As expected, the European Union and International Monetary Fund have chosen to subsidize the profligacy of Greek politicians. A deal has just been announced. As the Washington Post reports:
Greece on Sunday announced a long-awaited deal with the European Union and International Monetary Fund for a $145 billion financial rescue, an unprecedented package… The three-year package is also the largest international rescue to be backed by the IMF. …The proposed cuts in Greece include a new round of reductions in salaries for state workers, more flexibility to fire them, an increase in the value-added tax from 21 percent to 23 percent, and higher taxes on fuel, tobacco and alcohol. More state-run industries are expected to be privatized, and military spending will be slashed.
I’m not terribly optimistic about the long-run consequences. I also can’t resist pointing out that the VAT has jumped from 19 percent to 21 percent to 23 percent during this crisis, which underscores how easy it is for politicians to use the tax as a bottomless ATM machine. My Cato colleague Jeff Miron shares my pessimism, writing in Forbes that:
A bailout will not address the fundamental causes of Greece’s fiscal problems. Greece has an expansive but highly inefficient civil service and an economy stifled by regulation, favoritism and rent-seeking. These policies have generated double-digit deficits and a debt-to-GDP ratio well over 100%. The situation is not even close to sustainable, so absent a bailout Greece will default on its debts. A bailout, however, does nothing to fix the misguided policies that have generated Greece’s existing debt and ongoing deficits. Bailout therefore merely postpones the day of reckoning. Worse, bailout both rewards Greece’s bad past behavior and encourages such behavior in future. Greece will never change its misguided policies if the E.U. and IMF infuse it with new cash, just as no teenager who has overspent an allowance will reform if the parents merely expand that allowance. …The negatives do not end with the current bailout. Greece will be back for additional bailouts in short order, since under a bailout it will not fix its underlying problems. And once the EU and IMF have bailed out Greece, they will find it impossible to resist bailouts for Portugal or Spain. As the recent downgrading of these countries’ bonds suggests, they (perhaps along with Italy and Ireland) are also at risk of default in the near future. …Rather than bail out Greece, therefore, the E.U. and IMF should allow it to default. This will hurt Greece’s creditors, but those entities assumed the risk when they loaned to a country long known for its profligate ways. In contrast, a bailout forces unwitting taxpayers to foot the bill for Greece’s sins. This can only breed resentment, not to mention reduced incentives for other countries to restrain their own spending.
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[…] make things worse. Another bailout will be a case of throwing good money after bad. And it will exacerbate the economic damage by delaying the economic reforms that are needed to put Greece?s economy in better […]
[…] make things worse. Another bailout will be a case of throwing good money after bad. And it will exacerbate the economic damage by delaying the economic reforms that are needed to put Greece’s economy in better […]
[…] make things worse. Another bailout will be a case of throwing good money after bad. And it will exacerbate the economic damage by delaying the economic reforms that are needed to put Greece’s economy in better […]
[…] make things worse. Another bailout will be a case of throwing good money after bad. And it will exacerbate the economic damage by delaying the economic reforms that are needed to put Greece’s economy in better […]
[…] I have not written much about the topic in recent months, in part because I don’t have much to add to my original post about this issue back in February. All the arguments I made then are still true, particularly about the moral hazard of bailouts and the economic damage of rewarding excessive government. So why bother repeating myself, particularly since this is an issue for Europeans to solve (or, as is their habit, to make worse)? […]
[…] I have not written much about the topic in recent months, in part because I don’t have much to add to my original post about this issue back in February. All the arguments I made then are still true, particularly about the moral hazard of bailouts and the economic damage of rewarding excessive government. So why bother repeating myself, particularly since this is an issue for Europeans to solve (or, as is their habit, to make worse)? […]
[…] Even though this is a big issue, I have not written much about the topic, in part because I don’t have much to add to my original post about this issue back in February. All the arguments I made then are still true, particularly about the moral hazard of bailouts and the economic damage of rewarding excessive government. So why bother repeating myself, particularly since this is an issue for Europeans to solve (or, as is their habit, to make worse)? […]
[…] Even though this is a big issue, I have not written much about the topic, in part because I don’t have much to add to my original post about this issue back in February. All the arguments I made then are still true, particularly about the moral hazard of bailouts and the economic damage of rewarding excessive government. So why bother repeating myself, particularly since this is an issue for Europeans to solve (or, as is their habit, to make worse)? […]
[…] Even though this is a big issue, I have not written much about the topic, in part because I don’t have much to add to my original post about this issue back in February. All the arguments I made then are still true, particularly about the moral hazard of bailouts and the economic damage of rewarding excessive government. So why bother repeating myself, particularly since this is an issue for Europeans to solve (or, as is their habit, to make worse)? […]
[…] argued that bankruptcy was the best option. And I noted more recently that my colleague Jeff Miron reached the same conclusion. Everything that has since happened reinforces this viewpoint. Here are a few […]
Dear Σχολή Χορού,
The predicament of Greek retirees is understandable. Disappointment at the realization that past expectations and past promises were unrealistic given Greece’s low productivity.
However, Greek voters would earn a lot more sympathy worldwide if they admitted that: “Yes, we voted for all that, but we were deceived. Now we understand, will you please help us?”.
Instead, the demonstrations and strikes in Athens, as well as public opinion polls throughout Greece, suggest that a majority of Greeks want more of the same. They want even more statism, even more class warfare, even more central planning, more collectivism. How should world citizens in more productive environments (who are being called in to pay the bills) react?
The corrupted Greek politicians cut down the helpless elderly pension to levels of starving to death. Someone has to protest, we cant let the politicians extinguish the elderly just because they can’t react. The cruel state that leaded us to poverty in order for them to make billions now desided to kill our parents and grand parents. STOP!!!!! Greeks paied the most money in Europe for pension and got the less pension in Europe. The health care system practicaly dosent exist. Now they are condemned to starvation.
Of course, the Greek VAT increases from 19% to 21% and now to 23% in short order, are only temporary. Once the country rights itself out of the crisis and prosperity sets in, politicians say that the VAT will return to pre-crisis levels. Right?
Perhaps Mr. Mitchell can create a large composite graph for all the countries assessing VAT, depicting the progression of VAT rates in time. Are there really any instances where VAT has actually decreased? What is the score of increase vs. decrease events?