A lot can happen in 2,500 years.
Back in its day, Greece ruled the world – albeit, it was a much smaller world. But that was a long, long time ago. So long ago, we routinely refer to the Greece of those days as “ancient Greece;” the only thing it has in common with the Greece of today is its geography.
Greece has gone from Alexander the Great to Alexis the Not-So-Great. That would be Alexis Tsipras, leader of the Coalition of the Radical Left, who was elected prime minister in January. Tsipras’ plan for bringing his country back to solvency is to pretend its debts don’t exist and to keep on spending. After all, that worked so well for Argentina.
After being bailed out twice by Eurozone leaders, Greece is no closer to solving its economic problems. The only difference now is that it has more debt. If Greece were a person, you’d cross the street if you saw him approaching, because you know he’d bum money off of you and use it to bet on the ponies.
The Eurozone’s bailouts were contingent upon Greece following an austerity program. But Greeks have had enough of austerity and elected Tsipras as the anti-austerity candidate. So after two bailouts, Greece is still an economic failure – and it’s all Germany’s fault, since Germany actually wants Greece to stick to its austerity program and pay back its loans.
When Tsipras made his first official visit as prime minster, it was to a monument that honored Greek citizens who suffered a mass execution at the hands of the Nazis. As Zerohedge notes, “That symbolism wasn’t lost on anyone.”
Giving Greece another bailout would be like giving a carton of ice cream to a binge eater, yet some in the Eurozone believe it is the only viable alternative.
Greece’s greatest problem is that it has too much debt. So how does adding to that debt help anyone?
You may recall that in 2009, Greece was the lead player in Europe’s sovereign debt crisis. With government debt levels increasing rapidly, investors became concerned about Greece’s ability to meet its debt obligations. A lack of confidence caused bond-yield spreads to widen and the cost of risk insurance on credit default swaps to increase.
In 2010, the Eurozone countries, the European Central Bank (ECB) and the International Monetary Fund (IMF) (aka, the Troika) approved a 110 billion euro bailout loan for Greece to cover its financial needs from May 2010 through June 2013, conditional on implementation of austerity measures, structural reforms and privatization of government assets.
With the recession worsening and Greece’s government delaying implementation of the conditions of the first bailout, Greece was rewarded for its slacker attitude by receiving a second bailout. It’s as if the Eurozone were following the U.S. playbook for dealing with the likes of North Korea and Iran by rewarding broken promises.
The second bailout totaled 130 billion euros and included a bank recapitalization package worth 48 billion euros. Meanwhile, private creditors holding Greek government bonds were required to accept extended maturities, lower interest rates and accept a 53.5% face value loss.
Greece, of course, is a prime example of what happens when the public sector trumps the private sector. Spending is out of control, corruption is rampant and the unemployment rate is an astronomical 27.6%.
Last year, Greece’s gross domestic product shrank by 3.9% and its five-year compounded annual growth rate is -5.2% according to the 2015 Index of Economic Freedom, which explains its scoring as follows:
“Greece’s economic freedom score is 54.0, making its economy the 130th freest in the 2015 Index. Its score has declined by 1.7 points since last year due to a substantial deterioration in the control of government spending and smaller declines in business freedom, labor freedom, and fiscal freedom. Greece is ranked 40th out of 43 countries in the Europe region, and its overall score is below the world and regional averages.
“Since 2011, Greece’s economic freedom has declined by 6.3 points, with scores falling in seven of the 10 measured categories. Once ranked in the ‘moderately free’ category, Greece is now considered ‘mostly unfree.’ With the 10th largest score decline in the 2015 Index, Greece has recorded its lowest economic freedom score ever this year.
“Large continued declines in the management of government spending bode ill for a government still reeling from a sovereign debt crisis and multiple international bailouts. The rule of law remains problematic, with property rights weakly enforced, tax evasion on the rise, and corruption pervasive. Despite efforts to create a more business-friendly regulatory environment, the labor market remains rigid and slow to adjust to market realities.”
Fixing a broken country isn’t easy. But spending money isn’t the answer. Keynesians refer to government spending as “stimulus,” but if government spending really did stimulate the economy, Greece’s economy would be booming.
Greece is a prime example of what really happens when the government has too much control. Rampant government spending results in higher taxes, so that consumers have less to spend and businesses have less to invest. Centralized power results in less freedom, more corruption and a shrinking economy.
There’s been much conjecture about what will happen if Greece reneges on its debts. Greece could be forced to leave the Eurozone, it could force a rethinking of how to deal with the sovereign debt crisis or it could receive another bailout.
There appear to be no good options, especially given that the new radical left leadership is likely to only add to Greece’s problems. All of Europe will likely be affected.
Nearly 2,500 years ago, Greece conquered the world based on its strength. Today, Greece seems bent on conquering Europe based on its weakness.