Montreal Gazette: Greece is a dramatic example of an intergenerational public finance "con job”

The latest deals to “save” American and Greek public finances – those countries can now put themselves into even deeper debt – should puncture the illusion the welfare state was ever a success; fact is, it was always built on borrowed time and borrowed money.

That intergenerational sleight of hand worked for a while. Successive postwar generations went to the doctor, availed themselves of government services, built roads and enjoyed other partially debt-financed benefits. Problematically, they handed part of the bill to future generations. It’s akin to buying an expensive home and handing the delayed mortgage payments to your kids when they turn 18.

Greece is merely the most dramatic example of this intergenerational public finance “con job.” The recent European Union deal for Greece, in which $109 billion euros will be lent to tide that profligate country over yet again, is equivalent to $149 billion Canadian. Put another way, every Greek just borrowed another $13,847 Canadian.

To put the worldwide rise in government debt in some historical perspective, consider the debt trajectory of the U.S. and selected European countries since 1995. That’s about the time many Canadian governments began to grapple with our red ink problem.

In 1995, Greece’s net liabilities already amounted to 81 per cent of Gross Domestic Product (GDP). (A country’s net liabilities are arrived at by subtracting assets from liabilities; GDP is the value of a country’s economy).

Back then, Canada’s netdebt-to-GDP figure was 71 per cent; Italy stood at 99 per cent; France, Germany and the United Kingdom had net liabilities of 38 per cent, 30 per cent and 26 per cent, respectively. Portugal’s was 24 per cent and the U.S. debt figure was 54 per cent of GDP.

Fast forward to 2011 and all the countries on that list are deeper in debt as a percentage of GDP, save Canada. Greece: 125 per cent; Italy: 101 per cent; France 60 per cent; Germany: 50 per cent; Portugal: 76 per cent; the United Kingdom: 62 per cent; the United States: 75 per cent.

In Canada, our net liabilities are 34 per cent of GDP, substantially down from 1995, though up from the low point in 2008 when the figure was just 22 per cent. (Between 1995 and 2008, our lowered ratio was helped both by a growing economy and some debt payback. Most other countries just kept borrowing.)

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