Greece’s six-year debt drama, which hit another plot climax last week, provides a stark cautionary tale for adherents to debt and deficit economics.
With an economy estimated at US$200 billion, Greece is not a major eurozone player. But the prospect of a country defaulting, sinking into bankruptcy and ultimately abandoning or being cut loose from the euro is seriously unsettling for world equity markets.
It’s also not the only country in the European Union facing significant economic challenges. If other EU members were to join the Greek economic tragedy being played out on the world stage, it would be bad news for far more than the EU.
But the reality in this drama is that living beyond your means can and should have consequences.
The pending Greek collapse is neither sudden nor unexpected.
As in other regions and jurisdictions, Greece’s pension commitments to its public-sector union and government workers have become increasingly unsustainable. Six years ago, as The Economist has pointed out, the country’s pension commitments were among the highest in Europe and allowed contributors to retire with full pensions in their late 50s.
The willingness of countries to run deficits and ballooning debts and have them financed by central banks has exacerbated the trend of kicking the can of economic accountability down the road for future generations to deal with. But at some point the bill has to be paid, and the longer it’s left, the more painful the consequences.
In Canada, consumer debt continues to rise.
While a recent Manulife Bank of Canada debt survey pointed out that Canadian homeowners are reducing their debt, the country’s consumers remain on a spending spree.
According to Equifax’s National Consumer Credit Trends Report for 2015’s first quarter, Canadian consumer debt hit $1.5 trillion, up 6.9% from the same time a year ago.
Greece’s economic collapse should be fair warning that habitual overspending, be it by individuals, companies or countries, is a short-sighted and ultimately costly business plan.
