First, let me get to the big point first. Kicking Greece out of the Euro won't fix anything. German and French banks are still heavily exposed to bad Greek debt (both public and private). If Greece were kicked out of the Euro (or left on their own), all they would do is start printing their currency in enough quantity to pay off their debts (and make that currency increasingly worthless). The effect would be a de facto restructuring of the debt. The northern European Euro states may as well bail Greece out and let them restructure the debt while staying within the Euro. Letting Greece stay in the Euro would be about as costly as kicking them out but would prevent the nasty political crisis that such a move would probably impose on the EU as a whole.
Wednesday, June 29, 2011
So what should Greece do? In the short run they should do what they've just done today, namely pass a harsh austerity package that dramatically cuts government spending. They have no choice. They've been spending money they didn't have and, worse, couldn't raise for decades and it's time to pay the piper. In the long run, Greece should get serious about administrative reform. The real cause of this crisis is the Greek government's inability to collect the taxes it is owed. The reason the Greeks can't fix their debt problems without enormous outside help is because they do not have an internal revenue service worthy of the name. That needs to change as quickly as possible. The problem is that it cannot change in time to fix the current crisis. But it could change in time to prevent the next crisis.
And this administrative incapacity is the key reason why the US IS NOT LIKE GREECE. The US can fix its deficit problems by returning its tax rates to where they were in the 1990s. That would be a relatively minor adjustment all things considered. Because our government is competent (yes, I said the government is competent), when we raise the tax rate, more tax money comes in. That's not the case in Greece.
Posted by Raised By Republicans at 9:26 AM