OPINION:
Germany’s finance minister wants no more advice from the United States. He called the Obama administration’s suggestion that the European Union needs to be ready to dole out trillions to bail out member nations a “stupid idea.” At least one country has learned the folly of attempting to spend one’s way out of debt. It hasn’t sunk in with others yet.
A team of inspectors from the EU, the International Monetary Fund and the European Central Bank return to Greece on Thursday to determine whether austerity reforms have satisfied conditions for the release of the next $11 billion in bailout spending. Just last week, Standard and Poor’s downgraded Italy, and the IMF issued a negative outlook for its economic growth. So far, downgrades have been handed out to Spain, Ireland, Greece, Portugal and Cyprus, though Greece is the only country so far to sink to the junk-level debt rating of CCC.
That precarious position reflects the urgency of the Greek problem for the EU. With a debt burden expected to reach 160 percent of gross domestic product (GDP) next year, coddled and heavily subsidized public workers have burst into violent protest at the mere suggestion of slowing down the gravy train. So $43 billion in cuts promised over three years in return for the first $23.7 billion bailout haven’t really happened. There are still 730,000 government employees for a population of 10.8 million, and public-sector enterprises haven’t been privatized. The latest attempt to raise revenues is a deeply unpopular property tax, which is currently expected to be levied for three years and raise about $2.7 billion.
Even if Greece endures deep austerity and inevitable recession, it will still have debt that will need repaying. Bailouts might ease the immediate cash crunch but they won’t address the long-term problem: Greece has more debt than it has capacity to repay. A new $157 billion bailout package will only increase the burden.
The German central bank has emphatically refused to consider the leveraged bailout option, but pressure is mounting. Even if the Greek debt riddle could be solved, that won’t save the eurozone. Italy is next in line with a 120 percent debt-to-GDP ratio. Italy was able to sell $19.6 billion worth of bonds last week but at a rate that exceeded any it had paid in the past. The rate for six-month bonds was 3.07 percent - compared to just 2.14 percent last month. That’s a big jump for a highly indebted country like Italy and will make it even harder for the government to repay its obligations.
Rome needs to get its house in order before it ends up like Athens. Given that the EU can barely find the resources to bail out a tiny nation, the failure of a major economy like Italy could bring down the eurozone. These are lessons to be heeded. If the United States doesn’t stop its own reckless government spending, we won’t be far behind.
Nita Ghei is a contributing Opinion writer for The Washington Times.
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