The Big Fat Greek Bailout
Today, when you hear the word ‘Greece,’ what do you think of? The Acropolis in Athens? Romantic islands in the Aegean Sea, white stucco homes with blue roofs? Chances are today, when you hear ‘Greece,’ you think of economic collapse and European Union bailouts.
Too bad ... because there is more to Greece than that. Very, very few countries in the world have had the influence that the ancient Greeks wielded. Their ideas, philosophies, even the concept of democracy, are the bedrock of the western world. At the age of 18, I spent a year full time at university studying nothing else except ancient Greece and its key role in founding western civilization. Their contribution is incalculable. So like the ultra-Greek nationalist Gus Portokalas, father of Toula in the 2002 hit movie My Big Fat Greek Wedding (the biggest-grossing romantic comedy of all time), I agree that the Greeks are high up the totem pole.
It seems that today, however, they are at the bottom of the deepest valley. After 19 hours of non-stop negotiations, the European Union agreed to the third bailout of Greece to the tune of 86 billion euros. That’s on top of the two early bailouts totally 240 billion euros.
The deal that Greek Prime Minister Alexis Tsipras agreed to is worse than the one he and the Greek voters rejected in the July 5th snap referendum. By winning the referendum, the Greek PM was hoping, even demanding, to have some debt forgiveness; instead, he was offered more cuts to pensions, more austerity, and no write-offs.
In the end, Tsipras had no choice, despite the referendum. It says in Proverbs 22:7 ‘The rich rule over the poor, and the borrower is servant to the lender.’ Without a deal, with Greek banks closed and ATMs dispensing only 60 euro a day per person, the cash would simply run dry. Greece would have exited the eurozone, hyper-inflation would have set in, leading to social upheaval, repression, and who knows what else. Despite the tussle, 81% of Greeks want to remain in the eurozone.
The bailout agreement is a short-term fix. The bigger issues of the euro currency flaws and political union of 28 European Union nations have to be addressed, sooner or later.
How did Greece get into this mess? Are there any lessons we can learn?
First, it is unclear why Greece was allowed into the eurozone in the first place (along with a few other nations). Accounting records were falsified and Greece was able to borrow lots of money to which is was technically not entitled. They misrepresented their deficit at 4% when it was closer to 14%. Instead of investing it innovation and capital-making ventures, the money went into luxury items. The number of public sector employees ballooned astronomically and were promised early retirement with big fat Greek pensions. Tax evasion is a national sport.
Twenty years ago, it became obvious to the astute observers that Greece was borrowing and spending at a rate it could never repay. Being in the eurozone gave Greece access to favourable loans but, on the negative side, when they hit the wall, they could not print euros like other countries who print their national currency (known by the euphemistic term ‘quantitative easing’).
Then came the bailouts. This was made possible by a trio: the International Monetary Fund (IMF), the European Central Bank (ECB), and the European Union (EU). But the lifeline came at a price: austerity. This means taxes must be raised (if you can collect them), spending cut, and the public sector slashed. Instead of shrinking by only 6%, the Greek economy shrunk by 25%.
In all probability, Greece’s profligancy was matched by the trio’s heavy-handedness. This heavy duty austerity medicine has come at a frightfully high price: an economy that shrunk by 25%, youth unemployment is 50%, a quarter of a million public sector workers fired or retired, private wages cut, and a growing suicide rate. Government employees saw their salaries fall by 15%, the minimum wage cut by 22%, and a 38% decrease in state pensions. By all accounts, the remedy of austerity was too severe to swallow, without stimulus that might have jump-started the economy.
The previous Greek government apparently balanced the budget (though the debt remained). Then comes Alexis Tsipras a telegenic, charismatic firebrand from the Syriza Party, the most left-wing party in power in Europe today. ‘No to austerity,’ said the 40 year old prime minister, and tried to reverse the effects of auserity. To no avail.
Rugged as austerity has been on the pensioners, it is even worse on the younger Greeks. Proverbs 13:22 says ‘A good man leaves an inheritance to his children’s children ....’ However, the borrowing and spending of the elders have left the younger Greeks with a debt they cannot repay - this is very immoral, to say the least. Can the nation that gave the world western civilization innovate and modernize in an ever globalized world? Especially since borrowing is out of the question? Can Greece jettison their social welfare entitlement mindset, for which it has no money to pay, a lifestyle they clearly cannot afford, and rally around a renewed vision and purpose?
Lessons? All nations should watch their pensions, the tax structure, and the cost of welfare. What about individuals and families? Be honest about your accounts; don’t live in narcissitic denial. Learn to stand on your own feet, get your finances under control, invest in things that increase in value, don’t borrow an amount that will cause you to lose sleep at night, and, if you are a person of faith, be led by the Holy Spirit. Learning to live within your means, according to your budget, yet invest in worthwhile things, gives you one of the greatest gifts you can have: financial freedom. When you have that, money is not a problem and you can get on with life.
In the meantime, spare a thought for Greece, offer a prayer, and get your house in order. If you want to help the Greek economy a little, come join us for the Book of Revelation Tour of Greece and Turkey in November!