Wednesday, February 24, 2010

It is All Greek to Grecce

Every morning I log onto the Wall Street Journal.com to read the finical headlines and just about everyday there is an article dedicated to the massive debt Greece is finally having to come to terms with. When the world discovered Greece might default on the national debt a month ago the world had a panic attack. Investors across the globe worried Greece was the first in a long chain of nations to go belly up in financial Armageddon.

However, the dominions have not tipped quite yet and it seems Germany will come to the aid of Greece on several conditions. Germany is willing to help if Greece cuts back on spending and creates a long term plan for paying off the debt. Investors relaxed and went back to watching Olympic curing on CNBC with the comforting knowledge the world might not end before Ice Dancing is wrapped up. The problem with relying on Germany to save the world is many investors and political leaders are forgetting the social unrest that Greece and other socialized countries face when they try to cap their huge budget shortfalls.

The forgotten factor in all of the international wheeling and dealing is the citizens of the socialist countries. The people of Greece have been promised every type of social program imaginable in return for votes. However, taking the benefits without paying the taxes has created an enormous deficit which needs to be controlled if Greece has any hope of getting aid from the European Union or Germany. According to The Wall Street Journal, Greece has pledged to cut their deficit from 12.7% of GDP to 8.7% by the end of the year. These austerity cuts will come in the form of a freeze on public worker’s raises, cuts in public-sector entitlements by 10% and closing many tax loopholes on civil servants and the wealthy.

Greek’s responded with a massive nationwide strike yesterday that crippled the country. The international airport closed, the newspapers closed, many schools and universities closed, when all the public workers took to the streets with signs that said, “keep your hands off our benefits” and “people are more important than markets and banks.” The president of the civil servants labor union stated, “we can’t take any more austerity measures.”

The problem with not cutting back on spending is the government will default on its loans in March and send the country into a depression. There is no question about what will happen but the public sector unions do not seem to realize the situation and the part they play in the problem. Public sector employees are paid 14 months of wage every 12 months; this essentially is a mandatory bonus the government pays. In addition all government employees pay 10% less taxes then their private counterparts. One in three workers in Greece are civil servants and these workers can retire as early as 54 with 96% of their post-pension wages. These civil servants are earning full payment for being retired. The private sector workers can’t retire until 62.

The lesson the rest of the world should take away from Greece is balancing a budget is not a burden, it is a reality. It is fine to have a socialist system if that is what the citizens’ want but the country has to pay for the socialism, the money does not grow on olive trees. The civil servants of Greece have become spoiled on high government checks and avoiding most taxes yet they blame the rich and the European Union for causing the budget shortfalls. The question for America, can we keep holding out our hands for benefits without paying taxes? Eventually America will end up like Greece. It might be time to readjust our opinions of federal handouts.

Sources
Wall Street Journal.com 2/24/10 “Greek Strikes Cripple government”

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