As Europe Burns A Lesson For America

The European Union today is literally on the brink of falling apart with many officials, including German Chancellor Angela Merkel, openly discussing the possibility of Greece leaving the Euro.  Until recently talk of this nature was considered unthinkable with all officials adhering to the idea that no country could be forced out of  the Euro.  Oh how times have changed.  So the question becomes what has changed to bring about this new line of thinking?  The change has been the near total collapse of the Greek economy brought on by ruthless austerity measures imposed by the rest of Europe on Greece as a condition for a European bail out for Greece.  These forced measures have led to the Greek economy imploding.  Need some hard numbers to make yourself a believer?  There was an article done in the Daily Telegraph a few months back entitled  It may well turn out that we are watching not a Greek but a euro tragedy.  In the article the author discussed some disturbing numbers about the Greek economy.  According to the article since 2008 Greek gdp has fallen approximately 17% and some are expecting it to fall a total of 25% by next year.  This has resulted in 25% unemployment, those are levels not seen in a western country since the Great Depression.  All of this brings us to the lesson for America, which is that austerity by itself is a recipe for disaster.  Yes our current debt here is out of control and needs to be dealt with but it has to be done in reasonable manner that gradually reduces the deficit so as not to implode the economy.  You cannot try to do too much deficit reduction at one time  because as the article points out the Greeks tried to cut the equivalent of 17% gdp and the result has been economic collapse.  The economy collapsing has another unfortunate by-product, it also makes your debt to gdp ratio worse because your economy shrinks so much.  Debt to gdp worries about Greece are what led investors to worry about the sustainability of Greek debts in the first place.


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