US Debt Ceiling, Greek Debt Crisis
$14.3 trillion: That’s the amount of the US debt ceiling. Negotiations about the debt ceiling are, hopefully, in their final stages even though Republican leaders seem unsure about what they “actually want to gain out of the talks themselves, and what they will count as a “victory” in order to get a vote passed,” as Care2 blogger Robin Marty wrote on Friday. There is, she notes, “one very simple way to put the country back on the path to paying off the debt” according to the Congressional Budget Office, ending the Bush era tax cuts — and Republicans are balking because
They still argue that allowing the rich to have more money in their pockets will spur economic growth, despite that fact that we have been in the worst recession in decades every since these cuts were implemented, and every dollar that is provided to lower income people, either by welfare, subsidies or unemployment payments, goes almost immediately back into the economy in the form of groceries, housing and consumer spending.
If Congress doesn’t raise the debt ceiling by August 2, the Fitch rating agency has said it would place the US credit rating on restricted default. This would mean that US treasury securities could be downgraded, albeit temporarily. Regardless, it would be a huge strike against the US’s current “top-notch credit rating” and makes the US a bedfellow with a country whose credit rating has been slipping into junk territory, Greece. On June 13, the Standard & Poor’s agency cut Greece’s rating to “CCC” from “B” while warning that “any attempt to restructure the country’s debt would be considered a default.” Another rating agency, Moody’s, has given Greece’s sovereign debt a Caa1 rating which “implies a 50 percent chance of a default within three to five years.”
Greek Prime Minister George Papandreou must get his Pasok Socialist Party to pass a pass a bill to save or raise about $40 billion by 2015, an amount equivalent to 12 percent of his country’s gross domestic product. This is to be done via cuts in wages and jobs and tax increases, and at a time when Greece has been in a recession for the third year in a row. As the New York Times points out, “spending cuts and tax increases of a similar scale in the United States would amount to $1.75 trillion” an amount that is “considerably more sweeping than even the most far-reaching proposals for reducing the American federal budget deficit.”
Greece says it will raise a further $72 billion by selling off state assets including the ports of Piraeus and Thessaloniki, the state telecommunications company and the railway system. For what it would feel like to put up similar US state assets, consider proposals in the 1990s of the federal government selling off the Presidio in San Francisco, after it was not longer active military installation. (The Presidio ended up being transferred to the National Park Service in 1994.)
This past week, European Union leaders have been meeting in Brussels to negotiate a second bailout of about $171 billion for Greece, says the BBC. Greece receiving the bailout is contingent on the Greek Parliament or Vouli passing the austerity package. European leaders are calling on “all political parties in Greece to support the programme’s main objectives” and emphasizing “national unity is a prerequisite for success,” comments that are directed at the Greek opposition. Greek opposition leader Antonis Samaras of the New Democracy party has continued to refused to accede to pressure and support the new proposal, says the New York Times. Indeed, “many EU leaders also think Mr Samaras is irresponsible in his criticism of the EU-backed reforms,” as the Economist notes.
Samaras counters that it’s the previously passed austerity measures that are the cause of Greece’s recession and that more such measures will only push the country even more into debt. His own plan to address the Greek debt includes tax cuts to boost economic growth; he has argued that the Greek economy has been “squeezed to the point of collapsing” — that more cuts will mean not only more belt-tightening, but (perhaps with a nod to the “Indignants,” oi Aganaktismeni, the protesters camped out in Syntagma Square for the past four weeks) something far worse. Samaras also notes that “in contrast with the cases of Ireland and Portugal, Greece’s opposition leader noted he had never been consulted about the terms of the package.” Regardless, German chancellor Angela Merkel is said to be directly addressing Samaras when she stated that “it would be better to have the widest support”; as the German newspaper Frankfurter Allgemeine says, Samaras is so far refusing to budge and is “unbeweglich,” “unmovable.”
As another article in the Economist observes,
The political mood in Greece improves almost automatically in July and August as the urban population heads en masse for family villages in the islands or mountains. There are few human woes that cannot be eased a little by exposure to the dreamlike beauty of the Aegean. But this year may yet prove an exception, especially if politicians and protesters alike insist on behaving as if they lived almost anywhere except on planet Earth.
On a planet, that is, where the abstractions of “credit ratings” and “defaulting” on debt are all too real.
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Photo by Images_of_Money.