Commentary on Greece

Something is rotten in the state of Greece’s economic policy. Budget deficits have been piling up on top of massive public debt already accumulated. The inability to find a conclusive budgetary resolution in this relatively small, previously uneconomically-important country just may tip the global economy into a recession. The global financial markets have become very jittery as a result. Greek default forces banks, mostly European-based, to come up with additional cash reserves. Less bank capital means tighter lending standards for even the most basic loans. It has some parallel to the American lending mistakes experienced by a subset of homebuyers via subprime loans that subsequently led to the worst U.S. recession since the Great Depression. Just as the U.S. economy has been showing some signs of job creation, another shock to the economy could easily erase those recent gains. As evidenced by the stock market movement of the past two weeks, the Greece induced shock is destroying the financial wealth of U.S. citizens.

In Greece, many government employees negotiated fat contracts in the past to permit them to retire around the age of 55 with nearly 100% of their final year salary. Promises are always very easy to make, and politicians of all stripes in every nation do it just about all the time. But economics says there is no such thing as a free lunch.

Greeks should be very proud of their national history. When the sun looked down on their country around five centuries before Christ, what delight it must have been to witness democracy in action, people conversing about political matters, next year’s crops, and the upcoming distance race in a city called Marathon. In stark contrast, the same sun in a couple of hours of earth rotation would have seen a more barbarous way of life and perpetual fighting in the dark corners of France and England where life was poor, nasty, brutish, and short.

Shift forward to the present, and we see Greek people flourishing in America. Greek-Americans have higher education attainments than a typical American and Greek-Americans earn about 20 percent more than the average American income. Although we have no hard verifiable data, anecdotal evidence suggests that Greek-Americans are likely to have one of the lowest foreclosure rates among various ethnic groups due to the Greek tradition of a bridal family buying a house for the newlyweds with a typically all-cash payment. Similar data regarding Greeks living in Canada, England, or elsewhere would not be surprising. Only the Greeks living in Greece are having major economic difficulties. It is almost reminiscent of the success of the Chinese diaspora a generation ago where Chinese people living outside of China had a higher income than the native born populations of where they were living, be it in the Philippines, Thailand, Malaysia, or North America. Only the Chinese living in China under Chairman Mao suffered one of the lowest standards of living in the world. So it appears that the problem is not with the common people, but the system and its false promises that could not be kept.

Greece is begging Europe to help redress their blown-out budget deficits. The German government is in a position to help, and considering doing so in order to save the euro currency. But they will be hard-pressed to give Greeks in essence free money (though it will be labeled as a bridge-loan), because Germans citizens who typically have to work well past the age of 60 are dead set against helping out a country determined to live the easy life and retire early.

The people of Greece need to understand they have been living with bubble wages and bubble entitlements. Happiness should never be expected to come from living off of other people. Happiness comes from hard work, and the only way to genuinely move out of dire straits is to fight the problem within and not look for outside help. That means drastically cut pension benefits for those retiring at 65 and provide virtually no incentive to retire sooner. Workers need to accept far lower wages in order to make Greek products more competitive abroad. It will not be a fun transition, but could be a step towards restoring honor to a country with a proud historical heritage. Every school child has learned of the toughness of the Greek character displayed by the Spartans and Trojans, just to name a couple of examples. It is high time for the people of Greece in 2011 to show they are willing to sacrifice to fix their problem and unwilling to live the soft life on the backs of the rest of Europe or the world.

Finally, never trust a politician bearing easy promises and ‘free’ goodies.

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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