Stories by Napoleon Linardatos

Greece Defies Reform

September 20th, 2011 at 2:57 pm 35 Comments

Back in May of 2010 it became clear that Greece could no longer finance her debt and her budget deficit through the markets. Since then the nations of the European Union (and the IMF) have covered the borrowing needs of Greece with new loans.

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Turning A Crisis Into A Greek Tragedy

June 27th, 2011 at 12:30 pm 8 Comments

Looking back at historic events, say the protracted tragedy of World War One, one is frequently puzzled by the inability of the actors involved to understand the futility of their actions. The temptation is to rationalize away such obtuseness as being the product of the backwardness of an earlier age. However, today one can can recognize similar epically-scaled ineptitude in the management of the ongoing Greek crisis.

The political management of the Greek financial crisis is akin to the generalship exhibited in World War One — and, depending on the final outcome, the fluid situation in Athens could have similar catastrophic consequences for the political unity of Europe.

There are the three major players in the Greek financial crisis:

The Greek administration. The issue here is not just the ruling socialist party. The reality is the Greek political class, in general, has lost the skills necessary for governing. After decades where governing meant spending borrowed money, hiring huge numbers of public servants and giving voters generous early retirement packages, problem solving, budgeting, awareness of market forces etc. are not in the skill sets of any possible administration. Things are more complicated for the present government since it is being called on to implement a reform program  it doesn’t believe in — actually, a program it campaigned against in the last elections. The current administration, after making some general cuts in government salaries and pensions, has made every excuse possible to avoid any meaningful reform. It is a government now pledged to make budget cuts but which has vigorously pursued more tax revenue from a weak and shrinking private sector. The socialist government will not touch the annual 603 million euro subsidy to employees of the public electric company, but it is ready to slap people making a thousand euros a month with a retroactive tax on past income. It’s no surprise that a strategy of making an inefficient system somewhat less expensive and then taxing the heck out of the rest doesn’t seem to inspire much confidence in the people or the financial markets.

The European Union. Trying to work with a Greek government during the worst financial crisis since the Great Depression could be described as many things — but certainly not as a pleasant task. And, unfortunately, the European Union for the time being remains a big part of the problem rather than a vehicle which will provide a solution to Greece’s potential descent into default. It doesn’t really know how to handle the Greek political class, it doesn’t know how to communicate with the Greek public and, worst of all, it’s unable to avoid its own institutionalized bad habits. It treats all budgetary questions from a rather neutral point of view — budget cuts are equal to tax increases and vice versa. The Greek government has to reach a certain debt-to-GDP ratio this year — but how Greece will actually acheieve this to be a non-issue for the EU. Can you make budget cuts? Good. Can you make tax increases? Great. But budget cuts and tax increases are not equal: especially, in the case of Greece where — despite the widely-held stereotypes about rampant tax evasion and avoidance — the tax revenues are rather close to the European average. However, the government imposes huge tax, regulatory and corruption costs on an already squeezed private sector — structural problems which will have to be addressed sooner rather than later. So instead of dealing with the issue of the Greek insolvency, the EU treats the whole issue as a liquidity problem in the hope that at a future date things will be more manageable. Adding debt to more debt, glossing over important policy questions and being hostile to the Greek conservative party (it is opposed to the tax increases) because it’s not willing to sign up to the socialist government’s ruinous program is simply the wrong way to go.

The Greek public. Despite all the reports and video footage of continuous riots and demonstrations, the vast Greek silent majority remains dumfounded by the unfolding news. Its assumptions and expectations about life have been dramatically altered. Gradually, albeit slowly, it has come to the realization that the economic system it embraced for the last 30 years is not sustainable. The problem here is that if a program of reform is not put in place soon — one which offers some realistic hope of both avoiding default and stimulating economic growth — Greek society will regress to its old default positions of victimhood and isolationism. And such a withdrawal inwards will only further hamper efforts to resolve the country’s deeply entrenched fiscal woes..

Up until now the Greek government and the EU have played the game according to the traditional rules. The problem is that the conditions have changed dramatically but, like the generals who presided over the carnage of 1914-1918, they are fighting the last war. The brief, heady belle époque of the euro is over. What Greece needs now is an orderly restructuring of its debts which will reduce them at least by half. Such restructuring needs to be be yoked to a drastic — but gradual — reduction of the humongous Greek public sector: that’s the tricky  but unavoidable part.

But without such urgent and overdue remedial action, the Greek government and the EU run the very real risk of transforming a crisis into an economic cataclysm — one which will produce another “lost generation” of Europeans.

O’Donnell’s Identity Politics Playbook

September 18th, 2010 at 12:26 pm 21 Comments

httpvh://www.youtube.com/watch?v=-npEhuweIyA

I found watching a YouTube video of Christine O’Donnell at a recent town hall particularly painful. Not only for the fact that she could never seem to master that verb and subject agreement thingy but mostly for the message that she so excruciatingly tried to communicate.

What chiefly struck me was her phrase that we need people who will be “advocates for the constitution, advocates for the United States.” It’s rather telling that in defending conservative principles she was using the language that the left often uses to express support for special interest groups.  O’Donnell belongs to a growing part of the conservative movement that is unconsciously adopting the left’s identity politics.

In the old days when conservatives fought against what they called elitism they meant the tendency of modern liberalism to dictate the minutiae of daily life. Exceptional minds of the right, from Hayek and Friedman to Charles Murray, developed a serious political literature expatiating on the inability of big government to solve many if not most societal problems.

For the new idiotic right it appears that policy differences are merely the excuse for something that goes a lot deeper. The new war on elitism is not so much about policy but about identity. The elitism they oppose is not a set of policy proposals; the new elitism has a face and often a name. A relatively old Club for Growth political commercial was pointing to the latte drinking, Volvo driving and New York Times reading constituency of Howard Dean. You see, it’s not the policy anymore – it’s the people. The real America versus the coastal elites and their groupies as  Sarah Palin would most likely term it.

The new idiotic right has managed to insert resentment and envy into the conservative movement; A kind of class warfare without the ransom note. We need average people in Congress says Christine O’Donnell. Do we? Who of us would consider Washington or any of the founding fathers average? Who of us would even consider present day political figures like Mitch Daniels and Chris Christie average?

I want my government limited but in no way would I like its managers to be average at all.

Viewing again that O’Donnell video one thing comes to mind, something that Noel Coward said: Never mind, dear, we’re all made the same, though some more than others.

Attack Politics 101

September 14th, 2010 at 11:00 am 2 Comments

Republicans who are ready and eager to throw the wildest accusations or insults at President Obama should take some advice on the art of the political attack from Tony Blair.

In his new memoir, rx A Journey, buy Blair writes of how he handled his Conservative Party opponents:

So I defined Major as weak; Hague as better at jokes than judgment; Howard as an opportunist; Cameron as a flip-flop, cialis not knowing where he wanted to go. … Expressed like that, these attacks seem flat, rather mundane almost, and not exactly inspiring—but that’s their appeal. Any one of those charges, if it comes to be believed, is actually fatal. Yes, it’s not like calling your opponent a liar, or a fraud, or a villain or a hypocrite, but the middle-ground floating voter kind of shrugs their shoulders at those claims. They don’t chime. They’re too over the top, too heavy, and they represent an insult, not an argument. Whereas the lesser charge, because it’s more accurate and precisely because it’s more low-key, can stick. And if it does, that’s that. Because in each case, it means they’re not a good leader. So game over.

Bringing Out the Worst in Europe

May 24th, 2010 at 2:13 pm 4 Comments

Like most postwar European institutions, the Eurovision song contest was born decadent and since then it has only gotten worse.  Eurovision, is the annual contest that brings together 39 countries, the vast majority of them European, in a competition of previously unpublished songs. Eurovision started in 1956 as an effort to bring together the countries of war-torn Europe.

It was a plan by a European committee and consequently it came with the usual package: naïve in intention, shady in action and really pathetic in end results. Starting with the initial intention to bring the European countries together, Eurovision has instead reaffirmed national and regional biases. Scandinavian countries vote for each other, the same goes for the Balkans as well, and somehow the Greeks almost always find the best song to be a Cyprian one and vice versa.

While geography, history and cultural ties benefit some, it’s clearly a detriment for some others. In 2009, Terry Wogan, presenter of Eurovision in the UK for 38 years, said that it was all “rubbish.” He added that “Britain has attacked nearly every country in Europe and people don’t forget.” People in Europe don’t forget and that’s very true; if it makes sense to be refighting Agincourt every year in a song competition is another story though.

Nevertheless the UK along with France, Germany and Spain will automatically make it to the finals since they contribute the most funding for the competition. It’s a tad peculiar: just consider if Canada in the most recent Olympic Games was guaranteed a place in the top five in every sport it participated in, just because it paid for the games.  Americans would have made the operation profitable and given each country a share of the profits equal to its contribution. Europeans, having long-standing issues with profitability, prefer to openly rig the competition.

And that brings us to the final consequence of the competition. Eurovision like so many other European institutions established to bring Europeans together somehow manages to bring the worst out of them. And it’s not just the biased voting, the peculiar mechanisms, et cetera, but mainly the unabashedly, exceedingly awful music that gets produced. It’s almost mind bungling to have countries with such rich cultural heritage trying and succeeding in surpassing Americans in the production of really bad songs. There are exceptions every now and then, which nonetheless, validate the general rule. On a yearly basis Europe tries and succeeds in outperforming America in the production of cultural trash. One has only to look at the 2008 Spanish entry “Baila el chiki chiki” which would aesthetically offend even the most arduous consumer of musical rubbish.  Or take this year’s entry from the Netherlands “Ik Ben Verliefd” which proves that Lawrence Welk is still alive, well and hard at work in Amsterdam. Belarus entry “Butterflies”  give you a pretty good idea about the kind of lyrics one has to endure:

And we’re like butterflies
Flying to the sun

The sun will never
Let us look inside
I believe
That all’ll be opened up
But in the right time

Open-hearted wait for it

And all the secrets will come out…

I don’t want those secrets coming out.

I do wonder how Kenneth Clark would cover the whole spectacle in his series Civilisation, perhaps, a special chapter entitled, From the Skin of Our Teeth to the Fat of Our Belly.

There is something more embarrassing than having your own country default on its debts, and that is having her participate in the Eurovision song contest. Kudos to Italy for staying out.


America’s Unfolding Greek Tragedy

May 13th, 2010 at 7:17 am 76 Comments

I should point out first the agreements between Eli Lehrer and me in this debate. Obviously there are big quantitative and qualitative differences between the American and the Greek economy. Let me also concede that even if these differences were minimal, seek even a slight variation in time of occurrence of a debt crisis and other factors could result in an important differentiation of outcomes.

So if and when the U.S. has to face a debt crisis the circumstances of the moment will determine a lot. I think Eli Lehrer like many others believes in an American economic exceptionalism.  That certainly has been true in the past and continues to be so up to a degree even now.  The U.S. has indeed been slower than Western Europe in expanding the welfare and regulatory state. But here we must note that the emphasis is on slower.

American conservatives may be reluctant to admit that the U.S. has already a welfare state. Lehrer mentions the COBRA subsidy but what about Social Security, physician Medicare and Medicaid? Those are the big government programs, which if they are not reformed will generate debt in the trillions of dollars.

America may be exceptional in many things except its welfare state. The American welfare state in many ways functions like a European one. It’s expensive, redistributive, provides the wrong incentives to too many people, and has strong political support.  Watching the debate over Obamacare, it wasn’t surprising to see Republicans oppose it because it would cut Medicare and Democrats support it because it would be as ‘good’ as Medicare.

David Leonhardt of the Times estimates that in order to avoid serious debt problems “the government will need to find spending cuts and tax increases equal to 7 to 10 percent of G.D.P. The longer we wait, the bigger the cuts will need to be (because of the accumulating interest costs). Seven percent of G.D.P. is about $1 trillion today. In concrete terms, Medicare’s entire budget is about $450 billion. The combined budgets of the Education, Energy, Homeland Security, Justice, Labor, State, Transportation and Veterans Affairs Departments are less than $600 billion.”

Of course, we will not increase taxes or cut spending by a trillion now or even later. The most likely scenario is that we will be increasing our debt as much as possible while avoiding tax increases and spending cuts. At certain points and depending on the political winds we will have some spending cuts and/or tax increases. In the long run we will have reductions in the rate of growth of the welfare state accompanied by rising tax rates and debt levels.

It is this combination of events that makes a crisis like the one that Greece faces now possible for the U.S. America is indeed a very productive country but it’s becoming less so. One has only to look at the current account deficit.  That’s an important similarity between Greece and the US. Another one is the percentage of consumption as part of GDP. In both cases consumption and economic growth has been recently financed by debt.

Up to now it has been very difficult for the American political class to reform the entitlements in order to make them economically viable. If the Republican party does not find a way to articulate a convincing political narrative out of this mess, the future will be one of slow growth, high taxes and loads of debt.

At some point bond investors will take another look at the U.S. balance sheet and they will realize the unsustainability of the whole enterprise. Interest rates will start to rise and pretty soon we might find ourselves in a very Greek predicament.

All the certainties that for so long we have held sacrosanct will be quickly transformed to the peculiar superstitions of yesteryear. All of a sudden, we will be wiser but at a very high price.

Greece Could Happen Here

May 10th, 2010 at 11:42 am 32 Comments

Eli Lehrer in a recent post argued that a crisis similar to the one that Greece faces now is unlikely in America because the U.S. has strong fundamentals, look much lower debt than Greece, see Americans work hard, pharmacy the Fed can manipulate the dollar and the U.S. government has more political legitimacy.

Of all the points the only one that works in favor of Lehrer’s argument is the ability of the U.S. to manipulate its currency. Being able to devalue the dollar gives America a more politically safe way of managing a debt crisis. Nevertheless such a tool might mitigate a crisis but might not be able to halt many of the negative consequences.

At this point the Greek crisis becomes relevant to the United States. The Greek government is not any less legitimate in the eyes of its citizens than the American one. Greece has been using the parliamentary system for many decades and the public is quite used to it – so much so that the Greeks don’t like the idea of making it more representative. The government is as legitimate as the Clinton presidency was (he never got a majority of Americans voting for him) or the first Bush presidency (which came second in the vote count) or the filibustering U.S. Senate.

Greece used to be very productive as well. In the 50s it was only second to Japan in economic growth and in the 60s and 70s with a fast developing tourism industry it experienced high growth as well. Greece’s debt in 1981 was 31.2% of its GDP, a number that would be desired by even the most responsible nations today.

Greece in the 80s started to do what America commenced in the 2000s under Bush and now the Obama administration: transferring income from future generations to itself with a vengeance. The most destructive effect of debt wasn’t the magnitude of the debt per se but the socioeconomic consequences and the revolution in social norms and expectations. When I was starting primary school in the early eighties young people wanted to open their own business. When I was finishing high school near the mid-nineties young people were dreaming of a government job. It was a change so roundabout but universal that only in retrospect one may realize the rapidity of its progress.

As debt was financing the dependency habits of the general population it was also creating an infantilized political class that was unable to govern and manage any crisis effectively, be it natural, diplomatic or political. Whatever the political costs of a mismanaged crisis, the government always expected to be able to recover by throwing money in some new government handout.

Debt growth had the effect of robbing society of the ability to deal with the consequences of a debt crisis, leaving on the one hand, a society pretty sclerotic in its expectations, and on the other, a political class exceedingly incompetent when it comes to governing.

So yes, Greece is not able to manipulate its currency. This is a major disadvantage. Nevertheless, the situation could have been manageable or at least have had a reasonable hope for success if Greece had not made it so difficult for itself.

As the global sovereign debt bubble gathers more attention by the day, issues like that will become central in European politics. European political classes and societies might find themselves awfully lacking in dealing with a dramatic swift change in expectations about sovereign debt. A revolution in investors’ confidence and perception could expose the ominous contradictions and inadequacies of the European welfare model that has been decades in the making.

The American governing majorities seem very eager to follow the European path while ignoring the consequences of such a choice. Not only will they make America vulnerable to present financial crises but they will also create the conditions for almost certain mismanagement of future ones. If there is no change of the present course the future may look very Greek.

Daniels Shows Obama How It’s Done

March 5th, 2010 at 12:04 pm 3 Comments

Indiana Governor Mitch Daniels’s recent statements that he was “open” to a 2012 run should keep the Obama administration up at night.  In office, Daniels has managed to do what Obama has not: create new jobs and extend health benefits to the poor all while trimming government and keeping taxes low.

Since he became governor Mitch Daniels has been obsessed with getting jobs for the people of Indiana. Companies like Honda, Nestle, and BP among others have invested more than $15 billion in the state since he became governor. A typical announcement of the governor runs like this:

Governor Mitch Daniels says economic development deals announced today continue a diversification of Indiana’s economy and serve as a buffer from the turmoil in the nation’s financial and credit markets. This morning, health care equipment manager TriMedxsaid it will expand its national headquarters in Indianapolis, creating more than 100 jobs over the next five years. This afternoon, Italy’s Brevini Co. will confirm plans to re-locate its U.S. headquarters from Illinois to Delaware County. The company will also build its first U.S. manufacturing facility there, creating approximately 455 jobs. Brevini will manufacture gears and components for use in the wind power sector.

In his campaign for reelection in 2008, Daniels was keen to show to audiences a powerpoint presentation that I believe he probably used in meetings with business leaders.  The presentation pointed out that Indiana ranked

#1 in the Midwest and #12 nationally for business climate in the country, #8 for overall cost of doing business and #1 in international investment in our country in 2007.  CEO Magazine has rated Indiana #4 in the Midwest and #8 nationally for the best place to do business.  Since taking office 60,000 new good-paying jobs have been committed by 2012 and now 50,000 more Hoosiers have jobs than in 2005.  New jobs created in Indiana have an average annual salary of more than $39,000 which is about $5,500 more than the average Hoosier salary.

None of this of course was accidental. Since Daniels became governor he followed a very meticulous path in order to restore the finances of the state and keep taxes low. He cut more than $250 in spending and renegotiated state contracts saving another $190 million. A tax amnesty bill brought in another $224 million and he reduced the state government payroll by five thousand employees. He reduced the growth of government spending from 5.6% to 2.8% and eventually an $800 million deficit became a $1 billion surplus. For the first time in its history Indiana got a AAA rating.

One of his most important decisions was to privatize the toll road connecting Chicago and Ohio in northern Indiana.  Selling a 75 year lease to a European company proved initially a very unpopular decision. In a MitchTV video available on YouTube, Daniels gets an earful from an elderly voter in a diner. He calmly and attentively explains the benefits of the decision. The old system generated only $130 million in profits for the state in over 50 years of operation. A figure that would be surpassed in one year only from the interest generated by the $3.85 billion Indiana got the private company.  Over time the vast majority of Hoosiers came to see the deal Daniels’s way.

But Daniels proved to be something more than the typical business-friendly Republican governor. In 2007, he passed the Healthy Indiana Plan which covers Hoosiers who earn lees than 200% of the federal poverty level.  The plan established a health savings account where the state contributes $1,100.00 and the individual up to 5% of his income to provide for basic health benefits. If the funds are depleted catastrophic coverage kicks in.  It’s a plan that covers the uninsured while it helps them develop healthy habits and it does so by keeping the costs of the state down and introducing consumer choice in the healthcare system. The Healthy Indiana Plan is very popular with Hoosiers.

It’s a great example of how Republicans can find a way of providing conservative solutions for the problems that the voters face today. As Daniels said to National Review’s Mark Hemingway:“Our health-care plan is health savings accounts for poor people. Our telecommunications policy is deregulation. Our infrastructure policy was the biggest privatization in state history.”

Hoosiers gave him an 18% reelection victory in 2008 at the same time as they were voting to elect Obama for president. Daniels won by gathering an unusual electoral coalition for a Republican in that year. As Mona Charen noted, Daniels’s “margin of victory included 24 percent of Democrats, 20 percent of African-Americans, 51 percent of the youth vote, 67 percent of the elderly, and 57 percent of independents.”

His Indiana record and his appeal to groups that Republicans don’t seem to do well with recently have brought Daniels to the spotlight for the 2012 presidential election. It also helps that Daniels has solid Washington experience having been Reagan’s policy director and George W. Bush’s budget director. Add to that his private sector resume of having been head of Eli Lilly’s North American operations and chief executive of the Hudson Institute and you’ve got yourself a very attractive candidate.

Simple, direct, knowledgeable, effective and conservative. Sounds like the man that Americans may be looking for in 2012.

Will Greece Break the Euro?

December 14th, 2009 at 2:26 pm 9 Comments

This December, unhealthy Greece has seen more media coverage since it pitched camp outside the walls of Troy in pursuit of a misguided woman. It’s all about the deficit and debt of the Greek government. This year the government’s deficit will reach 12.7% of GDP and the public debt is estimated to be around $430 billion(113% of its GDP).

There are governments that have deficit and debt levels similar to that of Greece but here are three factors that make the Greek situation unique:

- A very weak, buy small and often parasitic private sector. At least since the early 80s Greece has followed a policy of a steady expansion of the state. Most notable is the huge numbers employed in government, perhaps somewhere north of one million in a workforce of approximately 5 million. Of the 4 million left, five hundred thousand are unemployed and eight hundred thousand are heavily subsidized EU farmers of very low productivity. Without taking into account all of those of the private sector who make all or some of their living indirectly from the state, it falls on around 2.7 million Greeks to support a million public employees, 800 thousand farmers, 500 thousand unemployed and 1.7 million retirees.

Of course it would be impossible for those of the private sector to support such a heavy burden and that’s why Greece is so dependent on continuous and high levels of borrowing no matter how good or bad the times are. Paying via taxes for even a lower than average but reasonable slice of the ongoing government expenditures would bring the economy to a complete halt.

- Demographic trends.  Greece is an aging society with a median age of 41.8 years. Almost a fifth of the population is over 65 and the life expectancy is nearly 80 years. Economies like that in order to survive economically must be very competitive with a dynamic export sector. But Greece’s huge public sector, red tape and corruption have made its demographic trends lethal. Like someone who is struck by two ailments each one exacerbating and precipitating the symptoms of the other, Greece suffers the consequences of a declining private sector at the same time when it would need it the most in order to manage its changing demographics.

An actuarial analysis by the Labor Institute estimated that by 2050 the deficit of the social security system would be 600 billion euros.  The social security system should have already accumulated reserves of 500 billion euros in order to pay its future obligations but up to now it has less than 20 billion set aside. Meantime, Greece already has one of the highest social security taxes in Europe.

- Political Culture. Although the figures related to Greece’s finances are at best mind-boggling and outright scary, its political culture is the most important obstacle it faces. Economic liberalism and conservatism are dirty words in Greece.  Governed by a political class that is timid, incompetent and often clueless, it cannot find a way out of the economic abyss it has entered. Some local commentators call Greece the Detroit of Europe or the last socialist country of Europe. Either way, it’s one country very much committed to its statist ideals, hoping that staying in denial will eventually force reality to surrender to its wishes.

Up to now membership in the European Union has fed Greek illusions. With annual economic assistance averaging 3.3% of GDP and membership to the euro club that earlier this decade made public and private borrowing cheap, Greece was able to finance an unsustainable economic system. Kostas Kallitsis, a financial commentator, describing the years before the crisis wrote that “each year we were generating a 10 billion government deficit, we were increasing public debt by 12 billion and private by 27 billion, saddling the trade deficit with 5 billion, and all that in order to increase the GDP by… 16 billion euros – of that 16 billion, 6 billion were coming directly from the European Union as aid.”

Since the mid-90s, Greece has convinced herself that economic growth and prosperity were compatible with her statist model. Substantial increases in public and private debt fueled a consumption binge that created the deception of a well functioning economy.

Now things have changed though and the Greeks are called to face reality. On December 9th the Financial Times wrote:

In classical Greek tragedy the protagonists’ attempt to circumvent the will of the gods leads to their downfall. In the farce that is Greek sovereign debt management, Athens has been guilty of more modern hubris: cooking its books to outwit markets and the European Union.

Not only was Greece using the EU to sustain her semi-socialist economy but in the meantime she was cooking the books in order to show a lower public deficit and debt. The Greek governments did so repeatedly. When caught they always promised to mend their ways but never did so. Now in a time of dire need Greece’s partners are extremely skeptical (to put it mildly) and rather unwilling to foot the bill one more time.

The era of cheap and easy borrowing is over and the markets have started to be rather jittery about sovereign debt. Greece being a member of the euro club does not have the easier option of devaluing her currency. The hard options are to cut public spending in a time of recession angering the humongous public sector constituency and/or hitting the chronically anemic private sector with new taxes.

Dr. Desmond Lachman of the American Enterprise Institute, told me that:

Sadly, Greece has got itself into a very difficult situation by its profligate ways of the past that has resulted in a 12.7 percent of GDP budget deficit and a 30 percent loss of international competitiveness. Trying to fix these problems within the constraints of Euro membership will almost certainly mean many years of recession, high unemployment and deflation for Greece.

Yet leaving the Euro is not an option for Greece since that would inevitably lead to debt default for the Greek government with dire consequences for the Greek economy. Greece is lucky in that the ECB [European Central Bank] will not want that scenario to occur since it would have a domino effect throughout Europe with Ireland , Spain and Portugal next in line. So the most probable scenario is that the ECB will try to get Greece to agree to an adjustment program and then hold its nose while it provides Greece with funding.

Namely as the Greeks would say, they stand somewhere between Scylla and Charybdis, the two sea monsters of Greek mythology who occupied the opposite sides of the Strait of Messina. One passing through would have to face one or the other but could not avoid both. Painful choices juxtaposed with other equally painful and hard choices.

As the U.S. contemplates the introduction of a new entitlement program, big increases in debt and new stifling regulations perhaps it should take a look at the small Mediterranean country, which in many things she considers her precursor. Because the similarities between Athens and D.C. might not limit themselves to political theory and architecture and may at some point enter the economic realm as well.

A commonly accepted point of departure in modern Greek history is the election in 1981 of Andreas Papandreou as prime minister. He was the one who initiated a radical expansion of the state, of the entitlements and of public debt. Before he got elected he was known as an ex-academic with limited governing experience but great oratorical skills and lots of charisma. The slogan of that very big and transforming election victory 28 years ago was one word, ??????, or as it is known in English: Change.

Same Dem Mistakes Call for New GOP Answers

October 26th, 2009 at 2:48 pm 10 Comments

Political parties, like generals, have a tendency to fight a new war the same way they fought the last one even when the enemy and circumstances have changed. Conservatives eagerly draw parallels between the presidencies of Jimmy Carter and that of Barack Obama. It’s a very convenient and perhaps true analysis of the state of the present administration. But conservatives should not expect the same playbook that brought them a conservative majority after Carter to work for them today.

The Obama administration seems to be a rerun of the paleo-liberalism of the 1970s, with huge increases in spending, initiatives for new or expanded entitlements and a worldwide self-flagellating campaign to appease our enemies. It’s a familiar state of affairs for conservatives, but if our opponents fail in governing that by no means guarantees our own success. Imagine the most optimistic scenario: Republicans gain the House in 2010 and the White House and Senate in 2012.  But then what? Of course, stopping many Democratic plans will be an improvement but it won’t be enough.

In the coming years more Americans than before will retire, enlarging the slice of the population that gobbles up government largesse. The Republican candidate in 2012 might offer the panacea of lower taxes and a lighter regulatory regime but those will only postpone the day of reckoning. It is much easier to lower tax rates than to reform Medicare and Social Security.  We may be able to lower tax rates again but any action in this area as time goes by will become harder and it will come with diminishing returns.

There is a convergence of our politics with that of Western Europe. Increasingly their problems become ours. And like our European counterparts we have not yet discovered the political coalitions and means to achieve the necessary reforms to our welfare state. As the problems of entitlements intensify, it is conceivable to see successive Democratic and Republican administrations each entering the White House with high expectations and leaving with an unmistakable sense of failure.

The Obama administration up to now seems to be a replay of the old liberal canon. Conservatives in opposition to this paleo-liberalism might win some battles, but essentially they’ll be winning old battles anew. The problem is that conservatives lost recent elections not because they were unable to defeat the liberalism of yesteryear but because they were incapable of developing solutions to the problems that Americans face today. Whatever victories come from our confrontation with the Obama administration, they may conceal our fundamental weaknesses and leave us offering the public more of yesterday’s solutions.