By Malcolm Berko
Dear Mr. Berko:
One simple question – can you explain what’s going on in Greece in everyday English so the average Joe like me can understand?
R.R., Des Moines, Iowa
Dear R.R.:
Greece is the proverbial canary in the coalmine. Frequently in the last 10 years, the Greek government (Athens) borrowed billions of Euros by selling bonds to the big banks in France and Germany. Those Grecian guaranteed Euro Bonds were issued to pay Greece’s 20 years of escalating obligations, just as the U.S. Treasury sells Treasury bonds to pay for our continuing obligations.
And like the U.S., Athens’ appetite continued to demand more Euros to sustain enormous annual increases in its pension obligations, national health plan, business subsidies, social programs, schools, hospitals, airports and to keep tens and tens of thousands of redundant workers on the dole. And those growing costs are paid in Euros, the currency of many of the members of the European Union.
Politics being politics, Athens blithely continued to increase civil service pay, grant larger pensions and expand free health care, and politicians continued to borrow more Euros to give workers what the unions demanded as the nation fell deeper into debt. Sound familiar? The unions were happy, the workers were happy; the politicians got re-elected; but the Greek economy began to go down the toilet.
When it came to pass that Athens’ profligate spending exceeded its declining income, the big banksters got all wobbly and refused to give Athens more Euros to feed a viral indulgence. So the nation that gave us Plato, Archimedes, Ptolemy, Socrates, Hercules and Hippocrates was ignominiously forced on its knees to beg.
Athens had two choices: (1) It could quit the European Union, default on its Euro debt, print an avalanche of new drachmas (the currency of choice for thousands of years) to replace the disappearing Euros in circulation, and life in Greece would go merrily on its way. However, bad currency always forces good currency into hiding, and within a year of flooding the economy with its newly printed currency, the drachma would become as worthless as the German mark of the 1930s. Foreign nations would refuse to accept a drachma in payment for its exports; Greek merchants would not exchange their products for a debased currency; and anarchy would begin to rule in Greece. Or (2) the European Union (primarily Germany and France) and the International Monetary Fund would lend Greece $100 million Euros if Athens promises to put its house in order by slashing over-generous entitlements, reducing excessive pensions and health spending, furlough government workers, lower salaries and spend less on bloated infrastructure programs. In essence, a financial diet to eliminate decades of political extravagance and redundancy.
Is there a lesson here? If Athens agrees to reform, the EU and the IMF will open its lending window to fund essential services that run the country. Then perhaps after a half-dozen or so years of fiscal constraint, Athens might be able to repay its debts and become economically stable!
Simple as that? Well, I don’t understand how it’s possible to borrow yourself out of debt.
Knowing that government can easily give entitlements to its citizens but it can not as easily take them back, the unions prompted workers to riot, to close schools, airport, hospitals, rail travel and postal services, and virtually shut down the country hoping to derail Athens’ austerity plans.
Sadly, many Grecians fail to realize that a government that continues to give half its people increasingly larger entitlements to be paid for with future borrowed tax dollars is a government that will collapse. And when half the Grecians recognize they don’t have to work because the other half will take care of them, the latter will soon realize that it’s useless to work because the first half is going to be given what they work for. Sound familiar?
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com. © 2010 Creators Syndicate Inc.
