But what’s happening in Europe has implications for us all
In Europe’s recent struggles with excessive government debt and bond markets run amok, there is a lesson for everyone. If painful decisions are punted too far down the road, the consequences could be disastrous.
It is too early to tell what the endgame for Greece, the European Union, and the common currency will be (as of this writing, rioters in Greece’s streets are protesting austerity measures brought about by an EU led bailout of the country), but a failure to recognize the lessons in this sad story on the western side of the Atlantic could one day lead us down the very same road. Dismissing this possibility – distant, for the moment – out of hand only increases the likelihood of our own debt-holders one day turning into a school of piranhas.
This side of the Atlantic
Today, Canada’s finances are in the best shape of all the developed countries and our banks have weathered the recession better than those of any other wealthy nation. Though this does not put us at the head of a particularly virtuous class, it does underscore the inherent strength of our way of doing business. As such, it is to be celebrated.
Canada’s weight on the global financial stage increased dramatically over the course of the crisis of 2007-2009. However, justified congratulations in the short term can too easily lead to dangerous complacency down the road with regards to our governments’ finances.
Winning the title of fiscal champions still means that our federal government will rack up more than $150 billion in accumulated deficits over the next five years – by its own calculations. This sum, though vast, is dwarfed by the oceans of red ink flowing out of Washington.
The U.S. federal government is currently predicting trillion-dollar deficits almost as far as the eye can see. Projections for U.S. government debt in the next decade practically defy human understanding. If something drastic does not soon happen, with regards to that country’s long term fiscal plan, those holding all that U.S. debt will undoubtedly begin to wonder whether or not Washington will have the wherewithal to pay it back.
Take heed of Greece
The seeds of Europe’s current troubles were sowed with similar musings not so long ago, and fertilized with European governments’ inability to make tough choices for long term fiscal health. Blaming the current mess on “speculators” conveniently washes the hands of spendthrift governments, paralyzed into inaction by the slightest whiff of street marches.
We must not forget that backing away from the abyss will be painful for Greece and its residents. Taxes will rise and services will be cut. However, the alternative – debt default by a Euro member – could spread contagion across the continent and the world that would seriously undermine the nascent recovery. For Greece, it is too late to act before the storm and the pain will be a severe consequence. For the rest of us, we ignore this lesson at our peril.
The problem facing our fiscal situation, and that of so many countries, is the disconnect between its time horizon and that of governments. Solving long-term budget issues requires thinking far beyond an election cycle. It is understandably difficult for political leaders to make hard choices today that will not bear fruit for decades.
Changing our path
The truth of the matter is that even in Canada – current global champion of fiscal rectitude – we have an ageing population and future government liabilities that far outstrip Ottawa’s ability to pay for them under the present-day fiscal framework.
Sadly, this reality does not feature regularly on the 24-hour news cycle, obsessed as it is with overblown scandal and serial short-termism. What are the answers to these complex questions? I don’t know, but pretending the problem does not exist is what got Greece to where it is today.
In the end, politicians will respond to the concerns of their constituents. If we as an electorate can heed the lessons of the present-day Greek tragedy unrolling before our eyes and compel those who lead us to make difficult yet necessary decisions for the long-term fiscal health of the country, perhaps we can avoid following the same destructive path.
