BLOGget yer blog on
Why I Think Greece Should Default
Many years of bad governance and an unethical plan by a huge financial company has put Greece in the position it is in today. But it isn’t just Greece. Other countries in Europe and the Middle East have had the same problem.
Here’s a great article I found that explains the Greek problem which is similar to the problems in other countries:
By Nasos Mihalakas *
The Greek sovereign debt crisis has captured the attention of the world, both for what it says about the viability of the euro and the European Union integration project, but also for the warning signs it sends to governments around the world about governance and public finances. In the US, politicians both on the right and the left are using Greece as an example of how bad management of public finances can lead to economic catastrophe.
In particular for the right, Greece is at the edge of the abyss because of the bloated government bureaucracy, the unreasonably generous pension and healthcare benefits, and the sclerotic labor market. For the left, Greece’s financial troubles could easily be resolved if people paid their taxes properly, and the uber-wealthy were prevented from tax-evading so blatantly.
However, the true cause of the Greek sovereign debt crisis is the same as the reason why Europe cannot manage the greatest threat to ever hit the eurozone: the failure of the governance system. The Greek system of governance has failed to address the type of economic issues present in almost every country in the world — issues well known to all, and easily fixable. Poor management of public finances in Greece is not some generically inherent predisposition of the Greek people — rather it’s what happens when you have a bad system of governance.
Even though an agreement was reached this week on how to reduce the government’s debt, and reform the economy to meet future debt obligations, doubt persists in Europe and around the world. Until the governance system is reformed, and everybody recognizes the connection between governance structure and policy results, Greece is bound to repeat the mistakes of the past. This is because certain systems of governance will always produce certain policy results.
A parliamentary system of governance, where executive and legislative branches blend and tend to be dominated by the same actor, will often spend more, save less, and kick the proverbial can down the road. Federal/republican systems of governance, where there are district separations of powers and checks of the government’s authority will often be more cautious, reserved and adhere to the philosophy of small government. This is not always true, and of course there are exceptions to every rule, but Greece and Southern Europe are making a mighty powerful case for this argument. [more]
I know I post a lot about Greece and it’s problems, but it’s important. It’s important because if not handled right, it could throw the world economy into a tailspin again. If handled right, it will prove that Austerity doesn’t work. Two important things right now. And it may also prove that we need stiff regulations for Banks and Financials not only here but world wide. It is a Global Economy and everyone must play with the same rules.
Fitch ratings agency downgrades Greece from CCC to C, indicating default ‘highly likely:’ apne.ws/ynF5li – VW
— The Associated Press (@AP) February 22, 2012
On Tuesday, the Eurozone finance ministers settled on a 130-billion-euro bailout for Greece. According to reports, the bailout was necessary to avert a default and the move comes after the Greek government cut thousands of public jobs which lead to many angry Greeks taking to the streets in protest. The deal is supposed to cut Greece’s debt to GDP to 120.5 percent by 2020 which many critics are saying is pointless. Here is the latest on the Greek bailout.
The European Union has already installed a Technocrat to run the Greek Government, one who was not voted in by the people of Greece and have installed advisers to make sure the Greek debt is paid first. (Reminds me of the Emergency Managers appointed by the Governor of Michigan.) Again, all this will not help the Country of Greece but does protect the bond holders to some degree but mostly the Banks who have pushed off their risk to the Bond Holders and they would take a similar cut in a structured default.
Continuing these “bailout” deals for Greece is just hurting the country more because, at this point, it will never get out from under the debt that has been piled on it to keep it from defaulting which in the end will hurt the Banks the most. With a structured default and a new government and government structure along with strict regulations for the Government and Banks and Financials there is a very good chance for Greece to recover from it’s Depression. It would have been better had this happened earlier, before the “good money after Bad” happened. Also the government should have enlisted the help of the people of Greece to work toward a better future to replace the pain they are feeling now. Something to look forward to.
The lesson here is that Good Governance is the most important. And this is true here as well as in Greece or any other country. We must make the politicians accountable to the people for their choices by regulating them. Not more regulations, just stronger regulations that the politicians must live by. Like getting money out of politics. And the same for the Banks. They must be regulated or we will have this problem again.
Image credit [top]: “Greeks Protest Austerity Cuts” By PIAZZA del POPOLO