There was a time when we associated debt crises with banana republics and failed states, when the IMF was a lender that Western countries supported to help others — not themselves.
Times have certainly changed. As we look across the Atlantic to Greece, things only seem to keep getting worse. Bailout upon bailout, crisis after crisis, rioting in the streets — it has been a bewildering drama. The issues may be complicated, but they’re also worth understanding, because they hold lessons for us as we work to address our own growing debt problems in the U.S.
Greece has fallen into its current chaos primarily for one reason: it spent way beyond its means. For years, Greek politicians spent more on debt-financed promises, pushing off the tab to future generations. And, after Greece adopted the Euro currency in 2001, its leaders ramped up spending even higher (for instance, essentially doubling wages for government workers over that period).
As a result, the country’s debt continued to climb to increasingly unsustainable levels. Many Greeks became accustomed to living beyond their means, relying more on the state,
and financing more on easy credit. As a result, politicians resisted calls for reforms that were needed to slim down a government that was growing out of anyone’s control.
The spending party ended abruptly when the global economic crisis hit.
It quickly became clear that Greece was no longer able to finance its mountain of debt, which had grown much larger than the Greek economy. Lenders pulled the plug and Greece’s credit rating tumbled to junk status. Seemingly overnight, what had been considered a problem for future generations suddenly became an immediate crisis for every Greek citizen.
European leaders and the IMF responded with a series of massive bailout packages to help Greece avoid defaulting on its debt (which would ruin its economy and, quite possibly, the economies of many other countries). But these bailouts did not come without conditions — Greece’s Socialist Party government has been forced to push through multiple unpopular austerity packages that have repeatedly raised taxes and slashed spending ever-further, breaking many promises (albeit unrealistic ones) that the government had made to Greek citizens.
And today, we see the result of all of this. Greece has essentially lost its economic sovereignty, its people feel betrayed and angry, and still it has yet to make a dent in its national debt. For all the radical measures that Greeks have taken to avoid default and the chaos it would bring, it may not be enough. It may never be enough — and Greek society may not recover in any of our lifetimes.
It’s an unfortunate situation with no easy solutions. But it could have been avoided entirely if previous administrations had been honest with the Greek people.
While the United States is not Greece, we do face a mounting fiscal crisis with worrying parallels.
Government spending is absolutely out of control, with this year’s deficit estimated at about $1.3 trillion. That huge amount of overspending is leading to an ever-increasing amount of debt; in fact, our nearly $15 trillion national debt is now larger than our entire economy. And things are only projected to get worse in coming years, especially as automatic spending on mandatory programs balloons to levels that nearly every economist agrees are unsustainable.
We still have time to make the decisions we need to get our spending under control, but we must start significantly reducing it now and we must put reforms in place that will keep it manageable in the future. Pretending this problem isn’t there won’t make it go away, and leaving it to our children to solve is not only wrong, but (as we’ve seen in Greece) can be quite dangerous for us as well.
Our choice now is to learn from history — or become it.
Sen. Jon Kyl is the Senate Republican Whip and serves on the Senate Finance and Judiciary committees. Visit his Web site at www.kyl.senate.gov or his YouTube channel at www.youtube.com/senjonkyl.