We ought not to relegate Greece’s problems to Greece or even just to Europe. It’s true that Greece’s economy is only about the size of Louisiana’s and comprises just about 2 percent of the euro zone economy. The markets could absorb a Greek default. Greece’s contagion will not be economic, but political.
Washington Post economics columnist Robert Samuelson advises that Americans look at the Greek crisis as “an elementary tutorial in what ails the world economy.” He points out that faster economic growth produces more tax revenues and helps countries service their debts. But, he writes, Greece has “too much debt and too little economic growth (actually none) to service the debt.”
Greece’s debt keeps growing and its creditors are demanding that it spend less and tax more. But Greece can’t grow if it raises taxes and the country is unwilling to make the hard choices that would allow it to spend less in ways that would boost economic growth. (Greeks, by the way, retire on government pensions at age 50.)
Robert Samuelson points out that, although Greece’s problem is extreme, it “is shared by many major countries, including the United States, Japan, France and other European nations.” Among these countries, according to the International Monetary Fund, debt levels are historically high. In 2014 Italy’s debt as a share of Gross Domestic Product was 132 percent; Japan’s was 246 percent; France’s was 95 percent and the Unites States’ debt was 105 percent of GDP.
With the exception of Japan, all these nations are experiencing slower economic growth. Even China’s growth has slowed recently.
Add to that the fact that most advanced societies have aging populations providing what Mr. Samuelson describes as “built-in pressure for higher government spending, deficits, and debt.” He calls this a “global debt trap.” It’s global because so many nations, simultaneously, are facing these problems. “When only a few countries are over-indebted,” he writes, those nations can reduce domestic consumption and “rely on export-led growth to take up the slack.” But this doesn’t happen when just about everyone is suffering from slow growth and over-indebtedness. Currently, he says, “There is no compensating pocket of economic strength to help weaker economies recover.”
As former British Prime Minister Margaret Thatcher said, “eventually you run out of other people’s money.” She was speaking of socialism and, in a sense, Greece has drawn sustenance from the European Union’s Marxist influences. Another Washington Post columnist, George Will, summarizes the attitude of the Greek leftists this way: “Greece will live better than its economic productivity can sustain, and more productive Europeans will pay the difference.” He points out that there are strong factions in other southern European countries — Portugal, Spain, Italy — who are watching to see what Greece gets away with.
Greece voted down its creditors’ required austerity measures. Proverbs 22:7, “the borrower becomes the lender’s slave,” could describe Greece as it crashes into the steely German backbone.
