Right Thinking From The Left Coast
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Beware Gifts Bearing Greeks, Part II

With a caveat that the sequel is rarely as good as the original....

I wanted to follow up on Hal’s post from a couple of days ago on the financial turmoil that’s been going on in Greece.  This has been an object of somewhat obsessive attention over at Zerohedge the past few weeks, and the focus has largely been on the similarities between this and what happened when TARP was being debated.  While I can certainly see this as applied to a continental rather than national scale, I think the implications here are far greater.

In my opinion, what is going on in Greece marks it as a bellwether on the survivability of the EU in the short-term, and the welfare state in the long-term. The EU has two choices--1) come up with some sort of bailout plan for a member nation who, economically speaking, is something of a red-headed stepchild due to its lack of economic diversity (most jobs in Greece are in government or tourism); or 2) tell them “Sorry, we can’t throw good money after bad,” and Greece ends up leaving the EU to go back to a vastly devalued Drachma.

If the EU picks the first option, it’s going to open the floodgates.  Italy, Portugal, Spain, and Ireland are all in way over their heads in government debt, with France, the UK, and Germany not too far behind.  It will be impossible for the more stable members of the EU to justify denying bailouts to the the other PIIGS, when they spent all this time agonizing over how to fix the problem and came up with a bailout as the way to fix things.  The “austerity measures” put in by Greece are a joke, because it doesn’t change the fundamental culture of entitlement that’s infected the populace, so they’ll likely end up having to come back to the trough again in a year or so begging for more.

If the second option is chosen, what motivation would Greece or the other PIIGS have to stay in the EU?  The whole idea behind the EU was to create an economic superpower that could compete with the US and Russia for global trade.  If the EU won’t prop up a member of its own economic alliance, why should Italy or Spain or Portugal bother staying in?  Better to just cut loose and try to figure things out on their own without subjecting the country’s citizens to endless agonizing uncertainty on the economic direction of the nation.

Either way, count on what happens with Greece to eventually filter over to the United States at some point.  As Hal pointed out, Greece’s welfare state, like most European nations, is quite robust and the populace has come to depend on entitlement programs--specifically, the national pension system--as their means of survival.  In the same way, Social Security, Medicare, and pension systems here in the US are seen as necessary by most Americans--an entitlement that comes with putting money into a system and expecting financial compensation at a later date.  The problem is that these programs have finally reached the breaking point of sustainability.

Why?  Check out these graphs, the first from Zerohedge and the second from Mish:

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I’m sorry, but there is no way that all the government entitlements, including pensions, that Americans have come to take for granted can be sustained over the long run with such a bleak financial picture.  Coupled with the fact that the federal government’s debt ceiling is 100% of GDP (and even more than that when the toxic crap on Fannie and Freddie’s ledgers that Obama is keeping off the books is factored in), and you have a recipe for some serious pain.  It won’t even matter how much taxes are raised; the US is staring in the face of debt that it cannot possibly meet, short of a global collapse that leaves it as the only major resource provider for the rest of the world.

One thing people have to understand is that the origin of the welfare state was not rooted in any sort of magnanimous national philosophy that all citizens should look out for one another through the machinations of the state.  It was rooted in the need by Bismarck to keep the socialists from baying about Prussia’s military adventures; welfare always has been about the cultural elites maintaining their place of superiority in society by giving the plebians just enough to survive so they don’t try to remove the elites from power.  It was never been about creating equality or a sustainable economic system--the very fact that the welfare state has relied on exponential growth in population and inflation over the last 140 years or so to maintain itself renders the notion of its inherent sustainability a joke, along with the complete failure of the War on Poverty.

The biggest crime being committed by our so-called leaders, and our citizens, rests on the fact that rather than accept responsibility for what needs to be done to fix the problem--that is, clear out the debt by all means necessary--most Americans have resorted the coward’s measure of hoping someone figures out a way to cook the books, so that “extend and pretend” remains the nation’s economic policy until they are safely in their graves.

Posted by on 03/04/10 at 05:42 PM in Decline of Western Civilization Europe and the UK Politics Law, & Economics • Permalink

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