I’ll describe the crisis briefly, then address two questions: whether the nations of the European Union, such as
In the easy-money years of the early 2000s—for which we have Alan Greenspan, other central bankers, and President Bush and his foreign counterparts to thank—the Greek government borrowed a great deal of money from banks, mainly in
The Greek government has taken drastic-seeming measures to reduce its deficit. It has imposed new excise taxes and increased existing ones, reduced wages and pensions of government employees and increased their retirement age, and reduced public services.
Despite the measures taken by the government, it is desperately seeking financial aid from EU countries or failing that the International Monetary Fund: that is, it wants to borrow more money, and at lower interest rates than are available from private lenders, in order to avoid defaulting on its public debt or, alternatively, reducing government spending even more sharply than it is doing, with potentially serious political consequences.
Assuming that the Greek government, without foreign assistance, cannot avoid defaulting on its public debt because it has reached the limits of what the Greek people will acccept in the way of austerity measures imposed by their government, there is not much difference between a default on the one hand and borrowing—whether from EU countries or from the IMF on what undoubtedly would be onerous terms—on the other hand. Either way,
Default would be a wake-up call for the Greek nation and put it on the path to competent economic management. A bail out of
Comparisons are being drawn between
What we have sustaining us is the status of the U.S. dollar as the major international reserve currency (plus the fact that, since our debt is in dollars, we can reduce it by inflation, though not without cost;
This happy situation will enable us to avoid defaulting on our enormous public debt for the foreseeable future. But it will perpetuate our fiscal improvidence.