Newspaper article The Christian Science Monitor

Debt Crisis 2.0: Facing Default, Greece Must Ditch the Euro and Rethink Its Welfare State

Newspaper article The Christian Science Monitor

Debt Crisis 2.0: Facing Default, Greece Must Ditch the Euro and Rethink Its Welfare State

Article excerpt

A year after being bailed out, Greece is on the brink of default. To save itself, it must dump the euro and stop coddling its citizens. European nations must give up the belief that the benefits of capitalism can be accomplished without individual responsibility, risk taking, and rewards.

Just a year after wealthier European governments rescued Athens from default with $157 billion in loans, Greece is slipping into crisis again.

After seeing its credit rating sharply downgraded on Monday, and unable to meet deficit-reduction targets laid down by Germany and others, Greece is getting desperate - and Europe is getting anxious.

Officials are floating euphemistic phrases like "voluntary restructuring," but make no mistake: The painful concessions Greece would probably require from creditors amount to a default. If that happens, the broader European economy will be on its knees, its credibility shattered. So what should Greece do?

The only real solutions are for Greece and other low-income countries to abandon the euro and for Europe as a whole to rethink its welfare state.

Cutting government stimulus or raising taxes further is not viable. Either would slow growth, and growth is already too anemic in Greece and other troubled European countries to support pensions and other social benefits.

The dangers of excessive coddling

In a modern market economy, only ideologues do not acknowledge the necessity for balance between welfare - aid for the truly needy and aged - and efficiency - incentives to work and invest productively. Excessive coddling and taxation discourage people from fully productive lives, innovation, and building wealth.

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Multiyear unemployment and huge severance benefits, guaranteed healthcare for able-bodied citizens who refuse to work, and other features of Europe's sympathetic face of capitalism surely cross those lines. However, like an alcoholic that must quit the bottle, Europeans have avoided genuine cures for decades and instead embraced bogus elixirs to rekindle growth.

The 1992 Maastricht Treaty, which considerably harmonized product and safety standards and methods of taxation across the continent, was supposed to remove untold barriers to growth. It didn't, because European labor laws and social benefits still make individual ambition and investment in Europe about as sensible as my still yet unfulfilled dream to be Italy's premier.

A bogus elixir

The single currency, the euro, introduced in 1999 to facilitate commerce across borders from Ireland to Greece, was heralded the next great elixir.

The single currency addressed a problem that didn't truly exist and created new ones. Prior, the European Currency Unit (ECU) linked at fixed rates the national currencies of many of today's euro zone countries. …

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