Daily Austerity Watch: Greece Burns, Debt Ceiling Nears

Greek Prime Minister  George Papandreou is on a quixotic quest — to borrow a metaphor from another cash-strapped European country — to convince the world that his country will not have to restructure its debt.  The trouble is that not even the stray dogs in Athens believe him.

In fact, 46 out of 55 economists surveyed by Reuters predicted that Greece will have to restructure its debt in the next two years.  The Greek press is reporting that the government is considering a “velvet restructuring” that would include a voluntary agreement to extend repayment terms, according to The Guardian.    Maybe creditors will go along with a restructuring because the alternative of a default is pretty horrendous.   There is a growing political isolationism in Europe that argues that heavily indebted countries such as  Greece, Ireland and Portugal should sink or swim on their own.  Regardless, debtors don’t get to make these calls. Creditors do.

Papandreou’s job keeps getting harder.  Unions are calling for a massive strike on May 11, which may cripple the country and further undermine the already-faltering faith of international capital markets.   On Friday’s first anniversary of the bailout from the International Monetary Fund and the European Union, Papandreou lashed out at the debt ratings agencies for   “seeking to shape our destiny and determine the future of our children.”   The Prime Minister is apparently furious over reports that a Citibank trader spread rumors about a restructuring that the government says were untrue.  Citibank denies any wrongdoing, the newspaper says.

Earlier this month, Papandreou announced a plan to unload $110 billion in asset sales and austerity measures to trim Greece’s massive budget deficit.   The plan calls for $26 billion in deficit reduction and another $50 billion in asset sales by 2015, according to Bloomberg News.    The government is seeking to unload stakes in the country’s phone, power and gas companies as it “dreams the impossible dream”  to slash debt from its peak of  159 percent of gross domestic product in 2012.

When it comes to the $14.3 trillion  debt ceiling, some  members of Congress are acting like spoiled children turning their heads in horror after being asked to eat their vegetables.   It would be sad if the potential financial consequences were not so horrendous.

Writing in the National Review,  Sen. Mike Lee (R-UT) argued that the talk of the disastrous consequences of Uncle Sam maxing out his credit card by May was just that — talk — designed to obscure the nation’s serious debt problem.  He will oppose raising the debt ceiling until the Hatch-Lee Balanced Budget Amendment is passed.

As history suggests, the strategy of creating a debt-ceiling boogeyman works every time, and, without a balanced-budget amendment in place to stop it, the cycle continues. Elected officials who have grown dependent on perpetual deficit spending will again quickly reach the limit on each credit card the taxpayers reluctantly give them. Having maxed out one card, they habitually demand another, using threats of fiscal Armageddon to extort taxpayers into giving them “just one more.”

Lee is missing the point here.  The debt ceiling is money that the U.S. has already promised to spend.  If the U.S. reneges on its promises, the country’s credit will be in tatters.  Confidence in the U.S. government may never be the same. Ironically, the Ryan budget plan touted by the Republicans projects the debt ceiling to be $23.1 trillion to 2021.

–Jonathan Berr