The people of Greece are facing a horrific calamity; the prospect of sovereign default (bankruptcy). Bloomberg reports today (http://www.bloomberg.com/apps/news?pid=20601010&sid=aBmpIQJxYVNA) that Greece has requested the aid of the European Union and the IMF to help resolve its debt crisis; however, are Greece or the EU ready for the consequences?
Greece has a problem, they spend more money than the government takes in (sound familiar to all of us in the US). A lot more. The base cause is reported to be, among other items, a too generous pension/retirement system, too many public employees and a lax tax system.
Typically, the IMF imposes strict austerity measures on any government which seeks its aid. It does not appear that the citizens of Greece are ready to accept such measures and will riot and strike.
The EU will have to deal with this as well as problems in other member Countries, including, Ireland, Portugal and Italy. The breakup of the Euro is not out of the question.
Here in the United States, we often look to such issues abroad with some level of detachment. While we sympathize with the individuals and worry about the overall impact on the global financial system, for many, it just doesn't seem to have any direct impact. The US is like an island, we share a boarder with Mexico (largely unpopulated, and seen more as an issue for immigration than anything else) and a boarder with Canada (a country with which the US has established such a level of homogeny that we view each other more like we do our own States than foreign Countries). So, it is not unexpected that we have a level of detachment form such events.
However, the very same issues plaguing Greece are also tearing apart our States and Municipalities. Throughout the US, various States and Municipalities face a crisis on a magnitude never before seen with deficits approaching 40% to 50% of the prior years budgets.
Much like with Greece, there are no easy fixes. And much like with Greece, one of the biggest issues facing the States and Municipalities are how to deal with bloated pension costs and systems where public employees have benefits which are far greater than those offered in the private sector.
I am not against public employees. It has simply become a question of whether we can afford to maintain the current system. The answer increasingly seems no.
Then, what will we in the US do? Tax receipts, on both a State and National level, continue to either decline of remain weak. For States and Municipalities, absent pay outs or aid from the Federal Government, this will be a catastrophe. And, much like with Greece and the other member EU states, how will the States where budget problems are not as great feel about bailing out their neighbors? And will the employee's in the bailed out states agree to austerity measures? So far the answer seems to be no. Across the US, teachers and other public employees are picketing and demonstrating to stop budget cuts. In some instances this may be laudable, but at what point do public programs and expenses become too much?
We may soon find out.
So we all need to watch Greece with a heightened interest, not only because we are concerned about the Greek people, but because their problems may be our own.
Update: Zero hede is reporting:
As Bloomberg reports: "ADEDY, the Athens-based federation representing the more than 500,000 Greek civil servants who have seen wages cut this year, said the move signaled a new and “barbaric attack,” and called a protest rally for April 27 [yep, another day of strikes and rioting]. Another demonstration has been set by the opposition Syriza party for today in Athens. "This is a premeditated crime against Greek society,” Alexis Tsipras, the head of Syriza said in an e-mailed statement. “The majority of the Greek people are being tossed helplessly in the tempest of insecurity, unemployment and poverty.” He called for a referendum on the decision to seek IMF support." So here we are, and neither Germany nor Greece really wants the bailout So who the hell is benefiting from all this theater? Why, the major banks, of course, and a few politicians who are, and tried and true Chris Dodd fashion, are merely their lackeys for life. We are now convinced that there will be a government overhaul, hopefully peaceful, but most likely violent, in Greece in the next 3 months if the IMF bailout in fact occurs. We wish we could say the same thing about the United States.Riots, Public Demonstrations, Violence. Coming soon to a theater near you (I mean you California, Illionois, New Jersey, etc.)