Posted by: Ted | February 17, 2010

A Lesson From The Greek Financial Crisis

At issue are the terms of the pact that created the euro, which requires its members to maintain an annual budget deficit no higher than 3 percent of GDP and a national debt lower than 60 percent of GDP.  This agreement requires the Greek Government to trim its budget and to live within the deficit limits or raise taxes to increase the amount of money they have to spend.  Neither option is appealing to the socialistic system of government which has lead Greece down this spend now pay later road.  While other countries could bail them out of their financial crisis it would still leave them with a national debt over the 60% maximum unless they were willing to forgive the loan entirely.  Since the European Union is made up of individual sovereign states it is very unlikely that such a decision would be a popular move that most governments would be willing to make.

 It will be interesting to see how this issue is resolved, as it appears to be the same fate that California and several of our states are headed for as well.  The difference is that our states are part of a sovereign federal government, which is not bound by any such pact or treaty.  Our federal government seems to believe it has the ability to do such a bail out through inflating our money supply to pay for reckless government  overspending.  
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