Banks in Greece reopened last Monday, and even with strict withdrawal limits in effect, it at least gave the appearance of a return to normalcy. But Greeks also woke up Monday to a painful new reality that should serve as a warning to Americans.
Massive tax hikes went into effect, part of the austerity measures demanded by creditors in the latest bailout deal. As the AP reported, the increased taxes are another blow to Greeks already battered by years of economic crisis.
There are few parts of the Greek economy left untouched by the steep increase in the sales tax from 13 to 23 percent. The new rates have been imposed on basic goods, from cooking oil to condoms, as well as to popular services, such as taxi rides, eating out at restaurants and ferry transport to the Greek islands.
“The tax hikes are part of a package of austerity measures that also include pension cuts and other reforms that the Greek government had to introduce for negotiations to begin on a crucial third bailout.”
Of course, this was inevitable. The Greek people demanded and got a generous welfare state. Now they must pay the piper.
America, take notice.
At some point, somebody always has to pay. It's a simple matter of mathematics. You can't indefinitely spend more money than you make. Debasing the currency and foreign bailouts only go so far. The Greeks are learning the hard way that when the bill ultimately comes due, somebody has to step up to the register and pay the check.
Greece backed itself into a tight corner with unrestrained spending and generous benefits. As the Guardian recently reported, “pensions are now the main – and often only – source of income for just under 49% of Greek families, compared to 36% who rely mainly on salaries.” Those workers earning salaries ultimately have to support not only themselves, but also the masses drawing off the indebted system. The burden placed on the Greek economy by this unsustainable pension system contributed mightily to the country's financial woes. Throw in a welfare state that discourages work, and you have a recipe for the economic meltdown.
