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Greek crisis is more than just a simple divide

Unless somebody gives in beforehand, Greeks will vote Sunday in a referendum on accepting punishing austerity measures in exchange for a bailout of its wobbly financial system. It’s also something of a game of chicken over the country remaining in the EU.

Much has been written about the crisis in Greece, most of it from the perspective of profligate Greeks having to pay the piper for years of overspending using borrowed money. That’s true, but only part of the story. The leaders of the country did fudge the numbers to gain entry to the EU, going on a borrowing binge shortly thereafter, much of the money lining the “right” pockets and used to buy the electorate (sound familiar?).

Yes, Greece is in a bad financial jam. Yes, much of the problem is self-inflicted. No, the Greeks weren’t (overly) profligate spenders. The problem, however, is a basic one: they spent more than they brought in. The spending wasn’t exorbitant, but tax revenues are so low that deficits were a given.

Officially, Greek tax rates are fairly high, even by European standards. But Greeks routinely find ways of avoiding taxes, enforcement is spotty and bribery is reported as rampant. Those Greeks in the top 20 per cent of earners pay virtually nothing in the way of taxes, the result of old deals extending back to the country’s days as a military junta and the widespread tax evasion in place today.

So even though Greece falls into the middle of the Eurozone pack with it comes to government spending, its tax collection rates rank near the bottom. And despite what we would view as generous social programs, Greeks have one of the lower per capita incomes in Europe.

Debt now stands at 175 per cent of GDP, much larger than other Western countries. The real pain began with the 2008 recession caused by the finance industry, with the bailouts coming into play two years later. Each fresh infusion of money simply keeps the financial system afloat, helping the country meet payments for previous borrowing. It’s untenable, and everybody knows the money can never be fully repaid.

For Prime Minister Alexis Tsipras, the goal is to have some of the debt written off. The bankers on the other side and the politicians led by German Chancellor Angela Merkel aren’t having any part of that. Having been elected earlier this year on an anti-austerity platform, Tsipras feels he can’t agree to the conditions for another bailout, prompting Sunday’s vote.

His stance is understandable. Apparently, Greece’s faltering economy is to be helped by deep cuts to spending, support programs and employment. Seems counterintuitive, and it is. Unless a new deal is struck, Greece either falls out of the EU, causing immediate harm, or it continues the death of a thousand cuts, with the harm phased in over the years as the standard of living falls and unemployment rises – it’s already at 25 per cent, 50 per cent for young people. Suffer now. Suffer later. But suffering is the prescription. Unless another way is found.

It’s a compelling story, one with real human consequences. And one with lessons we can learn even here where, for alarmist reasons, the comparison has often been made. We’re not in the same situation financially, but certainly Ontario is already seeing how government waste and corruption, coupled with strategies to buy votes today with the money of future Ontarians, really does limit the proper function of government. Likewise, it undermines the legitimacy of government, just as it did in Greece.

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