Europe's Newest Budget Bust

Following the collapse of its government Wednesday and its parliament’s refusal to accept a budget, Portugal seems almost certain to become the third EU country to accept an EU-financed bailout.  Greece and Ireland already have; Spain, Belgium, and Italy could be next.

In this context, it seems useful to compare the countries that have collapsed and see what might be learned.  The European countries that have collapsed so far have all been reasonably small (Ireland has 4 million people; Greece and Portugal about 11 million each) but, besides that, they have little in common.

Consider that Ireland, with lowest-in-the-world corporate tax rates, a once-thriving international business sector, and modest welfare state, encountered the same problems as Greece and Portugal even though the latter two countries maintained high statutory tax rates, attracted little international investment, and had parties of the left and right competing to increase social benefits.

While self-described Socialists appear to have done most of the work of running Portugal into the ground, the center-right party did the most damage in Greece (although the actual collapse happened on a socialist’s watch) In Ireland, a centrist/nationalist party led the country into the economic abyss.

The message to the rest of Europe (first) and the United States (second) is pretty simple: stated ideology, regulatory climate, and, indeed, just about everything else just don’t matter all that much if a country takes on more debt than it can afford.

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