First off, most people don't realize that Greece is not a first world country. While one of the founding civilizations of the world and the birth place of the West, Greece has almost no middle class, a fairly corrupt government, and a bloated public sector economy. According to the Index of Economic Freedom, with a freedom score of 54, Greece's economic health is on par with Russia, India, Egypt, Brazil, and most African countries. The only other European countries that ranked lower overall than Greece was Russia, Ukraine, and Belarus (who's really surprised there?). Greece scored surprisingly high on trade freedom but that's about it. The country scored extremely poor on property rights, freedom from corruption, and financial freedom. For the world average Greece is fairly typical but for a European country this is extremely below the standard.
Reality Check: So for all of you kids out there screaming that unchecked capitalism is destroying Greece, it is actually fairly socialist for a European country which isn't saying much.
So Greece entered into EU in 2001 and adopted the Euro as it's currency and subsequently obtained access to really inexpensive loans, which mainly came from Germany. Because it now had access to the European Central Bank and the IMF it symbolically became a first world country without actually being one in anyway. Sort of like lipstick on a pig. The other problem, which isn't necessarily unique to Greece, is that it's a social democratic country with high volume social welfare programs, an extremely early retirement age, and bloated pension programs. Most people hope to retire at the age of 50 on a good government pension but with a low population growth rate way below the replacement rate there is no way it could even be sustainable. In addition, they have generous retirement pensions but no one to replace the people putting into the system. Even in developed countries that have similar retirement pensions programs with high birth and replacement rates, retirement at the age of 65 is even unrealistic, let alone 50. Even in the US with SS, medicare, medicaid, and other safety net programs many people still work well into their 70's.
In fact, this is what happens with pay-as-you go pension systems. They are essentially Ponzi Schemes where the government takes your money and gives it to someone else right away that is collecting retirement and you hope that 50 years down the road that the government doesn't run out of other people's money to pay for your retirement. Well that is what is happening with Greece's pension program (Italy is soon to follow). Even if you support some sort of government run pension program, the pension programs in Greece wouldn't even make normal sense to most people but that is the nature of the welfare state. So again, starting in 2001 Greece gets access to billions of dollars in interest free loans. You get good pensions, retire early, and simply put, the government couldn't sustain it.
Now, why would the EU let Greece come in, in the first place? European countries have vast differing economies, levels of growth, languages, cultures, and then suddenly the post-war European community wants to become a single monetary unit without a single government over them. It's doomed to fail but it's this belief in European unity and how could they do this without the symbolic ancient seat of democracy that is Greece. Letting them enter was more fantasy then anything else. Completely disregard fiscal sanity.
Now the economic idea behind letting them join the EU was to jump start their economy with huge low-interest loans. This would create artificial demand sort of like a Marshall Plan that was applied to Greece. Isn't this how Germany and others countries recovered after WWII? As the narrative goes, giant loans and resources pumped into the heart of European countries devastated by half a decade of total war would create artificial demand and temporary jobs that would get the continent back on it's pre-war knees. This is the soul of Keynesianism and the economic strategy employed in many developed countries. However, we tend to forget that Germany had many of good economic institutions already in place that helped them recover such as strong banks, a huge industrial base, and many trade opportunities. Also, we forget that Germany was also loaded with something called Germans who are an industrious people who historically have strong work ethic. Greece is a different culture that maybe doesn't have that historically strong working populace and industrious fervor. Does that mean Greeks are lazy? Of course not, but they need to change their state of mind if they want to get out of their current mess.
The other question is, do the Greeks deserve the blame or do others? Did they create this problem and are they on the hook for it? Mostly yes but not all the way. If you think about it on the micro-level then imagine that someone lends you money and you agree to the terms then you have an obligation to pay it back. However, if the lender knows you can't pay it back and won't then the lender is also on the hook for making a more than poor calculated risk. When you loan money you determine an interest rate depending on how risky the loan is and these massive deals with Greece were at almost zero percent interest with a high probability of not being able to pay them back. Now I suppose European lenders knew this but decided that maybe the Greek economy would magically jumpstart or it would delay the inevitable. Or maybe they live in this collective delusion that if they keep bailing out Greece that it will prevent their economy from collapsing. Delay the inevitable but it is not avoidable.
Personally, I would hold the EU responsible for letting Greece in the EU in the first place but at the same time Greece needs to change it's behavior and drastically "de-socialize" their economy. In the end someone is going to have to lose and dramatic changes will have to be made.
In fact, this is what happens with pay-as-you go pension systems. They are essentially Ponzi Schemes where the government takes your money and gives it to someone else right away that is collecting retirement and you hope that 50 years down the road that the government doesn't run out of other people's money to pay for your retirement. Well that is what is happening with Greece's pension program (Italy is soon to follow). Even if you support some sort of government run pension program, the pension programs in Greece wouldn't even make normal sense to most people but that is the nature of the welfare state. So again, starting in 2001 Greece gets access to billions of dollars in interest free loans. You get good pensions, retire early, and simply put, the government couldn't sustain it.
Now, why would the EU let Greece come in, in the first place? European countries have vast differing economies, levels of growth, languages, cultures, and then suddenly the post-war European community wants to become a single monetary unit without a single government over them. It's doomed to fail but it's this belief in European unity and how could they do this without the symbolic ancient seat of democracy that is Greece. Letting them enter was more fantasy then anything else. Completely disregard fiscal sanity.
Now the economic idea behind letting them join the EU was to jump start their economy with huge low-interest loans. This would create artificial demand sort of like a Marshall Plan that was applied to Greece. Isn't this how Germany and others countries recovered after WWII? As the narrative goes, giant loans and resources pumped into the heart of European countries devastated by half a decade of total war would create artificial demand and temporary jobs that would get the continent back on it's pre-war knees. This is the soul of Keynesianism and the economic strategy employed in many developed countries. However, we tend to forget that Germany had many of good economic institutions already in place that helped them recover such as strong banks, a huge industrial base, and many trade opportunities. Also, we forget that Germany was also loaded with something called Germans who are an industrious people who historically have strong work ethic. Greece is a different culture that maybe doesn't have that historically strong working populace and industrious fervor. Does that mean Greeks are lazy? Of course not, but they need to change their state of mind if they want to get out of their current mess.
The other question is, do the Greeks deserve the blame or do others? Did they create this problem and are they on the hook for it? Mostly yes but not all the way. If you think about it on the micro-level then imagine that someone lends you money and you agree to the terms then you have an obligation to pay it back. However, if the lender knows you can't pay it back and won't then the lender is also on the hook for making a more than poor calculated risk. When you loan money you determine an interest rate depending on how risky the loan is and these massive deals with Greece were at almost zero percent interest with a high probability of not being able to pay them back. Now I suppose European lenders knew this but decided that maybe the Greek economy would magically jumpstart or it would delay the inevitable. Or maybe they live in this collective delusion that if they keep bailing out Greece that it will prevent their economy from collapsing. Delay the inevitable but it is not avoidable.
Personally, I would hold the EU responsible for letting Greece in the EU in the first place but at the same time Greece needs to change it's behavior and drastically "de-socialize" their economy. In the end someone is going to have to lose and dramatic changes will have to be made.
Sources:
http://www.heritage.org/index/heatmap
The Eric Metaxas Show - Jay Richards and the Debt Crisis, July 4, 2015
Coffee and Markets Podcast - Desperate Times in Greece After No Vote On Bailout Terms - July 6, 2015
The Eric Metaxas Show - Jay Richards and the Debt Crisis, July 4, 2015
Coffee and Markets Podcast - Desperate Times in Greece After No Vote On Bailout Terms - July 6, 2015
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