Unsustainable Lifestyles

In the midst of so many economic catastrophes that continue to unfold, the situation in Greece is an interesting one. Their dilemma is lamentable even though it is of their own making. It is also having an impact on other countries, including Canada, since a contraction in Europe reduces demand for what we primarily depend on for our own income: commodities.

The reaction of many Greek citizens is, so far, one of denial. They blame their government, which was only doing what the electorate wanted, the foreign lenders, the banks and, well, just about anyone other than themselves. Whether they like it or not, they will eventually have to accept that they problem is their own since no one else can fix it for them. Too often the media reports seem to suggest that the EU and IMF are offering them a handout, but it is really just a hand up. They do not need to accept the offered hand, but they likely will since the alternatives are worse, both for them and for everyone else.

My European experience is limited, so take what follows with a grain of salt. There is a pattern here that is echoed in Spain, Portugal and possibly Italy. They are all countries that are now fervently democratic, yet it was not too long ago that they were all under authoritarian regimes. Of these countries, Italy has been democratic the longest and Greece the shortest. This matters since that past colours the present.

Each of their so-called far-right governments shifted quite firmly to the left once democracy took firm root. One unfortunate consequence was to place priority on outcomes rather than opportunity. This occurred in a culture where governments were responsible for many aspects of society and public institutions. They wanted the social benefits of other European countries, and did not see any reason to delay their implementation. But without having spent to time to build a strong private sector -- or at least not yet strong enough for what it was being asked to support -- those benefits required funding beyond what the tax base could support. This was made worse by a disrespect for authority that resulted in widespread tax evasion and a fairly large underground economy that was beyond the reach of the tax collector.

The funds therefore came from elsewhere in the form of debt. Lots of debt. More than their country's GDP-worth of debt. Like an individual with a credit-card addiction, they were living well beyond their means, and that is unsustainable. It only last for as long as their are willing lenders and the debts can be serviced. Greece can no longer service its debts.

"We want an end to the freefall of our living standards," said Spyros Papaspyros, the head of ADEDY, which represents about half a million workers in the Aegean nation of 11 million.

Unlike you and I, Greece is a sovereign state and does have the power to refuse to service or even repay its debts. There are voices in Greece suggesting that this be done since, they reason, the lenders took the risk and lost. This won't work since their spending trajectory remains unsustainable and can only be funded with additional debt. If they default there will be scarcity of institutions willing to lend them those funds. With or without the demands of the EU and IMF, onerous spending cuts are unavoidable. This is why the Greek government consented to the terms; there really was no alternative.

"Whether Greece can actually adjust, whether their social cohesion will remain -- that's the key thing to watch," said sovereign ratings analyst Tom Byrne of Moody's.

How long the political and social strife will continue in Greece is difficult to say. We can hope that it ends soon, and that they accept the inevitable. Regardless of who gets blamed, no others but themselves can solve the spending problem. They will have to pay their taxes and reduce public expenditures, including programs and the civil service.

Some countries, especially those in some parts of the third world, have another, darker option that Greece does not. That is to default and then take on debt or "grants" with political strings attached. Usually this involves trading sovereignty or unity for money. The US, Russia and China have each one this many times to acquire military bases, resource rights and beneficial political alliances. It's unsavoury, but it happens. Greece can't do that since it is part of the EU and they have no political coin to trade for money. They will have do it the hard way, by living within their means.

"These government measures are destroying my life," said Panagiota Katsagani, a 25-year-old part-time school teacher who was marching in Athens on Tuesday. "I was planning my future, now I have to go back and live with my parents."

That is a part of the price they will have to pay. There are no good alternatives.