Chickens come home to roost in Greece (and Bonn and Paris)

“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.

greece11My other post on the Greek crisis

2 thoughts on “Chickens come home to roost in Greece (and Bonn and Paris)

  1. The Greeks offered a series of tax increases on the wealthy and businesses. The EU turned down that offer and recommended an increase in value added taxes, sales tax. Taxes on business and the wealthy offends the EU. How does that fit in with your narrative of Greek dependence on charity?

    1. Hi
      My use of the word charity was probably not the best metaphor considering that the money came the form of loans gifts. There are two issues here. The first is my main point that the Greek crisis is in part the making of the people who lent money to Greece without ensuring it was some increase in productivity of the Greek economy. The second is that the measures that the EU may be suggesting to rectify the situation represents another issue altogether. That issue is what is the best means of raising revenue and your point certainly highlights are two main means of doing it. A value-added tax is spread across population while taxes on business and wealthy rather more focused. My personal view is that taxes on income and wealth generation and not as equitable as taxes on consumption

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