On June 30th, Greece became the first nation in the European Union to default on payments to the International Monetary Fund (IMF). Greece, which has been struggling with financial difficulties for some time, refused debt restructuring and austerity efforts, resulting in the extreme measure that has impacted financial markets across the globe.
Greek national debt totals $358 billion, of which $273 billion is owed to various international bailout funds, including the IMF. Greece also owes financial debts to France, Germany, Italy, and Spain, countries that attempted to bring Greece out of financial ruin by requiring drastic spending cuts, especially to their social programs. Since its financial crisis began in 2009, the Greek economy has contracted by 25 percent. While the rest of the European Union urged Greece to make proactive cuts, Prime Minister Alexis Tspiras recoiled.
When Greece refused to make these cuts, electing a governing authority that promised to ignore austerity restrictions, European nations became unwilling to assist Greece any further. Greece was expected to come up with a $1.7 billion payment before July 1st to keep themselves in good graces with the IMF.
At the 11th hour, Greek authorities attempted a number of short-term financial restrictions, closing banks and ATM withdrawals to $60. This left citizens hurrying to stock up on essentials like powdered milk. Other European countries were not willing to give Greece the bailout it wanted, and at midnight it became the first European nation to default on an IMF loan. On Wednesday, the European Union felt a financial ripple as European company stocks took drastic hits. Greek voters soundly defeated a referendum on Sunday that would have imposed greater measures of austerity.
Americans can learn from the Greek default. The United States faces an $18 trillion national debt and a federal budget deficit of $439 billion, brought on by unprecedented government spending. As global financial experts struggle to pinpoint the exact genesis of Greece’s troubles, it’s clear excessive borrowing and unsustainable spending habits are to blame.
The United States, with a debt to gross domestic product ratio of 71 percent, may have time before it faces a Greek-style economic collapse, but it’s certainly repeating Greece’s financial mistakes. Greek debt levels are at around 177 percent of their national GDP, but just 25 years ago, they were closer to the same levels as the United States. In the same amount of time, U.S. debt ratio levels are expected to rise to an unstable – and hauntingly familiar – 156 percent, based on conservative estimates released by the Congressional Budget Office.
If that seems outlandish, consider that the national debt was only $10 billion with President Barack Obama first took office. If his administration’s spending continues at current rates, it will be double that when he leaves office, $20 billion. The spending problem is not limited to a single party, however. Democratic and Republican administrations have actively contributed to the national debt, and the current Congress has shown little interest on limiting expenditures. If Congress – and the rest of the federal government – leaves spending levels as they are, debt levels will soar even higher. Already, programs like Social Security are facing individual bankruptcy.
We may not be facing Greece’s full-scale financial meltdown, but if spending isn’t restricted, and quickly, it’s only a matter of time before Americans find themselves facing long lines at ATM’s and limits on their withdrawals, as their elected leadership try desperately to pull them out of ruin.