Let’s start with something obvious: Greece is insolvent. What this means is that it is no longer financially capable of paying off its debts. Insolvency usually occurs in one of two ways: you are either incapable of paying your debts as they are due or you own net negative assets, meaning your liabilities exceed your assets. The former is true in the case of the Hellenic Republic, where the government simply no longer has the financial power to pay off its many debts.
There are several reasons for this: one is the fact that in the past, the government has given out jobs like they were giving out candy. This means that there are so many unnecessary jobs in the government that a lot of people don’t even bother showing up to work anymore. They do, however, reap the benefits of steady employment where they receive a government salary and benefits without having to bear the hardship of actually doing an honest day’s work. Since the government can’t simply decide to cut jobs one day, the plumbing remains an issue — with lots of green leakage, if you catch my drift.
Another reason why Greece is having financial woes is because of the euro itself. When it first adopted the single European currency, the Greek government went on a spending spree — not unlike a shopping spree done by Fifth Avenue socialites — and started spending well beyond its means, eventually reaching a point where spending in the public sector became ridiculously excessive.
Let’s return to the obvious for a minute. How does a government make money? Hint: it’s a three-letter word that we all despise. You guessed right, they make money by collecting a tax! In order to pay for all spending and debts, a government such as Greece’s needs a steady flow of cash from its citizens. Due to pervasive tax evasion, however, Greece found itself in a particularly bad position in the 2008 crisis when it was struck full-force by the downturn and did not have the means to cope.
After being promised a substantial bailout from the EU — more than €100 billion, roughly the equivalent of $140 billion — Greece is managing to get through the crisis. The overall outlook remains bleak, however, with Greece almost certainly facing default on its debt. What will this mean for the rest of us? A Greek default will mean a renewed financial crisis, especially for the eurozone, where many countries such as Germany and France own Greek sovereign debt. An uncontrolled default could potentially mean the failure of many Greek and European banks. It could also catalyze a new global recession, as many people would try to withdraw their assets from banks simultaneously, bringing the financial system to a near halt. The worst possible outcome would be a total economic collapse of Greece as it is forced to leave the euro — and possibly the European Union — and revert to the drachma, the euro’s Greek predecessor. The Greek currency would be uncontrollably inflated, Greece’s government would likely collapse entirely, and the global economy would plunge back into darkness.
Now that we’ve had our daily dose of despair and fear for our future financial security, let’s talk about what can be done to alleviate the situation. At this point, most economists believe that a Greek default has become inevitable. In that case, what must now be focused on is austerity, which means cost cutting on a national scale. By restructuring its debt and taking measures to lower unnecessary spending, which can be done by laying off public sector workers (a large portion of whom are pointlessly employed anyway), decreasing public services, and taking measures to cut spending, the Greek government may eventually be able to repay its debts. Even in the best scenario, however, Greece has to prepare for possible economic depression for some time to come.
The Greeks must understand the implications of economic collapse and stop rioting against every single austerity bill that goes through Parliament. Just a few days ago, tens of thousands took to the Parliament building in Syntagma Square to protest the new austerity bill that aims to cut wages and benefits. I honestly don’t understand the rationale behind the protests. The Greek people need to stop expecting that some magical solution will drop down from the sky and accept that cost-cutting and losing some of their wages will be the best compromise for the future sustainability of their nation’s economy. The other option is economic collapse and the major loss of jobs and livelihood.
It’s time to lift our heads up, look ahead, and understand that some compromises made today will salvage our future at the relatively insignificant expense of the present. This lesson is not only for Greece and other financially troubled countries to learn, but also for Americans — we have grown to take so much for granted and have become too stubborn to compromise. The time for stubbornness is over and, if we want a future, we must learn to accept that certain sacrifices will have to be made.