From Greece, an economic cautionary tale for the U.S.
Tuesday, March 9, 2010
Look into the face of George Papandreou, America, and see your future.
The Greek prime minister is in town this week as part of a world tour seeking help for his beleaguered homeland. Greece is broke, its government on the verge of default. As Papandreou landed in Washington, there were strikes in the streets of Athens over his tax increases, his wage cuts for government workers and his scaling back of retirement benefits.
As he and Secretary of State Hillary Clinton faced the cameras Monday, she spoke of the weekend's election in Iraq. "Greece is the birthplace of democracy, so anytime there's a democratic election anywhere in the world, Greece should get a royalty, Prime Minister," Clinton said.
"Would help our deficit, too," Papandreou joked.
"Yeah," Clinton agreed. "It's a new way of plugging the hole."
Remember that scene. If current trends persist, an American president will be doing the same thing in about 10 years. He or she will probably be in Beijing, asking for more favorable interest rates or pleading with the Chinese government to keep speculators from betting on an American default.
Greece's national debt last year reached 113 percent of gross domestic product. The United States will hit that in about 2020, according to the Government Accountability Office, assuming policy continues as it has. And last year's U.S. budget deficit amounted to 9.9 percent of GDP, nearly rivaling Greece's 12.7 percent.
To pull Greece back from the edge, Papandreou has promised to cut the deficit to 3 percent of GDP by 2012. For the U.S. government to make an equivalent cut, it would have to shut down the Pentagon and a few other agencies: the departments of Agriculture, Commerce, Education, Health and Human Services, Energy, Homeland Security, Housing and Urban Development, the Interior, Justice, Labor, State, Transportation, the Treasury, and Veterans Affairs, plus the Environmental Protection Agency and NASA -- and even then we'd come up a few dollars short.
With such a catastrophe now visible on the horizon, what are U.S. leaders discussing this week? Well, they're talking about a Republican National Committee fundraising document that portrays President Obama as the Joker, and the resignation of Rep. Eric Massa (D-N.Y.) amid allegations that he sexually harassed a male staffer, and Liz Cheney's accusation that terrorist sympathizers have turned the Department of Justice into the Department of Jihad.
When it appeared recently that budget hawks had enough votes to pass an independent debt commission to propose a solution, several Republican co-sponsors of the bill in the Senate switched sides and voted it down. President Obama named his own debt commission but then named as a commissioner union official Andy Stern -- an automatic vote against serious cuts to entitlements.
All this makes it more likely that one of Obama's successors will one day be delivering the same message that Papandreou did to the Brookings Institution on Monday.
"I stood for election last fall before a country that was demanding deep changes," the trim and mustachioed prime minister said. "During the preceding five years, our public had grown increasingly alienated as Greece's national deficit ballooned, wasteful expenditure mushroomed and our GDP shrank . . .
"I've told the Greek people that 2010, this year, must be and will be a year of drastic reforms across all levels of government, changes in our tax system, our social-security system, our public administration, our education system, our health system and our development model."
The Greek leader hasn't asked for an international bailout, but he is seeking help. From Europeans, he's asking for lower interest rates. From the United States, he's seeking a crackdown on the credit default swaps and other financial instruments used by firms that are "making a fortune from Greece's misfortune." Without such help, he warned, the Greek crisis will become the world's next crisis.
Papandreou's message, delivered in the lightly accented English he learned growing up in the United States, was well received by the Brookings thinkers. Brookings President Strobe Talbott introduced Papandreou as an example of "everything that's good" about the international community. The message has been received less well back at home, where a wave of strikes has been called to protest wage cuts and an increase in the retirement age.
A questioner asked whether Greeks would be willing to take 20 or 30 percent wage cuts. Papandreou didn't answer that directly, but he invoked the wisdom of White House Chief of Staff Rahm Emanuel, who counseled against letting a "serious crisis to go to waste."
"I think the fact that we are in a crisis has also helped not only me but our government, and I'd say taking a wider consensus in Greece, to say, yes, now is the time we reached bottom," Papandreou said. "Now is the time for us to make these big changes."
Greece had to hit bottom before it acted. The United States seems determined to do the same.