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Greece's Failed Economics

The opinions expressed by columnists are their own and do not necessarily represent the views of
In a desperate bid to save his political career, Greek Prime Minister Alexei Tsipras bet big on both the gullibility of the Greek electorate and the unreconstructed hate the Greek left has for capitalism. He has just won that bet, and will remain Prime Minister until the Greek people realize what they have done. In their defiant vote for “NO" Greek voters naively believed that they were voting for “democracy” and “national dignity.” Unfortunately they are about to find out they actually voted for “poverty, corruption, and a blighted future.”

Every conservative intuitively understands TANSTAAFL, There Ain’t No Such Thing As A Free Lunch. Ultimately, government spending has to be paid for by somebody. Well, since joining the European Union in 1981, Greece has believed in TISATAAFL, There Is Such A Thing As A Free Lunch. For more than three decades, the EU has poured billions of subsidies and grant money into Greece, much of which was stolen or squandered. The EU has given this plenteous bounty to Greece in the hope of firmly cementing Europe’s Balkan extremity into a broad economic and security system. Going back even earlier, in the immediate post-WWII era, the United States saved Greece from economic collapse with extremely generous financial aid and secured its borders from serious external threat. (And yet hatred for the US is a long term staple of leftist Greek domestic politics.)

In 2001, Greece adopted the euro, ditching the forever devaluating drachma for a solid currency with correspondingly low interest rates. There were supposed to be strict monetary and fiscal criteria to join the euro; the Greek government simply used crooked accounting to make it appear their economic affairs were in order. And with cheap money available, the Greek government and its citizens went on a collective borrowing binge.

When the financial crisis hit in 2008, the music suddenly stopped, and Greece was conspicuously left without a chair. A complicated bailout package was arranged by Greece’s creditors; 72% of the debt was effectively forgiven, and new loans extended to tide the country over. And the Greeks bitterly cried that repaying 28% of their debt was somehow fundamentally unfair.

And now yet another round of negotiations about Greece’s debts has hit a wall, as the Greek government persistently refused to bargain in good faith. As its creditors tried to coax the Greek side into accepting urgently needed economic reforms in return for more bailout funds, the Greek Prime Minister blindsided them with a hare-brained scheme to put the question before the public in a straight-up yes or no referendum. But the problem is that this “referendum” was scheduled on a week’s notice, and asked the public to vote on a complex economic proposal they barely understood, if at all.

And the public voted against the reform proposals 61-39%, in a vote where “NO” was considered to be a brave gesture of defiance. It may well turn out to have been a decision to embrace national economic disaster, and the Greek people will learn too late that you can subsist on misplaced pride in willfully reneging on your debts and refusing sensible economic policies.

The fundamental problem is that the Greeks have gotten accustomed to living far, far beyond their means, and now consider any sort of belt-tightening as “brutally harsh austerity measures imposed by cruelly punitive creditors upon an innocent people.” Greece is basically a poor backward Balkan country, Serbia with nice beaches. And yet somehow the country enacted the most generous welfare benefits in the world. For many occupations, for example hairdressers, 50 is the age Greeks become eligible for a full government pension.

Needless to say, successive governments in Athens could always count on the hairdresser vote. And the vote of all of Greece’s powerful labor unions and leftist movement. And best of all, the Greeks didn’t even have to pay for this generous system. Tax evasion in rampant, so there was no organized opposition to Greece’s voracious welfare state because nobody was paying taxes to fund it.

Well, Greek taxpayers weren’t anyway. That burden has fallen more and more on German and Dutch taxpayers, and the other fiscally responsible members of the EU. And they quite reasonably are finally tired of financing Athen’s fiscal follies. It seems both the Greek public and government policymakers are blind to the new reality that the golden days of easy money and endless forbearance really are over.

Even now, Greece has a chance to redeem its economic future and stay in the eurozone. EU leaders seem willing to give the country yet another chance to accept their proposals, perhaps coupled with yet one reduction in the debts Greece is expected someday to repay. And with sensible economic policies and serious structural reforms, Greece could be set on a path to sustainable growth. Unfortunately I suspect the radical left government in Athens is going to screw the pooch, as it has repeatedly done since it came to power. It’s a true Greek tragedy.

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