I spent time in Greece and have dealt with their moribund bureaucracy, their rampant socialism, runaway spending, massive labor unions that cover everything from taxi drivers to prostitutes.
Last week Greece earned the first of two sovereign downgrades from ratings agency Fitch over its $436 billion budget deficit. Then Standard & Poor’s cut Greece to BBB+ from A- and sternly warned that if the government didn’t get serious about controlling its spending, the downgrade wouldn’t be its last.
Through the week, investors dumped Greek bonds, and word rose that Greece would need a bailout from the European Union. European leaders such as German Chancellor Angela Merkel loudly said no to that Wednesday, but it didn’t help. By Thursday, Greece’s problem became Europe’s problem, with the euro tumbling to a three-month low against the dollar while U.S. Treasury prices — a traditional safe haven for sovereign investors — soared.
On Friday, S&P announced “a more pronounced and faster economic deterioration than we previously anticipated” for Greece, with a “protracted hard landing” next.
The whole crisis has a perfectly logical basis: Greece’s budget deficit is more than four times higher than the European Union’s 3% ceiling and stands at 12.7% of GDP. Its gross debt, at 112% of GDP, indicates it has more debt than productive output. And its socialist government has no credible plan to quit spending. Years of embedded socialism — in spending, labor and regulatory practices — are responsible. They’ve enabled the government to consume the very economy that’s supposed to sustain it.
Even supposedly right-of-center parties spent state cash the same way. The last party in power was nominally conservative, but failed to stop expansion of government. It kept hiring, kowtowed to union demands for fear of strikes and did little to change the culture’s gimme-gimme mentality.
Bureaucrats were hired like there was no tomorrow. These state employees are union members who can never be fired no matter how nasty, lazy or corrupt. Layers of such people go into ministries as payoffs for political favors.
Does this sound like a familiar path?