As I write this column, Greece has, apparently, defaulted on its interest payments due to the International Monetary Fund (IMF). I say apparently because while the Greek prime minister has rejected the terms offered by the ECU for another bailout injection, Greece goes to the polls on Sunday to determine whether the population wants to accept these terms or not. Meanwhile, I came across another interesting statistic of real surprise: 70 per cent of Greeks have stopped paying their mortgages, or any of their other bills for that matter. It seems that the best thing one can own in Greece is a prepaid airline flight ticket out of the country.
Regardless of what happens in the short term, the reality is that Greece is an economic basket case that has walked a tightrope of bankruptcy for years. Nor is Greece alone with this dilemma. Portugal, Italy, Spain, Iceland and Ireland are other European nations that are also staring into the abyss.
Potentially even worse is the plight of the big industrial nations of Europe – Great Britain, France and Germany are all carrying a staggering level of debt. For example, while many experts talk endlessly about the financial plight of the U.S., a few figures may surprise you. In the U.S., net foreign debt is equal to about 104 per cent of the nation’s Gross Domestic Product (GDP). Compare this to Germany, where the percentage is 145 per cent, France comes in at 222 per cent and Great Britain boasts an unbelievable rate of 404 per cent. The gold medal, however, has to go to Luxembourg, with a staggering rate of 3,443 per cent. For comparison purposes, Canada is at 92 per cent.
Of course, there are many ways of measuring the financial integrity of any nation, and some nations are considered very wealthy, although their financial statistics appear quite dismal (Denmark, Sweden, Norway and Switzerland come to mind). Meanwhile, it’s also been generally accepted that most Central and South American nations, and most African nations are hopelessly mired in bankruptcy, whether or not we care to use the word. For most of these nations, they are effectively unable to pay the interest on their debt, so the international community lends them more money so they can pay their interest on the old debt.
This would be akin having a $500,000 mortgage on a home that is worth $350,000, and each month your mortgage company gives you $2,000 so you can make your mortgage payment, and they then proceed to add this $2,000 to your existing mortgage, which is already higher than the value of your home. This scenario never happens – and for good reason – mortgage companies need their customers to make their payments, and any individual who can’t prove his or her ability to make payments never gets a mortgage in the first place. This is perfectly logical, however, when it comes to lending money to nations, logic apparently no longer applies.
I don’t mean to sound alarmist – after all, a Greek default on its IMF debt is not the end of the world. Life will continue, the sun will still rise every morning, and there’s real hope the Oilers could have a pretty good season. But the fact remains that the international financial community has created this mess, they have propped up nations for a ridiculously long time, and it’s becoming painfully apparent that they really don’t know what they are doing.
For too long, these financiers have relied on lucky rabbit feet, crossed fingers, four leaf clovers, and an unending faith in miracles. Now, time’s up. Greece may be the first default, but it will not be the last. An old Chinese saying “may you live in interesting times” appears ready to occur. Be prepared.
Brian McLeod is a St. Albert resident.
