Wednesday, September 28, 2011

Analysis: Politics Aside, Life for Greeks, Others Facing Steep Hills to Climb

Athens has always been one of my favorite international cities. Admittedly, it is congested, polluted, noisy and hard to get from Point A to Point B, yet over a period of 30 years in working and vacationing there, it remains to offer a charm that it hard to describe. Probably the best way of describing Greece as a whole is the sense of humor and gusto for life of its people. Unfortunately, though, like the US, the Greek government has overspent, gone crazy with entitlements and overstaffed its central government. I know that Greece's problems are more complex than that, but when Americans look in the mirror in the morning they see the Greek colors in the background. We're all in the same boat.

Politically and economically, the question for EU economists is: Do we bail out Greece or don't we? As we speak, EU officials, the International Monetary Fund and the European Central Bank are in Athens to deliver really bad news in what massive austerity programs the Greeks will face to get a life-supporting bailout.

Like the US, Greece will face tougher times ahead before things will get better. It is going to be a hard pill to swallow. Yet, Europe's fiscal experts are already behind the curve, as economists are in the US. Regrettably, austerity measures are nearly two late for both countries. The problem now, for both nations, is the demobilizing fear that is infecting both societies. Fear of the future, fear of the present and longing for better says they saw in the past.

In real terms, Athens is confronting a debt load five times the size of Argentina's default in 2001. With an ever increasing recession, riots in the streets and the potential for the collapse of the banking system, the worst-case scenario potentially could include expulsion from the EU. After two massive bailouts already, and with the average income of most Greek households dropping by as much as 50%, the capacity of Greeks to sustain further austerity measures is quickly running out. As in the US, Greeks no longer believe their government.

The fact that Greek wage earners were among the lowest paid in Europe BEFORE the current crisis is no consolation. The reality is that many Greeks are skimping along on 500 euros a month, while national unemployment is at 16%,

With the Greek economy predicted to contract for a fourth year, Greece is not only mired in a recession not seen since World War II, but has become increasingly unhinged by the crisis. While international economists sit in board rooms with complimentary continental breakfast, espresso machines and Swiss chocolate, people worldwide are suffering, but probably not to the extent that they are in Greece. Drug addiction is spiraling, suicides are up, thousands of shop owners have abandoned their businesses and some crisis hot-liners receive upwards of 5,000 calls a day. The announcement this month of a flurry of new taxes, including a Draconian tax on real estate, has come as yet a further shock.

As in the US and elsewhere, citizens find themselves being punished by irresponsible, bloated central governments who view citizens as serfs rather than citizens. As the mood in Greece has really darkened, so has the sense of injured pride among a people who are acutely aware of their ancient lineage and feel they are being made the scapegoat by EU leaders, some of whom may view Greece as a "throwaway."

Despite the negativity we all see around us, I have always been an eternal optimist, who believes that there is no problem for which there is not a viable solution. This applies to virtually everything.

Although Greece's plight is indeed severe compared to some countries, it must be bailed out with reasonable austerity provisions. Interestingly, though, the medicine needed for Greece is not unlike the medicine needed for ALL governments who are addicted to overspending and over-entitling: (1) Spend less money than you take in; (2) insist that ALL citizens pay some income tax--no one should be exempt (3) place a moratorium on tax increases; (4) reduce all central government workers by 25% and outsource those service needs to the private sector; (5) equalize multi-lateral trade deficits; (6) institute term limits for all politicians; (7) eliminate public sector unions; and (8) eliminate unnecessary central government departments.

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