On Sunday, May 9, 2010-the same day the EU and the IMF announced a new $1 trillion deal to protect the euro-the IMF formally approved $40 billion in loans to supplement the EU's effort to keep Greece from defaulting on its own debt. As the IMF's largest contributors, U.S. taxpayers now bear the risk if Greece defaults on the IMF loans. The debt crisis in Greece was brought on by reckless borrowing to fund welfare programs. While the U.S. is putting itself on the hook for the Greek bailout (and likely more bailouts across Europe), Democrats in Washington are following the Greek model and refusing to learn any lessons from the crisis.
Greece-In April 2010, Greece's FY 2009 deficit was revised for the third time and estimated at 13.6 percent of GDP. Since joining the EU in 2001, Greece has averaged a budget deficit of roughly five percent, which is well above the EU growth pact's "ceiling" (which has proven to be unsuccessful) of 3 percent of GDP.
United States-In FY 2009 the deficit in the U.S. reached a record high of $1.4 trillion or 9.9 percent of GDP. In the first seven months of FY 2010, the U.S. government has already racked up a deficit of $800 billion. Under the President's budget, the average deficit between 2009 and 2019 will be more than the average deficits over the past decade that brought Greece to its current crisis.
Greece-The ultimate cause of the Greek crisis was the country's woeful national debt, which has reached 115 percent of GDP and could reach 150 percent of GDP. Greece was unable to meet this high burden of debt and, as a result, sought a bailout from the EU and the IMF in order to make payments over $10 billion in debt due on May 19, 2010, and avoid default, at least in the short term.
United States-According to CBO, under the President's proposed budget, the debt held by the public in the U.S. will jump dramatically from 53 percent of GDP to 63 percent between FY 2009 and FY 2010. By 2020, CBO estimates that the public debt in the U.S. will be $22.5 trillion, an amount equal to 90 percent of GDP. These levels of debt are unprecedented in U.S. history and are dangerously unsustainable.
Out of Control Spending
Greece-The nation's deficit and debt crisis is a direct result of the country's choice to continue their unsustainable spending to fund a bloated Greek government and profligate welfare programs. Last year, Greece's government spent an astonishing 50 percent of the country's GDP. According to the IMF, wages and social benefits constitute 75 percent of total government spending.
United States-Spending in the U.S. has exploded in recent years. Since 2007, spending in the U.S. has leaped from just under 20 percent of GDP (the historic average since World War II) to more than 25 percent of GDP. If unchanged, CBO estimates that spending will reach 30 percent of GDP by 2029. These spending levels will fuel exploding debt and deficits and propel our country toward a fiscal calamity.
Simply put, the situation in Greece provides a stark illustration of what will happen in the U.S. if our fiscal house is not put in order. Since the Democrats have taken over Congress and the White House, spending, deficits, and debt have skyrocketed to unprecedented levels. Instead of putting taxpayers and future generations at further risk by bailing out European nations, the U.S. should be tending to its own fiscal mess. If the U.S. does not act to dramatically cut spending soon, this nation will run out of time. If that happens, who will be there to bail out the U.S., and at what cost?