I always appreciate a column that sounds like I could have been the author, and this editorial from the WSJ hits the mark. The IMF/EU bailout is just masking the problems of a bloated welfare state and giving politicians some breathing room to avoid making the real reforms that are needed:
It hasn’t been a week since the terms of Athens’s €110 billion ($145 billion) bailout were set, and already the reviews of this latest Greek drama are saying it’s a flop. Yesterday the euro sank to its lowest level in a year. Stock markets across Europe fell nearly 3%, and the carnage spread to Wall Street and beyond. Greek interest-rate spreads climbed higher again, and market players have turned their attention to the euro zone’s other weak sisters as everyone tries to figure out who is most likely to follow Greece down the road to national insolvency. The bailout, in other words, hasn’t stopped the much-feared contagion. If anything, it has spread it. Part of the problem lies with the bailout’s terms. The €110 billion agreed over the weekend was more than twice the €45 billion originally proposed, but it came with revised deficit projections that immediately made even the higher number look inadequate to fund Greece’s bloated state. …According to the latest official projections, Greek public debt, currently 108% of gross domestic product, will top 149% of GDP in 2013, the year that the bailout loans, in theory, come due. Assuming an average interest rate of 6% on that debt, Greece would be left paying 9% of its GDP to bondholders, 80% of whom are located abroad. Put another way, 25% of Greek tax revenue would go toward interest payments to foreign bondholders. Meanwhile, Greece’s government spending equals more than 50% of GDP and labor productivity is well below the EU average, neither of which bode well for growth going forward. …It’s time that Greece and the rest of Europe started listening to the market instead of attacking it. Greece needs a debt restructuring and wholesale reforms that reduce the state’s share of GDP and promote economic growth. As for the rest of Europe and the U.S., Greece’s predicament is a warning to stop the tax and spending binge before it leads to crisis.