Will Europe Learn from Greece's Budget Meltdown?
One by one, European governments are beginning to show signs of breaking economically. Greece may get bailed out for now but its debt will only grow, reaching 400% by 2040.
Missing from the media coverage of Greece’s budget meltdown has been a message perhaps never before proven so true: social democracy isn’t sustainable. Greece spent the last few decades erecting social safety nets: government healthcare, a retirement age of 61, and a generous welfare system. As a result, it’s run massive deficits and faces a debt to GDP of 150% by next year: if the country doesn’t go bankrupt before then.
Spain, Italy and Portugal are in a similar boat, each weighed down with debt loads from cradle to grave government programs that are proving to be unaffordable. Each country has also enacted sky-high taxes in an attempt to pay for at least part of the cost. Spain’s VAT tax (a national sales tax) alone is 16%. Higher taxes haven’t been good for Spain’s economy, where unemployment just shot above 20%: putting more people on welfare and adding to the country’s deficit.
In an attempt to trim its deficit, the Greek government has proposed modest cuts to government worker salaries, and wants to increase the retirement age (the age at which all Greeks can collect a pension from the government) to 63. Doing this would only reduce the budget deficit from 13.6% of GDP to 8%, but even these “austerity measures” have provoked massive protests from a public that has never been told “no” by the government before. One protester complained that if the cuts to her salary are enacted, she would have to forgo buying a new car, and would need to switch to using cheaper makeup.
One problem with an economy based around government spending is that, unlike a private-sector business, it’s nearly impossible to cut spending when times are bad. Look at England. UK Conservative Party leader David Cameron had been running as a strong fiscal conservative last year, proposing necessary cuts to Britain’s budget. This quickly proved to be political suicide in a country where 53% of the economy is government spending and more than 6 million people work for the government. Gordon Brown and the Labour Party pointed out the impact that cuts would have on healthcare, government workers, and the performance of an economy dependent on government spending. Cameron blinked, dropping proposals for cuts that had any teeth.
Regardless of who’s in power, how will Britain find the political willpower to trim its exploding deficit? By defunding the armed forces. The UK’s military has already been hit by the budgetary axe, with many army battalions 1/5th below their regular size (2/5th when you count soldiers so injured they aren’t fit to deploy). Many in England are already questioning the importance of remaining a world military power, reports the em>Economist<, arguing that “Britain could limit itself to defending its national territory while sheltering under NATO and America’s nuclear umbrella.” In a country dependent on government spending for social services, it’s easier for politicians to gut their militaries than to ask citizens to accept the cuts. National security? Why worry about that when you know the United States can bail you out.
Last week Bill Maher pointed out the merits of Europe’s social safety nets over American capitalism, using statistics from infant mortality rates to life expectancy. Even if one is to concede that Maher is correct, his argument misses the point: economies heavily dependent on big government are not sustainable. One by one, European governments are beginning to show signs of breaking economically. Greece may get bailed out for now but its debt will only grow, reaching 400% by 2040. Long before then, the country will either collapse into bankruptcy or unwind its government-run healthcare and pension system.
Nations must adopt economic systems that are financially sustainable, by giving citizens control of their own destiny. Cradle to grave systems will only push them into a grave.