Sunday’s election in Greece saw the rise of political extremism in the birthplace of democracy. The far-leftists of Syriza and the neo-Nazi Golden Dawn party will now control two of the three largest blocs in the Greek parliament. The mainstream parties, left and right, were obliterated.
Thus opens a new and worrying chapter in that nation’s modern story. Greece’s experience this decade demonstrates what can happen when nations allow latent fiscal crises to fester — when they avoid addressing the problem until there are no good options remaining.
Perhaps this story sounds familiar. In better times, when the course could have been corrected with far less pain, they ignored their growing structural deficits. Then their economy was suddenly shocked by the same financial crisis that put the U.S. and the rest of the world on edge. Within just one year, deficits became unsustainable, growing to 15 percent of Greece’s gross domestic product. Lenders lost confidence and demanded ridiculously high interest rates. The government was left with two unpalatable choices: default on the debt or accept a bailout package that would require them to enact severe austerity measures.
Contrary to the rhetoric common in the U.S. Democratic Party, the much-maligned “austerity” is nothing like the recent sequestration, nor the gradual, long-term spending reductions that some propose by way of entitlement reform. Rather, austerity occurs after governments fail to take such reasonable measures. They are forced to cut spending or (more often) raise taxes very sharply as emergency measures, because they have no other options to avert a complete collapse.
Austerity began in Greece in early 2010, with tax increases, harsh pension reforms and spending cuts. Withdrawal has been very painful. Unemployment flirts with 30 percent; Greeks lived through five consecutive years of economic contraction; basic government services and government workers’ wages in Greece have been cut to the bone; street violence and political extremism have flourished.
Most Americans think themselves invulnerable to such panics if they think about them at all. But they would be wrong to think that we are somehow immune to the ills that have befallen Greece. America is not Greece, but the scream from Athens should serve as a warning for Americans of the trouble our incontinent borrowing and spending (not on emergencies but merely to maintain our current standards of living) might be setting up for the next generation or two. There is no direct parallel now, but there will be one eventually if Washington remains obstinate in its cowardice about excessive federal commitments to future entitlements.
The non-partisan Congressional Budget Office released new projections on Monday warning about federal deficits and the national debt held by the public, which under President Obama has ballooned from 39 percent of gross domestic product to 74 percent.
CBO also warns not to put much stock in the sudden lowering of federal deficits. Obama’s comment in his recent State of the Union Address, that the deficit is down by two-thirds, was highly misleading, as was much else in his speech. Not only did it gloss over the fact that the deficit had tripled before it fell back down, roughly back to where it was before, but it also hid the fact that the trend toward unsustainable debt remains exactly as it was before.
The national debt, CBO reports, is still on pace to exceed 100 percent of gross domestic product by 2039, and there is no mechanism in the wings waiting to rescue the system. Unlike the last time the debt reached such high levels, during World War II, federal deficits and debt will simply continue to grow from there. Government’s ability to provide such basic services as a national defense could vanish under a pile of IOUs.
Only entitlement reform can save America from such a fate. Without it, America’s future will look a lot more like Greece’s present than anyone currently wants to admit.
