Former British Prime Minister Margaret Thatcher once remarked, “The problem with socialism is that eventually you run out of other people’s money.”
Such is the case in Greece, who this week became the first developed country ever to miss a debt repayment to the International Monetary Fund. Put simply, Greece is out of money. To prevent their customers from depleting already dangerously low reserves, banks have been closed all week, and are scheduled to remain shut into early next week. At the same time, they have imposed a daily withdrawal limit of 60 euros (about $67) from ATM machines.
While Greece wrestles with how to proceed (a referendum, scheduled for Sunday, will determine whether or not voters accept the country’s creditors’ terms moving forward), it might be helpful to take a step back and ask, “How did this happen? And could it happen to us?”
First, let’s start with the “how.” Financial expert Terry Savage explains:
(The Greek) government spent decades making promises it could not honor. It offered pensions to be paid with taxes — and then never collected the taxes to make good on the payments. Greece borrowed money to cover its deficits, and then ran out of money to pay even the interest on the loans. And because, as part of the “Eurozone,” it doesn’t have its own currency, it couldn’t simply print the money to make good on its promises.
In other words, a developed country acted like a college freshman with free reign on dad’s credit card. It defies all semblance of logic.
The root of the problem, as Savage implies, is political. The Greek government spent much of the past half-century making promises to its people knowing full well it could not deliver, but as is the case in much of the world – America being no exception – promises equal votes.
Greece has been here before, and spent much of the past half-decade trying to reign in its spending. Its austerity measures were necessarily painful to its people. And so naturally, its people, having previously experienced the flowers and roses of unencumbered promises, voted against the government that tried to bring some order to the situation in favor of a party full of promises. Not six months later, the country is completely broke.
It is extraordinarily difficult to roll back entitlements once they have been introduced. When people talk about shared sacrifice, they generally prefer their neighbor to be the one actually making the sacrifice.
This leads us to the next question: “Could it happen to us?”
While an anecdote in history, it already has. Less than two days into his Presidency, Franklin Delanor Roosevelt ordered the suspension of all banking transfers. For an entire week, Americans had no access to banks or their money inside them.
While that crisis had long been in the works, our government’s recent behavior should sound the alarm.
We continue to introduce entitlement programs that exacerbate our expenditures, paying no mind to the mountain of debt that continues to grow.
Lastly, America struggles to pay for its existing entitlement programs. If America ever finds itself in a position similar to that of Greece today, it may not be pleasant, but at least we can’t say we didn’t see it coming.
We may not ever become Greece, but then again, we might. Could it happen here?
Find out more about why we need fiscal responsibility today.