The end of populism and the Greek crisis

Greece’s largest public and private sector unions began a 48-hour general strike Wednesday, and more than 100,000 people joined anti-government protests in Athens. Fire bombs hurled by protesters set police guard posts on fire and street battles between demonstrators and police erupted near the Greek parliament. Government agencies, schools, hospitals and banks were closed and most flights at Athens International Airport were canceled. Foreign tourists remain stranded and many Greek cities are grappling with rising piles of garbage due to strikes by trash collectors that have been continued for more than 20 days.

Union members and protestors chanted, “We don’t need bailouts” in protest of the Greek government’s new austerity measures that will cut the number of public officials and pensions. Athens came up with such measures to continue receiving bailout funds from the International Monetary Fund and the European Union. In May last year, when the country was on the verge of sovereign bankruptcy, it asked for bailouts worth a combined 110 billion euros (151 billion U.S. dollars) for four years and has since received 65 billion euros (90 billion dollars). The money include taxes from people in each European country. The EU will find no cause for continuing to provide bailout funds if Athens breaks its promise to implement austerity measures. For its part, Greece will go under if the EU withholds 8 billion euros (11 billion dollars) in aid within this month. Despite this, Greeks oppose their government`s austerity policy.

Athens’ new austerity measures were narrowly approved in the first parliamentary vote on Wednesday. If such measures pass the second vote on Thursday, they will be implemented. If EU leaders confirm Greece`s commitment to austerity, they will discuss cutting the country`s debt in a meeting on Sunday. Experts say, however, that Greece will likely not avoid sovereign bankruptcy. Unless the Greek people, who enjoyed welfare on back of growing debts due to a reckless race for welfare policies by politicians, get rid of moral hazard, bailouts and debt readjustment will not help their country overcome its fiscal crisis. General strikes and protests will only aggravate the situation.

Aristides N. Hatzis, a professor at the University of Athens who visited Korea in August, said, “The Greek economy took a downward path due to welfare populism and excessive regulations.” The crisis in Greece has spread to all of Europe and is threatening the global economy. Compared to Greece, Korea is fiscally sound but its debts are increasing fast. Though budget expansion is expected due to the rapidly aging population and eventual reunification of the two Koreas, Korean politicians are racing to expand welfare. Growing expectations by the people for excessive welfare, which cannot be met given the country’s fiscal capability, will render the government unable to manage its debt down the road. The situation in Greece teaches the lesson that “a loosened belt cannot be tightened again easily.”