Greek Panic: A Taste of the Dark Side of the Welfare State

As I have explained in previous articles on the Greek crisis – here and here – its cause is not the “financial crisis” of 2008-2009. The roots of the trouble in Greece are instead to be found in the welfare state. It encourages sloth and indolence and gives people the impression that they can live off someone else without any long-term economic repercussions for either them or their country. When reality strikes and government runs out of its taxpayers’ money, the previously cozy, benevolent welfare state starts showing its dark side. Where entitlements, “free” education and “free” health care were given away at taxpayers’ expense, the ugly face of austerity is now coming to your door, nibbling away at your benefits and taking away your goodies one by one.

As I explained in my book Remaking America: Welcome to the Dark Side of the Welfare State, Sweden has been through the grinds of austerity. What came out on the other side is a second-tier country, where taxes are still the highest in the world but the people only get a fraction of the benefits they were promised.

America is not yet at the point where we have to cut our welfare state down to size austerity-style. But unless we start reforming away our welfare state, and do it now in an orderly fashion, we will get there soon. Today, a news story from (my condolences to the family of Andrew Breitbart) adds emphasis to the urgency for welfare-state reforms here in America. The Greek parliament has adopted yet another austerity package in their desperate fight to align government spending with its revenues – in other words, to balance the budget:

The Greek parliament early Thursday approved a bill to cut health service costs after unions staged walkouts as part of Europe-wide demonstrations against austerity measures. The text that had been demanded by the European Union and the IMF to unblock a new aid plan for the debt-stricken country was adopted by a large majority, on the eve of an EU summit that should pave the way for fresh loans to Greece. The bill, passed under an emergency procedure as parliament was surrounded by police, lays down a cut in pharmaceutical expenses through the development of computerised prescriptions and the use of generic medicines. It also limits the public health budget by merging hospital groups and calls for setting up a unified pension scheme consolidating numerous groups whose current total deficit is put at 850 million euros for 2011.

Imagine now, for a moment, that we had gone ahead with any of the socialized-medicine plans brought forward by Democrat presidents and presidential candidates since the days of Michael Dukakis. Any one of those plans would have created a single-payer health care system in America. What would have happened to your health care benefits when the federal government resorted to austerity measures – panic-driven spending cuts, for short – to balance its budget?

Again: the Greek crisis is one of government over-spending, nothing else. The only relation to the “financial crisis” is one that goes in the exact opposite direction of what some fog-minded characters on the left seem to believe:

The EU and International Monetary Fund made the passing of the text and other measures a condition for releasing a new bailout of 130 billion euros ($175 billion). The latest rescue, after a 110-billion-euro EU-IMF loan in 2010, is tied to a massive debt writedown with private creditors designed to reduce Greece’s 350-billion-euro debt by 107 billion.

In other words, the Greek welfare state spent so much time over-spending that it had to go out and borrow money left and right. Banks, thinking that Greek treasury bonds were safe because they are denominated in euros, lended their customers’ money to the reckless spenders in the Greek parliament. Now that Greece is having trouble just keeping up with debt payments, the heavy hand of Big Brother in Brussels, a.k.a., the EU government, steps in and strong-arms the banks into taking a loss on their loans to Greece.

[Prime minister] Papademos’ coalition government late on Tuesday secured passage of a bill containing 3.2 billion euros in spending cuts,including new pension reductions. Tuesday’s measure included 12 percent cuts in civil servant pensions of more than 1,300 euros and reductions of between 10 and 20 percent in complementary pensions of more than 200 euros. The legislation also foresees a 10 percent cut in the salaries of senior municipal officials and a merger of state research organisations. Civil service pensioners have already had payments cut by 10 percent under measures adopted from 2010 in return for a previous EU-IMF bailout worth 110 billion euros.

And just to top it off and send another stark reminder to Congress and our president:

The vote on Tuesday came after ratings agency Standard & Poor’s (S&P) declared Greece in “selective default” owing to a proposed debt swap with private banks, a move that forced the European Central Bank to suspend Greek bonds as acceptable collateral for ECB loans. The rating was lowered from S&P’s already junk-level “CC” grade for Greece, which has been seeking to avoid an outright default on its massive debt by negotiating a “voluntary” debt exchange with creditors. The bond swap was launched Friday and is scheduled to be completed on March 12, according to Greece’s finance ministry.

U.S. Treasury Bonds are a galaxy away from junk-bond status. But keep in mind that so were Greek Treasury Bonds when the European Union created its currency union. Suddenly, spendoholic politicians and welfare-state ideologues in more than one country in Europe felt a sense of security and fiscal invincibility. The euro was even stronger than the dollar. It would be impossible for them to sink their countries to junk-bond status; no matter how much they spent, they would never hurl their nations into the dungeons of fiscal panic.

As it turned out, the wings of the welfare state were made of wax, after all.