Author: Anthony Labarga
Swamped by the extravagance and rampant corruption of their finance ministry, Greek politicians have been left with no choice but to accept another bailout to stave off national insolvency. In a scene that has already played itself out in Portugal and Ireland, citizens took to the streets to protest austerity. Like so many around the world, they are being confronted with the fact that a welfare state financed by borrowing can only be a dream.
Contrary to what some news outlets make them out to be, the Greek people are not lazy by any means, nor do they retire at 35. The Organisation for Economic Co-operation and Development reports that the average Greek worker puts in more hours each year than any of his European counterparts. They retire in their late 50s, which is not much different from most of Europe. The events following the Second World War destroyed Greek infrastructure, but the workers there rebuilt it nonetheless. Their problem is not that they do not work hard.
The problem with Greece, as with Portugal, France and Spain, is its titanic bureaucracy. The Greek government consumes more than half of the Greek GDP, and last year its expenditures were 127 percent of its revenues. Beginning with Prime Minister Andreas Papandreou’s administration in the 1980s, Greek statesmen have repeatedly appeased public demands for social programs the country cannot afford. Greece spends 10 percent of its GDP on national health care alone, which is much higher than that of its counterparts with similar systems.
On top of that, the Greek finance ministry has been caught manipulating economic data to make the country appear more stable, which has allowed it to borrow unconscionable quantities of money to support its sprawling welfare programs. Greece is in serious trouble now because its accounting irregularities were exposed almost simultaneously to the financial crisis in 2008, and thus investors refuse to lend Greece any money. This has put Greece in quite a bind: the government cannot borrow to repay its debts or finance itself and has been teetering on the brink of bankruptcy for three years. The situation is apparently so bad that the €110 billion loan granted in 2010 was insufficient rescue, and more debt assistance is now needed.
The only option for Greece is austerity. The curtailment of many of its extensive social programs. The government must modify the health care system, reduce the pension system or some combination thereof. Whether or not the Greek welfare state can continue in its current form is no longer debatable. To get its debt down to the reasonable level determined by the European Union finance ministers of 120 percent of the GDP, the Greek government must either cut its spending or increase its revenues by a third. Given that unemployment in Greece is 20 percent and nearly 30 percent of Greeks live near or below the poverty line, the latter is not a viable option.
Yet still there are protests on the streets of Athens and Thessaloniki, mainly by students who cannot grasp the gravity of the situation. It’s understandable that they feel shortchanged, but the time has come to face the balance sheet. Greece needs to cut down on its spending, regardless of the public response. The fact that so much deceit was needed to create this welfare state only underscores the fact that social programs are not a state’s default condition; they are options that a government can choose to initiate if it finds itself in a favorable financial position. A state which finds itself in a deficit cycle should never expand its social welfare system, even if it has access to loans. To say that it should would be to say that somebody without a job should go for a shopping spree just because he or she got a credit card in the mail.
A country cannot hide from its financial problems by congratulating itself on its various programs. Austerity is the only remedy for a country which has spent itself to the brink of bankruptcy. The EU finance ministers are right in demanding austerity of the Greeks. Hopefully this debacle will serve as a warning to other fiscally fragile states contemplating similar welfare expansion. And hopefully it will dissuade them of it.
Anthony Labarga is a senior economics major. He can be reached at labarga@oxy.edu.
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