In the first two weeks of June, we might well witness the demise of two of the biggest socialist experiments in history. One involves the welfare state in Greece and the other involves the centrally planned monetary unit known as the Euro.
By now, most everyone is familiar with the financial crisis in Greece. For decades, Greece has had an extremely generous welfare state, just like the United States does. Social Security, Medicare, Medicaid, public schooling, government pensions, subsidies, and more. It’s all there in Greece, just like it is here in the United States.
Keep in mind that the only way for the government to give people money is to first take the money from other people.
Theoretically, it’s possible to have a welfare state where the welfare disbursements equal the tax revenues. But that’s not what happened in Greece. Like the United States, the monies being spent started exceeded the monies being collected with taxes. And like the United States, the Greek government began borrowing the difference.
Over time, the amount of debt owed by the government grew and grew, just as it has here in the United States. The debt got so large that the government finally was unable to pay its bills, service its debt, and continue making welfare disbursements.
In a word, the Greek government was busted. Bankrupt. Broke.
If the Greeks had had their own currency, they could have just done what the U.S. government has done for decades — print the money to pay off their debt. That’s what inflation is all about. That’s what the Federal Reserve is for. That’s why the value of the U.S. dollar is so much lower than it was, say, 50 years ago.
But the Greeks did not have their own currency. Many years ago, Greece joined the Eurozone, which meant giving up its own currency and using the Euro, the monetary unit created and planned by various countries within the European Union.
The premier EU member is Germany, a country that has long been known for sound money. The Germans refused to permit Greece to inflate and debase the Euro as a way to avoid paying its debt.
Instead, the Germans (and other EU members) insisted on what is now known as “austerity,” a reform scheme that entails a reduction in welfare-state disbursements and an increase in welfare-state taxes. In return for “austerity,” the EU has agreed to bail out the Greek government with infusions of cash that will enable it to avoid defaulting on its debt.
But Greece recently elected a leftist regime that ran for office on the principle of “no more austerity.” Greece simply wants to be relieved of much of its huge indebtedness. The Germans, on the other hand, are refusing to bend. They’re insisting on repayment. If someone doesn’t blink before the first couple of weeks in June, it’s virtually inevitable that Greece will default on its debt payments.
No one knows exactly what that will mean, but there are lots of people predicting that it won’t be pretty. For one thing, Greece will be evicted from the Eurozone, which means no more use of the Euro and a need to return to its original currency. There is no way to predict the extent of that monetary crisis.
But it’s also unclear whether the crisis will lead to the unravelling of the Euro, which, of course, is just a government-created, centrally planned monetary unit and monetary system.
It’s still possible that the parties will reach a deal. But if they don’t, prepare to witness a fascinating monetary crisis, just one more fiasco in the history of socialism.