Three years ago, we were talking about Greek hairdressers. Classified as an “arduous and hazardous” profession, Greek women who styled hair qualified for a full government retirement pension at 50. Radio and TV announcers also qualified because of their bacteria laden microphones. Combine too many retirees on government pensions with a lengthy government payroll, a long list of government businesses and widespread tax evasion and you have a recipe for fiscal disaster. The result was a call for austerity. In order to get bailout billions from the international community, Greece had to cut back. In his Greek Bailout Song, Merle Hazard explains the problems:
Now, 3 years later, with a bailout and some austerity, the Greek economy has improved:
Perhaps because GDP is up, unemployment down and Greece was able to sell debt with reasonable interest rates in international markets, resistance to austerity is resurfacing. Consequently, one of the world’s largest investment managers, Black Rock, gave Greece its lowest rank for sovereign debt risk. In other words they believe that Greek bond buyers might not get their money back. Among 50 countries, Greece is #50 on Black Rock’s risk monitor.
Our bottom line: Governments create sovereign debt by borrowing money from you and me and banks and other governments and businesses. While sovereign debt is a valid way for governments to cover deficits when expenditures exceed revenue, too much borrowing is reckless. With Greece back in international financial markets and resisting further government cutbacks, she could be reverting to her old bad habits.