As Congress debates the need for credible financial reform (see above), it should consider the stock market plunge around the world triggered by Greece’s economic crisis. The euro crisis should prove the efficacy of stronger and more transparent banking and investment rules — for governments as well as big banks.
Greece got into deep financial trouble by allowing Greek taxpayers of every stripe to become blatant tax-cheats, and by disguising its soaring government debt by gambling in the same market casino as big banks and claiming its prospective returns as actual revenue. The recent financial implosion exposed its virtual bankruptcy. And the ripples from the extended squabble among its Euro-zone partners over a bailout for Greece have seriously undermined market confidence in the euro.
Though Greece accounts for less than 3 percent of the euro zone’s GDP, the measure of the resulting euro crisis is amply visible. Just months ago, one euro cost $1.60 cents. Over the past several weeks the euro’s value has slumped to $1.25. Some observers predict it will slouch to parity with the dollar by the end of the year.
There are numerous lessons in both the euro’s decline and Greece’s bankruptcy. Some relate mainly to Greece’s long fiscal laxity and declining economic competitiveness. Some relate to mounting government debt in the euro zone and the absence of an effective central bank superior to the individual economic policies of all the sovereign governments that have switched to the euro.
And others relate to the failure of Germany, the euro’s richest member, to agree rapidly with its euro partners to support a Greek bailout package before the contagion of investor fear took hold and began ravaging euro-denominated government bonds.
Taken together, however, the parallel problems in the Greek-euro debacle present a larger, more simply stated lesson for Americans and Washington: The nation’s economy can’t remain strong without a competitive economy, sound rules for financial markets, tax equity and government debt.
Americans have long blinked on educational investment, and most watched passively as the last Bush administration doubled federal debt (to $12 trillion) while running two wars on an off-the-books credit card and simultaneously handing out exorbitant tax cuts to the rich.
George Bush’s term-ending bank bailout and the Obama administration’s economic stimulus package stanched the damage. But the economy remains fragile, and inseparably linked to our euro-investment partners (think Alstom, VW and Wacker Chemie in Bradley County). Retreating from sound financial regulation, ending economic stimulus too soon, and failing to keep up public, tax-related investments in public infrastructure — the current economic medicine proposed by Republicans — would wrongly mirror the Greece-euro problem.
For our long-term health, the nation simply cannot afford the GOP approach.