Greece Fire Or Can PIIGS Fly?
Today at 11:00 AM ET, I’ll be appearing on CNBC’s the Call discussing the potential bailout of Greece by the European Union.
Before anyone can savor the possible bailout/backing of Greece debt by Germany, we get these series of comments:
GERMAN GOVT OFFICIAL SAYS GREECE MUST PURSUE SUSTAINED PATH TO CONSOLIDATION
GERMAN GOVT OFFICIAL SAYS THERE IS NO DECISION ON AID FOR GREECE, AND IT’S NOT PENDING EITHER
GERMAN GOVT OFFICIAL SAYS IT’S NOT GERMANY’S JOB TO TELL GREECE WHAT IT NEEDS TO DO
GERMAN GOVT OFFICIAL SAYS NO DECISION PENDING ON AID FOR GREECE
GERMAN GOVT OFFICIAL SAYS THE QUESTION OF POTENTIAL GREEK DEFAULT IS NOT ON THE AGENDA
Greek bonds and equities had rallied prior to these comments and now the EU summit is doubted as to whether any debt guarantee will be forthcoming. Clearly, the Germans are worried about opening up their check book and subsidizing profligate country spending within the EU. The question now arises as to how Greece can resurrect itself and deal with the massive government deficit.
Here’s an incomplete list of what they need to do and it should sound very familiar to US citizens:
Greece needs to reduce their deficit from 12.7% of GDP down to 10% by 2011 and then 8% by 2012 to gain some credibility. EU may want more.
Greece needs to cut or freeze spending for their major programs of public wages and pension payments. These account for 51% of its budget.
Greece needs to change the mentality of its citizens when it comes to welfare policy: The public views these as acquired rights like freedom of speech.
Greece needs to understand it can’t spend more than it takes in from tax receipts.
Greece needs to learn that if they heavily tax the private sector to pay for profligate spending that not only will the private sector stop creating jobs, but also that tax receipts will fall as companies leave the country.
The last one is what California is experiencing and should be a shining example for other states within the US union. How the European Union deals with Greece will be a precursor for how other nations deal with their own debt. Ultimately, neither Greece nor California will likely be allowed to default. The question remains as to whether either fiscally challenged state can deal with the concept that you can’t spend what you don’t have.
Tags: bailouts, California, debt, European Union, Germany, Greece