What Happens in Greece, Won't Stay in Greece

When the financial meltdown blistered Greece, the European Union stepped into the breech with an emergency plan designed to confine the damage. The EU's governing body ponied up a staggering $1 trillion rescue package to stabilize the region. In the aftermath of the bailout, there is fresh evidence the financial contagion will likely spread, despite efforts to stem the economic virus.

Among the most foreboding of signs is what happened in Greece after the EU announced its plan. Government and union workers took to the streets, condemning the austerity measures demanded by the EU in exchange for the rescue. The scenes made for ugly television images broadcast around the globe. It also underscored how difficult it will be for elected officials to take away benefits from voters. Decades of irresponsible spending and spiraling budget deficits are to blame. The protests are just a symptom of why Greece is in such dire straits.

Greeks have gotten use to a pliant government that provides generous pension benefits, cradle-to-grave health care and bloated welfare programs. But while criticism of Greece mounted, some observers began to realize that most of Europe is saddled with the same social model that is crimping Greece's treasury. Greece just happens to be the first to be exposed because its financial house was in worse shape than its European neighbors.

However, it is only a matter of time before Spain and Portugal come to the EU trough. Next up might be Ireland. Lurking somewhere in the shadows is the United Kingdom, which is suffering from years of Labor Party rule that has enhanced social welfare programs, leading to record debt levels. Already, the UK deficit is approaching that of Greece at almost 12 percent of the country's economic output. With a coalition government now ruling the UK, significant reductions in spending will be next to impossible. Few coalition politicians, already on shaky footing in the power-sharing arrangement, have an appetite for the kind of austerity measures needed. Expect higher taxes and precious little budget cutting. If a crisis strikes the UK, as it surely will, no country is safe on the continent.

Despite a united facade, EU partners are facing an angry public. In Germany, where the government forked over billions to save Greece, the public is growing restless. A mass circulation German newspaper recently ran a front page headline that screamed, "We are Europe's fools again!" A leading newspaper in France minced few words when it declared, "The emergency plan will bring down the fever but won't cure the patient." Ordinary people are waking up to the fact that the Greek bailout has weakened their own country's finances, imperiling their own social programs.

Most Americans are not paying any attention to Greece. They should. California Governor Arnold Schwarzenegger recently compared his state's $19.1 budget shortfall to the unfolding crisis in Greece. California is a poster child for what happens when governments refuse to cut budgets, choosing instead to use the state treasury as a political slush fund to keep public workers and their unions happy. State legislators are loathe to adopt austere measures even in the face of financial collapse. As evidence, last year when California was on the ropes, irresponsible legislators chose to issue IOU's to creditors to close a $60 billion budget gap instead of trimming budgets to reduce the deficit.

While California tops the list of egregious spenders, New York is not far behind. Both are experiencing the double whammy of declining tax revenues and increased entitlement spending. Unless the economy miraculously recovers soon, expect the two states to wind up in Washington, pleading for bailouts from the federal government. The only question is one of timing. Does it happen before or after November's elections?

Not far behind in the race to financial turmoil is the United States. The country's federal deficit as a percentage of Gross Domestic Product (GDP) was 9.9 percent in 2009. It is now approaching the double-digit levels of Greece. Yet there have been few alarm bells sounded by those in charge at the national level. For his part, President Obama has appointed a blue-ribbon panel to study the problem and report back after the November elections. Meanwhile, the deficit grows at a staggering rate.

But the deficit numbers tell only part of the story. A better measure is total indebtedness, which never receives much media attention. The country's total debt is now 92.1 percent of its GDP. Think about that. The money the country owes to its creditors is nearly equal to the nation's total annual economic output. That's scary.

If that still leaves you unworried, then consider this: Germany, France, China, India, Canada and even the United Kingdom have lower total debt percentages than the United States. Greece weighs in a 124.3 percent and Italy is close behind at 115.5 percent. Japan tops the list. Its debt stands at 222 percent of its economic output. Those numbers should frighten every American, especially the fifty-percent of people who pay taxes.

Given the current cast in Washington, no one can realistically expect any meaningful cuts in the federal budget, particularly entitlement programs. Taxes are already on the drawing board as a remedy. The problem is increasing taxes will tank spending and harm the fragile economy. That will lead to declining tax revenues. Unless spending is reduced, total indebtedness will continue to soar.

That's why it is so important for policy makers to learn from Greece's mistakes, which have been repeated throughout Europe. Unless elected officials tackle the deficits immediately, the United States is assuredly on the road to becoming not just another Greece, but a financially wounded country with no union ready with a handout.