Lessons for Congress From the Chaos in Greece

Sooner or later, politicians need to stop being naysayers and get behind a solution.

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From afar, Greece seems to be more dysfunctional than a Kardashian in heat. But the turmoil in Europe's southernmost nation offers a glimpse of the tough choices that U.S. politicians are likely to face too, as they grapple with America's own mushrooming debt and the fading prosperity of many voters.

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You don't need to master the intricacies of Greek politics to understand the tensions there. For years, Greece enjoyed living standards that were far higher than its backward economy could inherently support, with an appetite for debt that eclipsed even America's propensity to borrow. Among other things, excessive borrowing financed lavish pay and perks for a bloated public-sector workforce. When crunch time came, Greece couldn't possibly pay back what it owed, forcing the rest of Europe to orchestrate a bailout or risk a cascading financial crisis.

The bailouts, of course, have come with strict conditions, forcing Greece to adopt punishing austerity measures that would cause an uproar in any country. Prime Minister George Papandreou has slashed government spending, cut pay and pensions for public workers, raised taxes, and started to ax thousands of government jobs. Since the public sector in Greece is so large, the pain felt by workers there has overwhelmed the private sector as well and caused a sharp economic contraction that we'd characterize as a depression if it happened here.

It's hardly surprising that powerful public-sector unions have fought against the mounting cutbacks. But Greece is now at a boiling point that seems likely to determine whether it completely erupts, spewing debris throughout the European economy, or settles into a more productive simmer. And the political dynamics ought to be familiar to anybody who pays attention to the similar, if less dramatic, maneuvers in Washington.

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Papandreou has been playing a tricky double game throughout the 18-month crisis. On one hand, he's been cajoling leaders of other European nations and the International Monetary Fund, convincing them to keep posting bailout money even as Greece has come up short on many of the conditional reforms. On the other hand, he's been pleading with politicians and citizens back home, trying to convince them that painful cutbacks and bruising reforms are better for Greece than simply giving Europe the finger and walking away from its debts.

Despite riots and massive protests, Papandreou has prevailed at home. But he has also faced strident opposition from competing political parties and even from many members of his own party. Many of Papandreou's political foes have stoked public outrage—and scored cheap political points--by characterizing the bailouts as the exploitation of proud Greeks by Europe's distant elite. Even if there's some truth to that, Greece has lost the ability to control its own fate, and is out of options. "The reality," writes Jacob Funk Kirkegaard of the Peterson Institute for International Economics , "is that beggars can't be choosers. Any Greek government has no alternative other than to accept the deal negotiated with the euro area."

Virtually all the politicians in Greece know this. If Greece were to reject the bailout terms and go it alone, it would default on its debts, be forced out of the euro zone, face an immediate run on its banks, and rapidly descend toward Third World living standards. But like politicians everywhere, many of those in Greece are telling constituents what they want to hear instead of supporting unpopular but necessary measures that are the best of a bad set of options. Even in desperate times, it's often more expedient to be an opposer than to get behind a solution.

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Papandreou has roiled world markets with his on-and-off plan to submit the latest bailout terms to a referendum. If there were such a vote, there's a significant chance that impassioned Greeks would reject the whole bailout scheme, triggering widespread financial turmoil. But Papandreou's risky gambit has been meant to call out the political naysayers, and force voters to take a stand, too. Are they really proud enough to reject the bailout and face the consequences? Or is it finally time to swallow hard and do what's necessary to transform Greece into a functional, modern economy?

While some see Papandreou as reckless, he has also done something refreshingly direct, by basically telling the citizens of Greece and their elected officials to put up or shut up. "We are seeing voters involved in policy decisions rather than the Euro elites cramming things down the citizens' throats," writes David Zervos of investing firm Jefferies. The mere threat of a vote, in fact, may end up calming the political discord in Greece, and generating more unity. In a bold game of chicken against bailout opponents, Papandreou may have won.

In Washington, it's easy to sneer at Greece and its political mayhem, while insisting it could never happen here. The United States does in fact have a far more dynamic economy than Greece does, plus other unique advantages, such as the dominance of the dollar and the world's most powerful central bank. But there are also troubling similarities between the behavior of Greek politicians and their American counterparts.

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Republicans who refuse to consider tax increases as part of a plan to pay down the national debt, for example, are perpetuating the fiction that voters can continue to get something for nothing. All of the leading presidential candidates insist on a return to fiscal stability, but not one of them has bothered to explain the painful tradeoffs that would require. President Obama, for his part, has peddled the populist myth that raising taxes on the wealthy will be enough to fix the economy, with minimal or no sacrifice required by the middle class. Our whole political system, at the moment, is gripped by one gigantic lie: That our problems can all be solved, as long as somebody else bears the cost.

In Congress, a "supercommittee" of 12 legislators is now laboring to cut the nation's debt by at least $1.2 trillion over the next 10 years. The group must produce a plan by the end of November, which Congress will either approve or reject in full. If the panel falls short—which seems inevitable if Republicans refuse to consider tax increases or Democrats refuse to consider sizeable cuts in entitlement programs—then the United States will move deeper into its own debt drama. That would probably entail further cuts in the nation's credit rating, unneeded turmoil in U.S. financial markets, and an even deeper slide in confidence among consumers and business leaders.

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The obvious lesson from Greece is that solving a problem early is far preferable to waiting until the last minute, when the cost will be higher and the options fewer. There are less-obvious lessons, too. One is that politicians will need to take a credible stand sooner or later. Another is that voters can't keep wishing for miracles. When everybody accepts a little bit of pain, things will finally start to get better.

Twitter: @rickjnewman

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