When the Euro was formed countries agreed to limit their annual budget deficits — a scheme devised to ensure that no country would face a collapse or need to be bailed out by the others.
Obviously that scheme failed, as evidenced by Greece.
Part of the problem may have been that Greece hid its debt (through swaps or whatnot), though apparently this was so well-known and so widespread among EU countries that it can hardly be seen as central to the Greece issue.
The mistake that euro leaders made was presuming that by managing deficits everything else would fall in place.
But this has always been a mistaken idea.
Countries that play by the rules can collapse, and yet countries that run up wild debts (see: the US, Japan, and Australia) can remain stable for a lot longer than what maths would suspect.
The issue, then, is not debt but politics.
The US, Japan, and Australia manage sky-high debts because very few question the stability of their political systems (though the US has been coming under fire on that regard in recent years).
The most damning thing about Greece is not its deficits but rather its quasi-banana republic-like system of government, with massive corruption and 30% of the population working for the public sector.
It’s not like Western Europe in its political habits and that’s where we’re seeing it chafe up against the rest of its peers. No treaty or hard caps on spending can solve this problem, which is why the problem opened up like this, and why the problem won’t be solved even if Greece (through a bailout or whatnot) manages to roll over its debt.
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