Revelations on Greece’s fiscal improprieties came as no surprise to any honest observer of the political sham of European monetary relations. In published comments I made on the emergence of the euro, I raised questions about the Stability and Growth Pact that set debt & deficit limits on euro-zone governments.
At that time, I pointed out that torturous accounting gymnastics were being employed to allow high-debt countries to fake their way into the European monetary union. These included Belgium, Greece and Italy with public-sector debts exceeding 100% of GDP, far higher than the 60% limit. (France, Germany, and Italy exceeded the 3% limit on the deficit-to-GDP ratio upon their accession.)
Of course, no public officials will be brought to book for fraud or falsification of documents that would have surely led to prison terms if carried out managers of a corporation. Nor will be any Eurocrats be held accountable for willfully ignoring the ugly realities of Greece’s serial violations.
Radical solutions like default or leaving the euro-zone to allow devaluation of a new currency or using currency debasement to reduce public-sector debt (“inflation”) seem unlikely. And sensible solutions that involve deep cuts & real curbs on public-sector spending are probably impossible.
Instead, the Greek fiscal mess is likely to be resolved through subsidies & loan guarantees from the European Union or handouts from the International Monetary Fund or both.
But providing taxpayer-funded remedies rather than market-based corrections will put additional burdens on the private sector while the public sector remains overstaffed & inefficient. And to add injury to insult to the private sector, the Greek government will be heralded as acting responsibly if it imposes new taxes or raises rates on existing taxes.
Alas, none of these steps will boost growth or increase jobs in the private, productive sector. And so it is that this Greek tragedy will become farce.