Guest post by Ian Daily
The Greek government has spent freely for many years to enrich itself and its special interests at the expense of taxpayers. And now, it is not the Greek politicians who will suffer, but the taxpayers who face a future of unending debt payments.
After hobbling along on “emergency” loans for five years, a $1.73 billion payment due Tuesday night went unpaid — the largest missed payment in the international finance organization’s seventy-one-year history. The IMF tellingly refused to call the missed payment what it was: a default, opting instead for “in arrears” (which, for the uninitiated, is a complex, highly-technical financial term that means default). Greece now shares company in this respect with the likes of Sudan, Zimbabwe, Afghanistan, Haiti, Yugoslavia, and Somalia.
For Greece, the pain has been a long time coming, since it began relying on emergency loans five years ago. And now default — while sending shocks of volatility through global financial markets — has been almost anticlimactic. But the jagged lines on a financial chart tell little of the carnage happening on the ground, or of what is to come.
The problems Greece and the world face now are manifold. For Greeks, capital controls and bank closures have left people without access to the funds in their accounts. ATMs have lines stringing away from them at all hours, even though daily withdrawals are limited to €60. The next weapon in the financial warfare: deposit seizures. While it may be easy to dismiss these afflictions as the result of socialist policy, but that wouldn’t be an accurate characterization of what’s transpired.
No, when Greece resorted to emergency funding, the Troika (the collective pejorative for the European Commission, European Central Bank, and IMF) authorized €110 billion in assistance, in exchange for vague, un-quantified promises of “austerity.” The more recent loans were actually diversion of interest payments on Greek debt owed to other Eurozone countries, lent back to Greece. Even now, after default, there is little doubt in the financial world what the “solution” to the debt crisis will be — more debt.
Of course, it’s easy to dismiss these presumptions as the misguided naïveté of Keynesian central planners, but doing so ignores the more pervasive threat of sovereign debt. As Greeks are learning, the IMF (like many of the world’s central banks) will not accept default; it never has, and never will. Calling Greece “in arrears” didn’t do it any favours. The message is clear: you will pay. So although for a time Greece was comfortable, living beyond its means, it’s soon time to pay the piper.
Government Debt Isn’t Like Private Debt
Sovereign debt isn’t like a credit card, family budget, or a mortgage, no matter how many folksy analogies politicians make. No, government debt is something altogether more sinister. When a state borrows money, repayment is on the heads of its citizenry, without expiration. At one point in the Hellenic drama Germany’s war reparations were at issue. An infinitesimally small minority of the population could recall the war, and an even smaller subset — if any — was even remotely accountable. But the point is illustrated clearly: public debt is interminable.
This trait alone is toothless without its necessary complement: enforcement. Since government revenues are generated through taxes, and government debts are future revenues spent now, then debts are simply future taxes. While this is well-covered ground, most people seem to forget that taxes are one of the only debts for which non-payment results in prison time.
To make sovereign debt even worse, the citizenry doesn’t have the ordinary contractual protections of say, reviewing the terms, choosing how much to borrow, deciding on what to spend the money, or even agreeing to repayment schedules. Apparently, all of these choices are made at the “ballet-box.” But I’d wager that if you asked 100 people how to spend just $100, you’d get at least ninety-nine different answers. The problem gets worse, not better, when you have 300 million people and $1 trillion in debt on the table. In the end, there’s an incentive to pass the buck; the next generation can figure it out, we’re getting ours. But who will ultimately be forced to pay the bill? That demographic is unfortunate indeed, since they will be forced to pay exorbitant taxes without trappings of social welfare, just to make the interest payments on the largesse.
For them, “figuring it out” means a life spent working to service another’s debts, backed by the callous indifference of law. There’s a word for that, isn’t there? Oh, yeah: slavery.
Ian Daily is a Clerk at the Institute for Justice, pursuing his JD at UCLA, and studied political science and economics at USC. A Marine veteran, he has worked as Field Director of a congressional campaign and State Chair for Young Americans for Liberty.
His post first appeared at the Mises Daily.