Successive Greek governments borrowed heavily and lied about it to sustain spending on high wages for public sector employees, close to half the work force. Now that the bill has come due, a massive general strike, further reducing the output of the economy has been called to protest austerity measures the current government is putting into place to please creditors and the other European governments who are putting up rescue money. Seemingly no one is willing to face the essential fact, that no amount of rescue money can save the Greek economy, especially given the popular mood in Greece. The current government of George Papandreou has said that elections will be called early next year, but his party is unlikely to retain power. From the WSJ:
Greeks have become frustrated, suffering from rising crime and suicide rates as more shops are boarded up and personal bankruptcies spiral higher. The country has a young-worker unemployment rate of more than 40% and likely faces a fifth year of economic recession in 2012 amid deeper austerity measures.Austerity is the word for what the government is doing, but unwinding the socialist economy might be a better plan. Corruption, bureaucracy and significant state ownership of telecommunications, tourism and energy companies have wrecked the Greeks ability to grow their economy.
Ultimately, the outcome will be a default which will impact the Greeks themselves, such as pensioners holding debt, foreign financial institutions, and international institutions such as the IMF. The fear is that banks in Europe, especially France will fail as a result, which would lead to a global financial melt down. Additionally, Greece itself would suffer as liquidity would seize up in that country.
But, too bad. This is unavoidable. Putting into household terms, what if you owned a house which kept rising in market value, due to a bubble, let's say? Let us further stipulate that you borrowed against that rising value to fund your current expenses. Your spending was your income (A) plus your borrowing (B). When the bubble burst, you would have two problems. First, you could no longer live at your prior high level of expenditure A + B. Further, the same problems that caused the bubble to collapse might also reduce your income. Finally, you are saddled with the debt from borrowing and lack the means to pay it back. Even if you file for bankruptcy and move out of your home, your new lifestyle is significantly less extravagant than before. Further, you will have a hard time getting new loans to finance a new business, for example, if you wanted to go for a higher income. This is the problem the Greeks are facing. They probably can't afford to pay back their debts unless they sell their assets, and even then, I am not sure that would work. They are going to face drastically reduced average incomes for some time to come. Right now they are striking and protesting, rather than dealing with moving away from the socialism that got them into this mess in the first place.
This also is essentially the message Chris Christie has for the union employees in New Jersey. You were lied to before, and the promises made cannot be kept. Unless we restructure pension deals you won't get paid at all. The earlier we start working on a solution the better, because the problems just keep getting worse the longer we put this off.