• Can America Avoid Slipping Into A Greek Tragedy?

    The Greek debt crisis is rumbling on with another last-minute deal reached to save the Euro project, but those saying America could be heading the same way are leaving a lot out of the picture.

    Many commentators fear that the situation in Greece is a window into America’s future. Massive debt, a largely unreformed public sector, and runaway entitlements are familiar problems to American policy makers.

    But what at first may seem like compelling parallels may not be as daunting when placed in context. There remains a world of difference between Greece — which as recently as 1974 was ruled by a military junta — and the U.S. which broadly maintains the trappings of a leading capitalist democracy. Three major differences between the two stand out.  (RELATED: What You Need To Know About The Greek Deal)

    Euro vs Dollar

    The largest point of difference is the currency. Greece joined the Euro in 2001 after cooking the books to allow them to pass the 3% deficit to GDP ratio requirement for new members. The Euro with one monetary policy across wildly different economies proved to be disastrous for Greece. Without a common fiscal policy so the richer members of the EU could effectively transfer money to the poorer ones the Eurozone was left without one of the key ingredients to most successful monetary unions – fiscal union.

    Furthermore, the Eurozone was not an optimal currency where it made economic sense for an entire continent to share the same currency. As economist and Adam Smith Institute Fellow Tim Worstall wrote back in 2012, “It would, in economic terms, have been better to have a new currency for all countries beginning with the letter M than for the Eurozone.”

    Resident fellow at the American Enterprise Institute, Desmond Lachman told the DCNF that “Greece is stuck in a Euro straightjacket when they adjust their fiscal policy they depress their economy.”

    The Greeks can’t devalue their currency making their exports cheaper and vacations more attractive. Lachman is far from optimistic about Greece’s latest prospects in the Euro saying “it will blow apart very quickly.”

    Debt

    The US has a substantial debt burden at 75% of GDP, but it pales in comparison to Greece at more than 175%. However, the U.S. can borrow at extremely low rates from financial markets and, Lachman observes, “the U.S. economy is growing again and debt has stabilized as the deficit has come down.” According to Lachman, there are “not really any major similarities between the current debt situation of Greece and that of the U.S.” as the Fed can finance the country’s debt. But Lachman adds this runs the risk of rising inflation if continuously pursued. (RELATED: America Is Closer To Greece Than You Think)

    Institutions

    Despite the plethora of regulatory agencies, waves of executive orders and bitter political debate that dogs American public life, the U.S. still has robust political institutions that allow it maintain its economic strength. According to the International Property Rights Index, which measures how well countries protect property rights, the U.S. comes 17th while Greece languishes at a dismal 50 out of 97.

    Greece has yet to make enough reforms to its economy to approach being as advanced as the U.S. The Heritage Foundation’s Index of Economic Freedom shows America as the world’s 12th most economically free country as Greece sits it out at 130 out 178.

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