“The problem with socialism,” said Margaret Thatcher, ” is that you eventually run out of other people’s money.”
And that is precisely what is happening in Greece. In addition to running out of other people’s money, Greece also appears to be running out of other people’s patience.
This particular problem has been a long time in the making. The wealthier EU nations have been quite happy to keep lending Greece money to pay pensions and entitlements that the domestic economy simply could not support. It would appear that no one stopped to think what was going to happen if this went on for any extended period of time. But now it is becoming increasingly obvious to the credit nations of Europe, that the Greek population is not of a mind to accept any restrictions on spending (of other people’s money).
The Greek population, quite naturally, does not want to see welfare and pension payments, which constitute a significant proportion of many people’s income, cut. They argue, quite correctly, that reducing the spending power of the population is not way to get the economy moving.
On the other hand, their creditors argue that running an economy on charity is unsustainable. The economic hard-heads in Germany and in the IMF think that there needs to be a fair amount of pain to correct the situation in Greece.
The dilemma is keeping the economy alive and avoiding having the country slip into political anarchy while the productive (and tax-paying) economy picks up. This may take decades rather than years.
The fundamental problem is that the economically powerful nations, such as Germany and France, have enjoyed a much lower exchange rate within the EU than they would have enjoyed if they had been independent nations. They needed economically weak countries such as Greece and Spain to maintain that the low exchange-rate.
This low exchange rate gave them a huge advantage against their global trading partners. But we should not be any doubt that the prosperity of the wealthy European nations is a result of financial conditions inherent in the economic structure of the EU.
So while it may appear as if Greece is behaving like spoilt child, it is worth remembering that the current situation is not entirely of Greece’s making.
The chickens are coming home to roost, not just for Greece, but for the wealthy nations of Europe.