Why Greece is a worry
Greece is at the eye of the storm as we write. In recent years many of you will be familiar with problems derived from property bubbles, particularly in the UK, US, Ireland, and Spain – Greece is different. Their problems are a result of a bloated public sector, unsustainable pension promises, and a country-wide reluctance to pay tax supported by institutionalised corruption, from the top down. Here are three of many examples:
- 20 years ago (these are not new problems) their own finance minister said of their railway, it would be cheaper to put all Greece’s rail passengers into taxis – it is bankrupt beyond comprehension
- Greek state schools are one of the lowest ranked in Europe, but employ 4 times as many teachers per pupil than top ranked Finland
- the Greek retirement age for jobs classified as arduous is as low as 55 for men and 50 for women. “Arduous” jobs include hairdressing and radio announcing
The biggest problem the Greek banks had was lending to a corrupt Greek government. In this case it wasn’t the banks that sank the Greek government (as was the case in Ireland and elsewhere) – rather it was the Greek government that sank the banks.
The outstanding Greek government debt is now at a level from which no nation in history has emerged without defaulting – but for Britain at the height of its empire, when it was growing. In stark contrast, Greece is a serial defaulter. The Greek city-States first defaulted over 2,000 years ago, and they have been unable to pay their debts for 150 of the last 200 years – quite a track record.
Sadly even if Greece were to default now, it remains fundamentally unsound - unless and until there are huge changes in the tax and pension system, and their attitude to paying tax at all.
(Taken from TopFunds Guide July 2011)