The latest reports out of Greece are showing that the Europeans are going to kick the can down the road, yet again. The new leftist Greek government is already falling in line with the establishment and are going to come up with new reforms in order to keep the euro zone bailouts coming.
The bailouts are really just buying time. In this case, the negotiations are extending the bailout terms for four months. But the debt doesn’t go away. It just keeps piling up.
The longer this goes on, the worse the situation gets. It just means more capital consumption. There is very little saving and capital investment in Greece. Where there is savings, most people are hopefully smart enough to keep it outside of the Greek banking system.
As I’ve said before, we can talk about statistics and interest rates all day long. The unemployment rate in Greece is over 25 percent. It basically boils down to a severely reduced standard of living in Greece. Poverty is high there. These are real people and they are struggling. Here is one video on the subject from last year.
Consider that poverty for someone in Greece is probably a lot worse than poverty for someone in the U.S. The lower middle class in America lives better than most people in Europe who are considered middle class.
Greece should default on all of its debt. It should repeal its welfare state. If it can’t take a radical step of going to some kind of gold standard or free market form of money, then it should at least drop out of the European Union and tie its currency to the dollar. This would provide some stability.
The Greek government should be severely downsized. This would include massive layoffs for government employees. But this is what needs to be done.
If Greece turned its economy into something resembling Japan or Hong Kong of the 1950s and 1960s, then the Greek people would see improvement within a couple of years. It is going to be painful no matter what, so they might as well get on the road to recovery.
They need savings and capital investment. They don’t need more jobs for the sake of having jobs. They need productive jobs that create wealth. This can only be done through the free market in a system of low taxes, low regulations, low government spending, and strong property rights.
In other words, the Greek people have to do a complete 180. They have to do the opposite of what has been done over the last several decades. They need to repudiate their debt and they need to repudiate the welfare state. Anything less than this and the people are going to continue to suffer in the long term.