Greece has elected a new government to challenge the terms of a 2010 bailout by other European governments that has led to years of austerity and, until last year, a shrinking economy. What happens next is unclear, but someone will come out a loser, and Greece’s creditors say it will not be them. There is a lesson here for the United States.
In coming months the world will see something like a bankruptcy negotiation between Greeks, who are threatening to default on their debts, and the rest of the European Monetary Union. Arguably a majority of Greek voters, including fringe parties of the hard left and hard right, have voted to challenge the nation’s creditors. But opinion polls say most Greeks do not want to leave the euro monetary system, and economists say Greece will face even harsher conditions if they do.
There is no question that the austerity imposed on Greece by its lenders, which include Germany, other European Union nations and the International Monetary Fund, has been painful, with large unemployment followed by many destructive demonstrations. The Greek economy resumed positive growth last year, and the worst may be behind. But Greeks are understandably unhappy about the last four years.
Unfortunately, the Greeks brought their distress upon themselves with unsustainable borrowing during the years between 2000 and 2010. They needed a bailout because they could not service the government’s debt.
With news from the Congressional Budget Office that the United States will run up added debts of $7.6 trillion to $9.5 trillion dollars in the next decade, the question American voters should be asking is, “Can it happen here?” Could the United States come to a point where it cannot finance its debt?
The Congressional Budget Office has been warning of that risk for years. On Tuesday CBO Director Douglas Elmdorf, testifying before the House Budget Committee, said the national debt will exceed 100 percent of GDP within 25 years and continue to rise, a “trend that could not be sustained” and would eventually heighten “the risk of a fiscal crisis.”
Robert L. Bixby, executive director of the Concord Coalition, a middle-of-the road non-profit budget watchdog, says the nation has only a few years to change the policies that put it on the road to painful choices.
“Within 10 years, mandatory spending programs and interest on the debt will consume 94 percent of projected revenues,” Mr. Bixby said. “Discretionary spending, including national defense and domestic investments, will be continuously squeezed.”
It is unreasonable to think that a U.S. government faced with such drastic choices would not try to get out from under its debt burden. And our creditors know that is a risk at some point in the future because of the road we are on. An aging population, high health care costs, and an expanding social safety net are going to drive spending upward inexorably.
If a Greek-type crisis is to be avoided, Americans are going to have to get used either to much higher taxes or some reduction in social welfare costs.
The longer we wait, the more painful the choices will become.
It would have been reassuring if President Obama had really reached out to the Republican Congress to address these issues, but he has chosen instead to emphasize more government spending. The need to resolve this impending crisis belongs at the top of the list of issues for the 2016 presidential campaign.