The following are excerpts taken from an opinion piece by Bankrupting America’s Gretchen Hamel, which was published yesterday in The Daily Caller:
Instead of rioting in protest of its government, Greeks should be thanking their fellow European Union members for coming to the rescue. The European Union members are coming to the rescue in the form of a $146 billion loan. The hope is that this loan will give Greece time to restructure its debt and make significant internal reforms, and prevent further damage to the Euro.
Greece’s growing debt has lead to increased worries that Greece might default on its debt payments, which would thus make borrowing more expensive and the budget problems even worse. The S&P recently downgraded Greece’s credit rating to “junk.” As a result, the interest rate on Greek bonds rose to almost 9 percent—three times the interest rate on a German bond. This means that the Greeks have to spend a great deal on interest payments, a big problem for the already cash-strapped country.
Even with the loan, Greece faces a significant challenge in getting their fiscal house in order. The public continues to protest “austerity” measures designed to reduce public spending. Yet spending cuts are inevitable in such a situation—particularly so since, absent reform, budget pressures are bound to get worse, not better.
There are many differences between Greece’s economy and ours, but consider this description of the fundamental problems that have plagued Greece: “The global crisis has exposed the underlying structural problems in the Greek economy that had been masked during recent years by easy credit, low interest rates, the booming housing market and the widening external deficit.”
It sounds awfully familiar, doesn’t it?
The question now is whether the U.S. will follow the same course as Greece, ignore the warning signs and continue on our current unsustainable spending path. The good news for the U.S. is we have time to cut spending and make reforms to entitlement programs in order to avert disaster in this country. But will policymakers take the necessary steps?
