The Providence Journal (R.I.), July 10:
At some point, spending money you do not have catches up with you. Greece can serve as an object lesson in that.
The beautiful country faces financial ruin after voters, by a huge margin, signaled July 5 that they will not accept a plan by creditors that promised only more pain for all involved. Some saw that as a shrewd move to help their leaders, notably Prime Minister Alexis Tsipras, cut a deal with creditors that would not be as painful for the Greek people.
In the eyes of many, years of attempts to reform Greece through austerity measures ”“ including deep spending cuts and higher taxes ”“ have been punitive and ill-planned, battering the economy and making the damage worse.
But at the bottom of this all is spending that is unsustainable and a political system that has been corrupted by special interests.
Greece’s debt-to-gross-domestic-product ratio is a staggering 177 percent. According to The Wall Street Journal, Greece spends 18 percent of GDP on public pensions, compared with 7 percent in Ireland and 5 percent in the United States. Political corruption, high taxes and excessive spending have made it difficult to impossible for businesses to thrive in Greece, thus killing, or at least severely weakening, the goose that lays the golden eggs to pay for everything. Spain and Italy seem to be not far behind.
Political philosophers and historians have long observed that republics fall when citizens get into the habit of using the power of the ballot to extract excessive amounts of money from others in the society. Then such societies generally collapse into dictatorships. While modern societies depend on robust governments that provide welfare, they also depend on vigorous economies that produce the wealth to fund them. As the saying goes, the problem with socialism is that you eventually run out of other people’s money.
This story is bigger than Greece, though. The attempt to create a unified Europe will take a painful blow if Greece drops out of the European Union and stops using the euro. Germany, as the strongest member of the E.U. economically, has an incentive to try to work out some deal, protecting the integrity of the E.U. and making sure creditors get something out of all they have sunk into Greece.
But at some point, creditors become wary of throwing good money after bad. Greece, the cradle of both democracy and Western Civilization, seems headed for some terribly tough times, until it is able to calibrate what it spends with what it is capable of producing. For now, its economy, like its famous Parthenon atop the Acropolis, seems to be in ruins.
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