Greece's Failed Economics

Townhall.com ^ | July 7, 2015 | Mark Nuckols

[Kaslin]

In a desperate bid to save his political career, Greek Prime Minister Alexei Tsipras bet big on both the gullibility of the Greek electorate and the unreconstructed hate the Greek left has for capitalism. He has just won that bet, and will remain Prime Minister until the Greek people realize what they have done. In their defiant vote for “NO" Greek voters naively believed that they were voting for “democracy” and “national dignity.” Unfortunately they are about to find out they actually voted for “poverty, corruption, and a blighted future.”

Every conservative intuitively understands TANSTAAFL, There Ain’t No Such Thing As A Free Lunch. Ultimately, government spending has to be paid for by somebody. Well, since joining the European Union in 1981, Greece has believed in TISATAAFL, There Is Such A Thing As A Free Lunch. For more than three decades, the EU has poured billions of subsidies and grant money into Greece, much of which was stolen or squandered. The EU has given this plenteous bounty to Greece in the hope of firmly cementing Europe’s Balkan extremity into a broad economic and security system. Going back even earlier, in the immediate post-WWII era, the United States saved Greece from economic collapse with extremely generous financial aid and secured its borders from serious external threat. (And yet hatred for the US is a long term staple of leftist Greek domestic politics.)

In 2001, Greece adopted the euro, ditching the forever devaluating drachma for a solid currency with correspondingly low interest rates. There were supposed to be strict monetary and fiscal criteria to join the euro; the Greek government simply used crooked accounting to make it appear their economic affairs were in order. And with cheap money available, the Greek government and its citizens went on a collective borrowing binge.

When the financial crisis hit in 2008, the music suddenly stopped, and Greece was conspicuously left without a chair. A complicated bailout package was arranged by Greece’s creditors; 72% of the debt was effectively forgiven, and new loans extended to tide the country over. And the Greeks bitterly cried that repaying 28% of their debt was somehow fundamentally unfair.

And now yet another round of negotiations about Greece’s debts has hit a wall, as the Greek government persistently refused to bargain in good faith. As its creditors tried to coax the Greek side into accepting urgently needed economic reforms in return for more bailout funds, the Greek Prime Minister blindsided them with a hare-brained scheme to put the question before the public in a straight-up yes or no referendum. But the problem is that this “referendum” was scheduled on a week’s notice, and asked the public to vote on a complex economic proposal they barely understood, if at all.

And the public voted against the reform proposals 61-39%, in a vote where “NO” was considered to be a brave gesture of defiance. It may well turn out to have been a decision to embrace national economic disaster, and the Greek people will learn too late that you can subsist on misplaced pride in willfully reneging on your debts and refusing sensible economic policies.

The fundamental problem is that the Greeks have gotten accustomed to living far, far beyond their means, and now consider any sort of belt-tightening as “brutally harsh austerity measures imposed by cruelly punitive creditors upon an innocent people.” Greece is basically a poor backward Balkan country, Serbia with nice beaches. And yet somehow the country enacted the most generous welfare benefits in the world. For many occupations, for example hairdressers, 50 is the age Greeks become eligible for a full government pension.

Needless to say, successive governments in Athens could always count on the hairdresser vote. And the vote of all of Greece’s powerful labor unions and leftist movement. And best of all, the Greeks didn’t even have to pay for this generous system. Tax evasion in rampant, so there was no organized opposition to Greece’s voracious welfare state because nobody was paying taxes to fund it.

Well, Greek taxpayers weren’t anyway. That burden has fallen more and more on German and Dutch taxpayers, and the other fiscally responsible members of the EU. And they quite reasonably are finally tired of financing Athen’s fiscal follies. It seems both the Greek public and government policymakers are blind to the new reality that the golden days of easy money and endless forbearance really are over.

Even now, Greece has a chance to redeem its economic future and stay in the eurozone. EU leaders seem willing to give the country yet another chance to accept their proposals, perhaps coupled with yet one reduction in the debts Greece is expected someday to repay. And with sensible economic policies and serious structural reforms, Greece could be set on a path to sustainable growth. Unfortunately I suspect the radical left government in Athens is going to screw the pooch, as it has repeatedly done since it came to power. It’s a true Greek tragedy.

[vbmoneyspender]

How does staying in the EU help Greece? If they stay in, they keep getting crack-whore money to continue their addiction.

[RayChuang88]

Look, Greece during the 20th Century defaulted on their finances even when they were using the Drachma as their national currency. As such, them defaulting on the Euro surprises no one. And unlike Italy or Spain, Greece doesn't have a reasonably viable agricultural or industrial base to produce their way out of an economic crisis.

[pepsionice]

They would have agree on a budget where cuts were made, pensions were changed, and tax avoidance was punished with real jail time. So far....with five years to produce some type of significant change....they’ve been unable to achieve anything. That kinda tells the whole story, and why this is a charity story, which will repeat itself once you give them hundred billion Euro. At best, that will last two years and then they return again for more money.

My suggestion is that they dump the Euro....take the Russian Ruble and become part of the Russian empire.

[riri]

I was just listening to a podcast that was speaking about the Greek (modern) history.

I did not know they were ruled by a military junta until 1974.

Or that they have had mass waves of emigration. In 1893, there was an economic crisis and the price of currants collapsed. They lost 1/6 of their population to the United States & Egypt. Then other various waves they'd lose 10% here, a million or so there, etc.

[Cowboy Bob]

When Greece is finally allowed to go bankrupt, I hope that the name "Alexei Tsipras" becomes synonymous with "Epic collapse."

I want he to be regarded at the greatest failure of any elected official in history. A man who led his people dancing and singing down the rat hole of history.

[vbmoneyspender]

Those closest analogy is that the Greece is like a crack addict. They are going to have to hit bottom and figure this out on their own. Giving them more money, no matter what terms you impose on them will only result in them cheating on the terms (like they have done in the past) and continuing their addiction. The underlying problem of a bloated gov’t sucking the life out of the private sector will remain.

[GOPJ]

Greece is like Chicago... they borrowed huge sums of money to liver beyond their means with the plan of dumping the debt on gullible lenders.

It’s not gonna work for Chicago or California and it’s not gonna work for Greece.

Maybe they’ll get away with it for a little while longer but the piper will get paid...

[samtheman]

bet big on both the gullibility of the Greek electorate and the unreconstructed hate the Greek left has for capitalism

Pretty safe bet in many Western countries today.

Sad but true.

[vbmoneyspender]

From a story that hit the newspapers in 2012

It's stories like these that make you think: Wow, perhaps Greece really does have some major reforms it can do.

Ektahimerini has a story on what it takes to open an online store in Greece.

It focuses on Fotis Antonopoulos, the co-founder of olive oil site Oliveshop.com.

There's months and months of bureaucracy, and paperwork and all that, but that's just the tip of the iceberg.

“Most stores begin operating after receiving only the approval regarding their brand name, as the bureaucracy involved takes such a long time to complete that it is simply impossible to keep up with the operational costs, such as paying rent on obligatory headquarters, without making any sales,” said Antonopoulos.

Antonopoulos and his partners spent hours collecting papers from tax offices, the Athens Chamber of Commerce and Industry, the municipal service where the company is based, the health inspector’s office, the fire department and banks. At the health department, they were told that all the shareholders of the company would have to provide chest X-rays, and, in the most surreal demand of all, stool samples.

[Buckeye McFrog]

I dunno.....a naval base deal with Vlad Putin here, some talks with Spain and Argentina on forming a global debt cartel there.....Greece may yet be able to roll the Euros into giving them what they want.

[vbmoneyspender]

Reading the link above, you can see what is going on. The Greek bureaucracy demanding the x-rays and stool samples isn't demanding those because they expect the business people to actually provide them but because the want to make the demands to open the business so onerous that the business people will have no choice but to pay a bribe to get on with their business.

The papers often talk about how the Greeks are notorious at avoiding taxes but I have some sympathy with them on this point. The producers are the ones generating incomes that are being taxed and I can see why they would want to pay as little in taxes as possible because the more you pay, the more you become a potential target for the grifters who populate the Greek governmental bureaucracies.

[HotHunt]

There is no doubt in anybody's minds, except the Greek people themselves, that they did this to themselves. No amount to talk and trying to convince people about the failures of socialism and big government giveaways, can compare to having to finally live with the reality of the failed system like the Greeks will now have to do.

Capitalism and free enterprise may not be perfect but is is the only system ever devised that can sustain itself and give everybody the opportunity to be successful and live a decent life. Not so with socialism. It is just a dream of the Marxists of the world and has never been successful in any country in the history of the world wherever it has been tried. Just look at how well Venezuela is doing under this system.

The Greeks will rue the day they ever went down this path. Will other countries and their populations learn from this disastrous result, including the US? Only history will tell.

[immadashell]

A Few Words in Greek - CreteTravel www.cretetravel.com/travel_tips/a-few-words-in-greek/ The Greek language is believed to be one of the oldest European languages, which has an oral .... No is ókhi - which sounds like 'okay' to English speakers.

Is this the source of the confusion? All along, when we thought they said OK (OXI) they were saying No. Every time they said OXI (No) we thought they were saying OK.

[GOPJ]

People have a way of getting the government they deserve. It’s happening in Greece. It’s going to happen here..

I feel for the Greek people but they should have rejected the ‘free lunch’ offered... it’s never free.

[Opinionated Blowhard]

Staying or going is completely besides the point. Greece needs to cut spending, cut its government sector, create a rational tax system that everyone buys into and reduce retirement benefits. That has nothing to do with staying in the EU.

[Red Badger]

A Greek friend of mine says that in Greece, probably 80% of the people work for the government in some fashion or other. That cannot possibly work, the math just won’t support it. If even 50% of the people work for the government, the numbers wouldn’t add up.

Someone has to work the private sector to pay the taxes to support the government, and 50% won’t work out that way.

Now you know why they voted the way they did.

Government workers don’t pay taxes...............................

[gr8eman]

If the Turks were smart, they would systematically agree to pay all Greek debts until they signed over their sovereignty. Once they take over a majority of the country, it would be over and they would own it, and probably kick all of the Greeks out.

[samtheman]

Excellent post #13.

[HotHunt]

And where would the Greeks go? Obama would no doubt invite them all here to enjoy his new socialism experiment in the US and further destroy whatever great country we used to have until he started his “fundamental transformation”.