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EDITORIAL: Yet another bailout
Europe prepares to rescue Greek politicians
Question of the Day
In Greek tragedy, the main character overestimates his abilities and brings ruin upon himself and his family. European politicians share this fatal pride, thinking they can continue borrowing from future generations without consequence. Their latest extravagance is a third bailout for Greece.
Germany's finance minister, Wolfgang Schaeuble, revealed last week that his nation would foot most of the bill to rescue Greek politicians from the consequences of their own profligacy. With German elections less than a month away, it remains to be seen whether German taxpayers will have something to say about it.
The first two bailouts totaled more than $321 billion and had private investors losing half the value of their bonds. The next bailout is expected to be smaller, and could be as little as $15 billion, the gap the International Monetary Fund (IMF) estimates from previous bailout packages. Those bailouts were jointly funded by European Union, European Central Bank and the IMF, which means American taxpayers picked up part of the tab.
The next bailout is expected to be funded by Europe, which means German taxpayers will end up paying the most because they have the most productive economy. This explains why Mr. Schaeuble's remarks about it at an election rally caused a great deal of commotion. European Commissioner for Economic and Monetary Affairs Olli Rehn and Dutch Finance Minister Jeroen Dijsselbloem, who heads the powerful Eurogroup meeting of finance ministers, have both confirmed that more money would be pumped into Greece as soon as next year. Former Greek Finance Minister George Papaconstantinou also conceded, "There could be a need for another bailout."
Eurocrats justify the rescue packages by saying Greece must balance its budget as a condition of receiving further funds. While this may sound responsible, it creates perverse incentives and misses the larger problem throughout the Continent: the lack of growth.
In most of Europe, and especially in Greece, government is far too large and burdensome. Balancing the books by raising taxes will kill growth. European nations trapped under high debt and beset by recession can only escape if their economies expand. That's precisely what won't happen if politicians hike taxes on productive activity, punishing entrepreneurs.
Transferring funds from one bloated bureaucracy to an even more bloated bureaucracy will stifle, not encourage, needed growth. Bailouts are a gift to Greek politicians who want to continue business as usual. It's far easier for them to continue spending another country's money with abandon than to take the unpopular step of cutting back on unnecessary domestic services and expenditures.
Europe's generosity toward Greece can't go on much longer. The European Union, mired in recession, is rapidly running out of cash, thanks to its own profligacy. While Germany is growing modestly, output in France, the second-largest economy in the EU, fell in July. "It is too soon to sound the all-clear for the euro crisis," a research note from the London financial consulting firm Fathom notes. "The fundamental structural problems facing the single-currency bloc persist."
Until and unless Europe's member nations address their oversized welfare states and burdensome tax systems, unemployment and recession will continue in Greece and beyond. The real tragedy is that America will suffer the same fate unless we change our own profligate ways. The difference for us is that nobody will be around to bail us out.
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