. The European Union has been debating whether to bail them out. But this isn’t the only European country at risk as Portugal, Italy, Ireland and Spain have similar problems.
The Greek problem isn’t totally new. According to a recent article by John Mauldin, Greece has been default in one way or another for 105 of the past 200 years. Tax evasion in the country is common as only 70% of the citizens file taxes and only six people claimed to be a millionaire. Government spending is 50% of its GDP with one of the highest percentage of public employment in all of Europe. It’s a train wreck that was eventually going to happen. Of all the options Greece has, none of them are good. They can choose severe austerity measures that will lead them to depression, but will get them out of economic turmoil sooner or they can take the easier ways out which means an extremely long recession. Pick your poison, none of it is good if you live and work in Greece.
Why is it our problem? There is the worry that Greece and the other nations above will all default on their sovereign debt and send us back another credit crisis like 2008. This should be recognized, but I’m thinking long term. For many years pundits have warned about the problems with Greece and their bloated spending and entitlement system. We are on the doorstep to the same problem as we have begun the reverse wealth transfer of to the baby boom generation from the younger generations and unborn. According to the “The Complete Idiot’s Guide to Economics,” 23% of the U.S. budget is spent on Social Security, 12% on Medicare, 7% on Medicaid. And this is only going to increase. Aren’t the pundits sending the same warning signs?
The United States has some difficult choices to make. We can decide to make some hard choices now that will be less severe in nature which will cause some sacrifice. Or we can wait to become Greece sometime down the road. Higher taxes and more entitlements for everyone with a pulse isn’t the solution. But we should be thinking about these things as they were originally intended; as a social safety net for those who don’t have the means. In turn, if Washington held onto the money that eventually went to pork projects over the years, maybe we wouldn’t have to worry about this problem.