Seems like you can't escape news about Greece and the crisis in the Euro zone these days. Today's news is that Greece and its creditors have reached a tentative agreement on a reforms for loans plan. In the coming days, the drama will shift from the negotiations for the accord, to the negotiations within the Greek parliament to try and get enough votes to pass the reform. It will be interesting to watch and see whether the legislature will continue to stick its head in the sand on reforms, or whether it is willing to make the concessions required to continue to finance their bankrupt nation.
In case you don't know what I'm talking about, Greece is a bankrupt nation that exists in Europe. It joined the Euro currency union and lived off the easy credit the shared currency and associated legal framework afforded them. When the great recession hit, the country went through a dramatic economic downturn that severely taxed public resources due to the Greeks' generous welfare programs. The country has never fully recovered. The long and the short of this is that Greece has been relying on loans from the IMF and its Euro zone partners in order to keep the government and its banks from closing. In order to pay the interest on these loans, Greece has been undergoing what is known as austerity, or the painful process of cutting budgets and raising taxes, that is required to increase revenues and decrease liabilities enough to keep it from going bankrupt and defaulting. This process has been so unpopular among the Greek electorate, that they elected an anti-austerity candidate who vowed to renegotiate the terms of the debt and fight with Greece's creditors. Since taking power, the banks have been all but shuttered and the government is mere days away from being forced out of the shared currency.
While it is easy for us in the USA to point and giggle at the problems of Europe, we can only do so if we choose to ignore a similar problem that exists in many states and municipalities in our own country. The problem is that, fundamentally, the public is not willing to pay the full cost for all the government benefits that it receives. So politicians have an incentive to promise more than they can deliver, borrow money to pay for it, and ignore the looming debt problem till they're safely out of office and its someone else's problem. In the USA this takes the form of a rash of municipal bankruptcies and severe budget shortfalls in states like Illinois and California. Many of these states are just another economic recession away from going through what Greece is going through. States in the USA are very much like nations in the Euro zone, they can't print their own currency, so are reliant on tax revenue to pay their bills. So when the debt is too large to continue to finance, new taxes and budget cuts become inevitable. My point here is that unsupportable debt burdens brought on by profligate governments are not unique to Greece. Instead of laughing, we should be seriously evaluating the budgets of our state and local governments and balancing them now before debt becomes a crisis here at home. Otherwise, our bankruptcy courts have a busy future ahead of them.
