Greece’s default holds a warning for the United States. The warning is a country cannot become tilted where the number of non-working people grows so large that the smaller number of employed people cannot continue to support them.
The Mediterranean country defaulted on its $1.7 billion debt payment to the IMF today. Banks are closed and citizens can only withdraw around $60 a day from ATM machines, even if they have a significant amount of money in the bank. The repercussions will be felt for some time.
This is something new the world has not experienced before. It is the first time any developed country has defaulted on a payment and marks the first time a country in the Eurozone defaulted on a debt.
Greece’s future is uncertain, but experts said it will not be automatically expelled from the Eurozone. Greece Finance Minister Yanis Varoufakis even said on his blog that the optimal strategy for Europe is to let Greece default. A key fact is that there is no provision for a member’s expulsion from the European Union listed in the Lisbon Treaty.
The country is running out of euros and will still need to pay its bills. There are still euros in the Greek banks, but it is uncertain how long that will last. Experts say it depends on whether the country can gain new infusions of euros before it hits the bottom. One of the scenarios that could play out is that those with money in Greek banks could begin to rapidly withdraw funds. That would force Athens to create a new currency to stabilize the banking system.
Greece turned in their national money for euros early in the millennium and the change was not a welcomed one by Greek citizens. Most were not happy with joining the Eurozone and placed value on nationalism. The country’s public servants initiated strikes in 2001 over austerity measures and those rallies continued over the past 14 years. Greece’s warning about defaulting has been watched by the United States well before it happened.
However, the tides have changed and most of the country’s citizens now want to keep the euro, according to the latest polls. Prime Minister Alex Tsipras said he will do just that and hopes to set a post-default bailout deal. Negotiations will start tomorrow and, if successful, the bailout will see that IMF debts could be paid within hours of a deal or, at most, in a few days.
The problem with Greece has always been employment or the lack of it. Greece has an unemployment rate of 25.6 percent and the unemployment rate for young people, those under 25 years old, is at 49.7 percent. No country, particularly a socialist one, can survive when one-quarter of its population is out of work.
A visit to Greece showcases the root of the problem. Most people began work early at 6 a.m. only to take off at noon for an extended lunch, then time sitting at cafes before going back to work for one more hour from 4 p.m. until 5 p.m. They go to the clubs at night, get home late to start the next day over again. Their holiday, which is typically called a vacation, can last a month and many retire at 50 years old. It could be a great life indeed, except that this lifestyle has caused the country to go into arrears.
This is a pattern becoming familiar to the United States. There is nearly 50 percent of the population receiving some type of government assistance. Our unemployment is relatively low compared to Greece – at 5.5 percent according to May’s numbers. Yet, many pundits are saying the number is skewed because many of the unemployed stopped looking for work and are just contracting their services out as they can. Youth in American remains to be a large percentage of the unemployed. That rate increased from 11.60 to 12.20 in May.
The United States, with more than $18 trillion dollars of debt, would do well to see the results from failure to reign in government spending and promote the economy. Yes, Greece’s default holds a warning for the United States, but it is up to the American people to heed it and force the government to act more responsibly.
Opinion by Melody Dareing
The Atlantic: Greece Defaults
CNN Money: Greece Could Be Biggest Default in History
New York Times: Greece
Photo Courtesy of Mariusz Kluznik’s Flickr Page – Creative Commons License