The West begins to look like yesterday, while the East begins to look like tomorrow.
They are called the PIGS — Portugal, Ireland, Greece, Spain. Whatthey have in common is that all are facing deficits and debts thatcould bring on national defaults and break up the European Union.
What brought the PIGS to the edge of the abyss?
All are neo-socialist states that provide welfare for poor people,generous unemployment, universal health care, early retirement andcomfortable pensions. Most consume 40 percent to 50 percent of theirgross domestic product annually, a crushing burden on the privatesector.
Dying populations is a second cause. After two world wars, theEuropeans lost their faith and embraced hedonism and materialism, ladolce vita. Large families fell out of favor. Women put off marriageand babies, and went to work. Birth control and abortion were madereadily available in every country and, if not, just across the border.
For 30 years, the fertility rate of Europe has been below the 2.1children per woman necessary to replace a population. In Russia andUkraine, a million people disappear yearly. In Western Europe, thepassing of the native-born goes on quietly, as Third World peoples cometo fill the empty spaces left by the aborted and unconceived.
Turks are in Germany. Pakistanis, Indians, Arabs and Caribbeanpeoples are in Britain. Algerians, Tunisians and Moroccans occupy thesouthern coast of France and the banlieues around Paris.
These newcomers have neither the education nor skills of theEuropeans. Hence, they earn less and contribute less in taxes, butconsume more per capita in social benefits.
As the number of young entering the European labor forces shrinks,the number of seniors and aged grows. And thanks to advances inmedicine, these retirees live lengthening lives. Thus the burden ofpensions and health care grows steadily and the need for higher taxesand larger worker contributions increases.
Then there is globalization. In Europe, wages and taxes are high,regulations heavy, unions strong, and lawyers ubiquitous.Manufacturers, to cut costs, have been outsourcing production to wherethe labor is cheap and abundant, the unions are nonexistent or weak,and health, safety and environmental regulations are lax. Welcome toChina.
Greece is the first European nation to hit the wall. As an EU memberstate, she is obligated to keep her deficit to 3 percent of GDP. Butthis year’s is 12.7 percent, and Athens needs to issue $75 billion inbonds alone to finance the deficit and roll over debt.
The markets, however, are rating Greek bonds as risky bonds. Toborrow, Athens must pay more than twice the interest rate Germany pays.Faced with strikes by public employees and students, Athens appears tolack the political will to make the cuts necessary to bring the budgetback toward balance.
As Portugal, Ireland and Spain gaze on, Greece approaches a momentof truth. Should she default, their bonds, too, will plunge in valueout of fear of a copycat default, and the interest rate they pay wouldalso rise. They, too, might then take the Argentine road.
The EU’s crisis would then be like a crisis in the United Statesshould California default on its state bonds and interest rates onother municipal bonds surged to double digits.
Is there a way out?
One option is for the EU to bail out Greece with a huge loan. But ifGreece cannot meet her debt obligations now, how could she pay back theloan? And if the EU cannot compel Greece to make deep budget cutstoday, what leverage would the EU have after bailing out Athens andremoving today’s pressure on the government?
A second option is to call in the International Monetary Fund, whichimposes tough conditions on nations receiving IMF loans — the ThirdWorld therapy. But problems would arise here, too.
First, it would be an admission that the EU cannot manage its ownhousehold. Second, the largest contributor to the IMF is Uncle Sam.
Why should America bail out Greece, when the EU is larger and richerand did not help bail out California in 2009? The stimulus bill didthat in 2009, to which Europe contributed nothing.
Where Greece is at today, however, we shall all arrive tomorrow.
In every Western nation, government is growing beyond the capacityof taxpayers to bear. Deficits and debt are surging. Not enoughchildren are being born to replace parents. The immigrant poor whoconsume more than they contribute are coming to take the empty places.Seniors and elderly are growing as a share of the population. Companiesare saying goodbye to the West and moving offshore to low-wage lands.
The West begins to look like yesterday, while the East begins to look like tomorrow.
The West is approaching a crisis of solvency and of democracy. Weshall see if democracy, which grew popular lavishing benefits upon all,is strong enough to start clawing them away. Or will democracy try tokeep piling the burden on the producers until they rebel or depart?