European Union Throws A Big Fat Greek Bailout
This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.
European President Herman Van Rompuy announced that the EU will provide debt-laden Greece with "determined and coordinated action if needed," with details to be provided in the next few days. Let the ouzo flow - the big fat Greek bailout is on!
Market jitters aside, did anyone really think that the European Union would allow Greece to default on its debt obligations? I'll admit that German Chancellor Angela Merkel is a fiscal disciplinarian, but a Greek bust-out would like have touched off a cascading and dangerous contagion across southern Europe, taking down plenty of European financial institutions with it.
Without details, it's hard to know what Greece has to give up in the process, but chances are those Athens protesters will be back in the streets when they figure out a EU bailout will come at a steep cost. Clearly the reduction of Greece's eye-popping debt will cause real pain. Economists expect public sector pay freezes, an increase of retirement age and big tax hikes.
While Greece isn't the US, there are some important lessons to take away. The most important is one that many US consumers understand: you can't spend like a drunken sailor without a payback. The near-term US deficit wouldn't be nearly as worrisome if they were accompanied but a long-term plan to address it with specific policies. That's why the current Congressional standstill on every major piece of legislation is so frustrating. Lawmakers would be wise to remember there's no other union or country that will be throwing a US-style bailout when are bills are due, so we better at least start the process now.
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Jill Schlesinger is the Editor-at-Large for CBS MoneyWatch.com. Prior to the launch of MoneyWatch, she was the Chief Investment Officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.
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