Australia is not Greece, but as the Greek sovereign debt crisis reverberates we should ponder its general lessons. From our distant vantage point, some 15,000 kilometres from Athens, most Australians might be bemused about recent developments in Greece, whose population of 11 million has a public debt burden of more than 170 per cent of its gross domestic product.
While it is true we are not Greece, not in economic, fiscal, social, cultural, political, legal, historical, or in any other, terms, the economic and financial "slow train wreck" in the birthplace of democracy provides valuable perspective for Australia, and indeed every other country.
Before fleshing out the consequences of the Greek crisis for Australian economic policy management, let us examine how the Hellenic troubles have unfolded.
Greece maintained respectable improvements in material living standards for much of the 20th century, with its real gross domestic product per capita averaging 2.7 per cent from 1929 to 1980. The average per person growth rate in Greece exceeded that in Sweden (2.6 per cent), Germany (2.5 per cent), Canada (2.3 per cent), Australia and the United States (2 per cent), and Britain (1.7 per cent).
But from 1981 to 2010, according to data supplied by researchers affiliated with the late economic historian Angus Maddison, Greek real GDP per capita slumped to an average of 1.7 per cent, while in most of the other countries cited growth accelerated.
How did Greece regress from being one of the better economic managers in the developed world, even amid intense political turmoil, to an inglorious basket case? Answer: It fervently embraced the Age of Entitlement, on steroids.
Less than a year after being granted membership to the European Community in 1981, Greece elected the first socialist government in its modern history, under the leadership of Andreas Papandreou's PASOK party.
In a few short years, Papandreou radically extended the Greek welfare state, including a national health service, indexing pensions and raising welfare payment rates, and even subsidising tourism for lower-income families.
PASOK government regulations made it difficult to retrench public servants and other workers for poor performance, contributing to a growing reluctance by employers to hire, thus leading to a growing unemployment benefits bill.
This public sector enlargement project was erected on the quicksands of a less diversified formal private economy, based largely on agriculture and tourism, but with a very large, untaxed shadow economy ranging between 25 and 30 per cent of Greek gross production value.
The growth of the welfare state in Greece quickly fostered a culture in which transfer payments were widely conceived as a social right, rather than temporary assistance to meet genuine need.
The welfare-as-right culture could be seen through the active political resistance by current and future pensioners against even modest reform proposals winding back extravagant pensions paid to retirees under the age of 60. Swift erection of a large, but unaffordable, welfare state also fundamentally altered the Greek political culture, with non-socialist political parties becoming all too acutely aware that any hint of fiscal consolidation, no matter how reasonable, becomes a political liability.
That meant that Greek politicians, regardless of political stripe, were complicit in years of reckless policy actions raising government spending from 29 per cent of GDP in 1980, prior to Greek EC entry, to almost 60 per cent in 2013. Recurrent budget deficits induced by government overspending spilled over into rapidly increasing national public debt, from 28 per cent of GDP in 1980, to 175 per cent in 2013.
As Greek legal scholar Aristides Hatzis explained in a recent reflection on policy developments in his home country, "it's not easy for a single country to serve as a textbook example of so many institutional deficiencies, rigidities, and distortions, yet the Greek government has managed it".
And, so, after flouting basic economics and prudent budgetary management standards for decades, Greece has met its fork in the road, with socialist Prime Minister Alexis Tsipras playing a high-stakes game of chicken with the European Union and international capital markets.
Greece recently became the first developed country to default on a loan from the IMF, and whether the country will renege on the scheduled repayment of a European Central Bank loan due on July 20 is uncertain.
Australia is by no means facing a foreseeable Greek-style situation in which creditors are threatening to withhold additional loans from public sector agencies because of concerns about the creditworthiness of government. But we, and most other Western countries, do face broadly similar demographic, economic, and fiscal trends heading in the wrong direction.
These include an ageing population largely uninvolved with the labour force, an underperforming economy dragged down by anti-growth regulatory and tax settings, and political overspending ramping up debt burdens.
In terms of debt, recent analysis shows that existing Australian public debt is actually unsustainable right now, when we account for our sluggish economic growth, interest repayments, deficit budgets, and our recent heavy borrowing record. As illustrated by the Abbott government's so-called "clearing away the barnacles" of perceived political dilemmas, there is no longer any great impetus for cutting government spending and reforming the economy.
Reform reticence appears to be the political order of the day when entrenched special interest groups, whose benefits are probably being paid for by debts imposed on future generations, successfully get between an aspiring political reformer and much better outcomes for this country.
Until the late 20th century, economists were fond of comparing Australia to another traditional agrarian outpost, Argentina. This comparison remained somewhat valid and interesting until the Southern American country's flirtations with vigorous socialism and violent coups, which led to its descent down the international league table of prosperity.
Argentina has a reputation for debt repudiation, and is now being compared with Greece, because of the latter's new-found zeal for not paying its dues. Surely, the last thing Australians would want is for our governments to keep sleepwalking, step by step, toward a situation in which we're bracketed once again with Argentina, and for that matter with Greece, but this time as a "terrible trio" of failure.
To avoid that unpalatable, if distant, prospect, we had best stop living beyond our means and get our economy moving again.
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