As Goes Greece, So Goes the USA?
June 22nd, 2011
Is There Nothing to Save the EU?
While America’s economy continues to be in the gutter, we should at least be happy we’re not in Greece’s situation right now. After all, Greece’s debt is so high, it’s virtually impossible for them to dig out of it without needing IMF and EU assistance, as well as massive austerity measures that have spark violent protests in Athens and elsewhere. This week, the government will pass a new round of austerity measures aimed at shoring up Greece’s books and enabling them to secure IMF loans. Even with a new line of credit, former Federal Reserve chairman Alan Greenspan isn’t all that rosy about Greece’s ability to pay back its massive loans.
In an interview with Charlie Rose, Mr. Greenspan expressed his lack of confidence with the Greek political system, and the chances of Greek default are “so high you almost have to say there is no way out”. In fact, Greece’s debt crisis is so bad, according to him, that it puts America’s economy in danger of slipping back into recession, as investors would be so spooked that they wouldn’t want to invest in anything that could be considered risky, (and let’s face it, the US isn’t exactly lockbox safe at this point).
This Greek tragedy, and the international loans that have flooded the country these past two months, demonstrate how risky it is for nations to give out loans to a country in such bad of a shape. What is even worse is that when it’s an IMF or an EU loan, nations are on the hook whether they wanted to be or not. Fortunately, the US has only contributed $7.3 billion to the bailout effort, but France has contributed $56.7 billion, more than the next three countries put together. Given the size of the EU, this much in bailout funds could prove disastrous for America’s ability to export goods, and its because of a central bank’s belief that bailouts save countries, something the Federal Reserve will believe to the end of time despite being repeatedly proven wrong.
We tried that in the US, it doesn’t work, and it won’t work in Greece.
