You don’t hear much about Greece these days. Only a year and a half ago, the Greek debt crisis was a common story. The tiny coastal nation in the Balkans was threatening to leave the EU, even before Britain had established the principal of secession. All that is behind us, and after all the talks of bailouts and fiscal reform, you might think that Greece was finally back on track.
Before I go farther, let me remind you briefly about this story. I’m not an economist, so I will make this very simple and easy to understand. You won’t need an MBA to comprehend the problem in Greece, or the desperate situation with which the nation is still grappling.
Until around 2008, Greece was held up as something of a miracle nation. Its economy grew by leaps and bounds. Greece went from a backwater nation, a musty province of the old Ottoman Empire, to an up-and-coming European nation. Investors flocked to Greece, and the 11 million inhabitants enjoyed an enviable welfare state – low retirement age, massive benefits, high pensions, and lots of government jobs.
Just as the Greek economy was growing, so too was the flabby excess of government bureaucracy. The Greek government spent millions of dollars that it didn’t have, and over 50% of the GDP (gross domestic product) was welfare spending. This is exactly what the socialist dream consists of: a massive government spending other people’s money. The Greeks took out massive loans, clueless of how they would repay them. True, this wasn’t the purest form of socialism (because it wasn’t taxing everything from its own civilians), but it was certainly using someone else’s money to buy extravagance.
The Greeks, far from using their economic prosperity with moderation, fell for the bait. They began to demand, and gain, more and more government benefits. They lost the ability to conceive of a government that doesn’t provide excessive welfare.
In 2015, the crisis reached a breaking point. The Greeks had to pay part of their debt, and they couldn’t do it. The big banks and creditors of Europe offered them bailouts, but only with an expensive string: raise taxes, cut benefits, and drain the coffers of the Greek citizens.
The Greeks vainly imagined that they could vote themselves out of this desperate situation. They voted for a far-left politician, hoping that he would just say ‘no’ to the creditors. He promised the Greeks that he would fight austerity. In the end, when he gained office, he came face-to-face with the reality of bankruptcy, and realized that austerity was not simply an option: it was the only path forward for the impoverished nation.
Greece is still plugging away, trying to pay off her debts. We don’t hear much about the situation because the nation doesn’t have any big bills due right now. That changes in July, when the country is due to pay more than $2.2 billion on a loan that matures that month. I guarantee that we will hear more about the debt crisis then.
Unfortunately, the IMF (International Monetary Fund) warns that “Greece cannot be expected to grow out of its debt problems, even with full implementation of reforms.” In fact, by 2060, its debts will amount to 275% of GDP.
What this means is that, unless the Greek creditors say, “You are forgiven,” Greece is heading down a pathway of bankruptcy. It may be years in the future, but one day, the bailouts will finally stop, and the economy will collapse.
In the meantime, the lesson is clear: socialism promises wealth and prosperity, but never warns us about the massive debt, turmoil, and instability that always comes trailing behind.