Greek tragedy caused by welfare populism

Greece has failed to pay back a 1.6 billion euro loan installment due Tuesday. Although Greece said it delayed the loan repayment, it is nothing but a technical expression‍. As Athens is out of cash for the repayment, it has effectively defaulted. Greece has become the first advanced economy to be in national insolvency since the launch of the International Monetary Fund (IMF) in 1944. An upcoming referendum scheduled for Friday will likely decide whether Greece will accept a bailout plan proposed by international creditors and determine whether the country will really go into default or go for further negotiations.

Unable to implement an independent monetary policy since joining the Eurozone in 1999, Greece has enhanced its export competitiveness by depreciating its currency value every time its trade deficits worsened, becoming unable to overcome the financial crisis. In a sense, a stringent fiscal policy demanded by the European Union and the IMF in return for a bailout has ultimately stifled the Greek economy. With its gross domestic product shrinking by 25 percent, pensions cut by 45 percent and a youth unemployment rate of 50 percent, Greece probably found it too difficult to accept its creditors` demands. Unlike in the late 1990s, when the dot-com boom pulled the global economy out of the Asian financial crisis, the latest external economic conditions have not been favorable to Athens.

Internally, the biggest cause of the crisis was Greek politicians` populist policies that did not take state finances into consideration and the public sector`s incompetency and inefficiency. Worse yet, chronic corruption and national pursuit of today`s happiness at the expense of tomorrow caused the catastrophe. Greece has no one else to blame, as it has gone bankrupt by resorting to reckless fiscal spending without a solid manufacturing basis.

The South Korean government views that the Greek crisis will have an only limited impact on the domestic economy. Nevertheless, the Greek crisis speaks volume for South Korea, where both ruling and opposition party politicians are competing in luring voters with populist promises such as free school lunches, free childcare, half university tuitions and more pensions for government employees. Greece`s national liability accounted for 28 percent of its gross domestic production in 1981. Last year, it reached 177 percent. Greece`s case clearly shows that after one generation squanders money, the following generations would go bankrupt. Only heaven knows when South Korea will face the same fate if it pursues more welfare and delays reforms.

Although South Korea underwent enormous sufferings after it went hat in hand to the IMF for a bailout at the time of the 1997-1998 financial crisis, it has forgotten the painful memory too easily. Be it an individual or a state, one would go bankrupt by depending too much on debts without increasing incomes. South Koreans should learn a lesson from Greece`s case.