Greece got its $146 billion bailout, which the United States will help pay for. But anyone who believes the Western world's financial crisis is over doesn't understand what's really happening, says Investor's Business Daily (IBD).
Unfortunately, no problem has yet been solved, and more problems likely loom – not just in Europe, but in the United States and Asia as well. In fact, Greece will have to undergo pretty tough financial treatment to get a clean bill of health, says IBD:
Its citizens, who are among the most coddled in the Western world, will see their retirement age jump to 67 from the current 53.
At the same time, government workers' pay will be frozen for three years, and they'll no longer collect annual bonuses worth two months' pay.
Taxes on liquor, cigarettes and gasoline will rise while the value-added tax increases to 23 per cent from 21 per cent.
Virtually every country in the European Union (EU) spends more than it takes in and has made long-term fiscal promises to an aging work force that it can't keep. A little over a year ago, economist Jagadeesh Gokhale, writing for the National Center for Policy Analysis, produced a summation of the fiscal challenges faced by Europe:
The average EU country, he concluded, would need to have more than four times (434 per cent) its current annual gross domestic product in the bank today, earning interest at the government's borrowing rate, in order to fund current policies indefinitely.
In other words, Europe would have to have the equivalent of roughly $60 trillion in the bank today to fund its very general welfare benefits in the future; of course, it doesn't.
Things haven't changed much since that study was done. So suppose they don't put aside all that money. What then? By 2035, Gokhale reckons, the European Union will need an average tax rate of 57 per cent to pay for its lavish welfare state.
Today, Greece is only the tip of a very large iceberg, says IBD. Portugal, Spain, Italy and Ireland together owe $3.9 trillion in short- and medium-term debts, an amount larger than their combined gross domestic product (GDP), estimated last year at $3.3 trillion.
Source: Editorial, Is Greece Just Tip Of The Iceberg? Investor's Business Daily, May 4, 2010; and Jagadeesh Gokhale, Measuring the Unfunded Obligations of European Countries, National Center for Policy Analysis, Policy Report No. 319, January 2009.
For text: http://www.investors.com/NewsAndAnalysis/Article.aspx?id=532120
For NCPA study: http://www.ncpa.org/pub/st319
For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26
First published by the National Center for Policy Analysis, Dallas and Washington, USA
FMF Policy Bulletin/ 11 May 2010