The financial problems of Greece have dominated the headlines for months. The problems are not new. They have been apparent since the end of 2009 when Greece revealed that its budget deficit would be more than three times previous projections. The March 2010 rescue package (E110 Billion) and austerity measures agreed to by European Finance Ministers were designed to resolve the crisis, and initiate discussions on a mechanism to resolve all future debt crises. When in the first quarter of this year Greece again revealed that its revenue projections were significantly overstated due to the steep recession, renewed fears erupted. In addition of the contagion to other weak euro countries, fears about the solvency of European banks, the primary holders of Greek debt, broke out.
Reality has set in. There is a recognition today that Greece will need a lot more money for a lot longer than envisioned earlier. This is true even if the new bail out now under discussion is approved. In all likelihood the new rescue package will eventually be approved in some form, in return for additional strict austerity measures and conditions. However, stability will come only when a permanent mechanism is set up to address future financial challenges of excessive debt creation. There are encouraging indications lately that an enormous new fund carrying a guarantee of the euro central bank and a triple A rating will be established once the immediate problem of the threatened Greek default is addressed.
The problems of public debt vary from country to country and are an intricate part of each country’s political makeup. In the current situation the people who will suffer most from the financial collapse are the Greek people themselves. The stark reality of the tragedy illustrates again, for the umpteenth time, the corrosive effects of profligate government spending based on ever increasing debt creation. A sound economic future can only be accomplished by private savings, personal initiative, productivity, and supportive government restraint in both spending and regulations.