The problem with out-of-control government spending is that, at some point, somebody has to pay for it. Governments tend to ignore that fact, but Greece, over the last few weeks, provided a reminder that it cannot be ignored forever. The drama of street protests in Athens and angry remarks from leaders across Europe is largely an exercise in determining who will pay for years of Greek profligacy. Nobody wants to pay, but somebody must.
The crisis was brought on by a swelling Greek budget deficit and national debt, which have grown to almost 13 percent and 113 percent of GDP, respectively. These numbers raised the possibility of the Greek government defaulting on its debt. Such a move would shake confidence in the European Union and the euro, and so other EU nations, especially financial leader Germany, demanded budgetary reform.
The Greek government responded by freezing the wages of government workers, raising the Greek retirement age from 61 to 63, and raising some taxes. Thousands of Greek government workers, union workers, and pensioners-the biggest beneficiaries of high levels of government spending-in late February took to the streets to protest the moves.
If the Greek protesters get their way and "austerity" measures are repealed or softened, then someone else will have to pay. Observers have pointed to three options:
• Greek taxpayers: Tax avoidance is a problem in Greece, but decades of low fertility rates have created a bigger problem: Greece has a rapidly aging population. The Greek fertility rate dropped below replacement level (2.1 births per woman) in 1981, hit 1.4 in 1990, and has floundered between 1.25 and 1.4 since then. It will be increasingly difficult for Greek taxpayers to bear the burden of their government's debts, because not enough of them exist.
• Those who hold Greek debt, a majority of whom are non-Greek: The Greek government could default on its debt, and those who took the risk of lending to such a demographic basket case would lose money. But this option concerns the rest of Europe, because several other countries-Spain, Ireland, and Italy among them-are on the verge of a Greek-like collapse. If the EU allows the Greeks to default, then investors will likely flee those other countries. Buyers of Spanish government bonds were beginning to demand higher interest rates last week.
• European taxpayers, especially the Germans. The most likely scenario is a bailout led by the Germans, but such a move is extremely unpopular in Germany. Greece's early retirement age is a big sticking point for Germans, who recently raised their own retirement age from 65 to 67. "The Greeks go onto the streets to protest against the increase of the pension age from 61 to 63," said the Frankfurter Allgemeine Zeitung newspaper in an editorial. "Does that mean that the Germans should in the future extend the working age from 67 to 69, so that the Greeks can enjoy their retirement?"
Greek politicians, dismayed by such comments, said the Germans, because of the sins of their grandfathers during World War II, owe at least patience to Greece, if not a bailout: "They took away the Greek gold that was at the Bank of Greece, they took away the Greek money and they never gave it back," Greek Deputy Prime Minister Theodoros Pangalos told the BBC on Feb. 24. "This is an issue that has to be faced sometime in the future."
As friction between the two nations grows, the next big date to watch for is March 16. That's the deadline EU finance ministers have given for Greece to show progress in bringing its budget under control. If Greece doesn't do so, then the EU may dictate specific reforms.
The really bad news in all of this is that Japan, the United States, and the rest of Europe-all with low fertility rates and big government debts-will soon face their own versions of this Greek tragedy. And somebody will have to pay.