Of Crony Capitalism And European Austerity
By GEORGE F. WILL
Posted 05/12/2010 06:52 PM ET
To understand the pertinence to America of events in Greece, notice General Motors' most recent misbehavior.
A television commercial featuring CEO Ed Whitacre demonstrates the institutional murkiness and intellectual dishonesty that result when the line between public and private sectors disappears.
In the commercial, Whitacre says GM has "repaid our government loan in full." Rep. Paul Ryan, R-Wis., noted that GM used government funds to pay back the government: It "simply transferred $6.7 billion from one taxpayer-funded TARP account to another."
The government still owns 60.8% of GM's common equity, and the Congressional Budget Office projects that the government will lose about $34 billion of the $82 billion of TARP funds dispersed to the automotive industry.
When Ryan and two colleagues asked the Treasury Department for clarification, they got this careful reply: "Treasury has never suggested that the loan repayment represented a full return of all government assistance."
A Treasury press release did say "GM Repays Treasury Loan in Full." The loan is, however, a small part of taxpayer exposure. Under crony capitalism, when government and corporate America merge, both dissemble.
Now American taxpayers also own a little bit of a small nation. They provide the U.S. contribution of 17% of the assets of the International Monetary Fund, which is giving Greece $39 billion (the IMF also is contributing $321 billion to a "stabilization" fund for other euro zone nations with debt problems).
So the U.S. government, which would borrow 42 cents of every dollar it spends under the president's 2011 budget, is borrowing to rescue Greece and others from the consequences of their borrowing.
That nation, whose GDP is below that of the Dallas-Fort Worth metropolitan area, is "too big to fail," meaning too inconveniently connected to too many big banks. Bailing out Greece really rescues European banks that improvidently bought Greek bonds.
At the Parthenon last week, the Greek Communist Party, which got 8% of the vote in the last national election, draped banners emblazoned with the hammer and sickle: "Peoples of Europe Rise Up." Of course. "Arise ye prisoners of starvation," exhorts "The Internationale," the left's ancient anthem. But who is to arise against whom?
Time was, the European left said it spoke for horny-handed sons of toil oppressed in dark Satanic mills. But Athens' "anti-government mobs" have been composed mostly of government employees going berserk about threats to their entitlements.
Even Greek air force pilots went on strike. The government, unable to say how many employees it has, promises to count them. It cannot fire many because article 103, paragraph 4 of the Greek constitution says: "Civil servants holding posts provided by law shall be permanent so long as these posts exist."
America's projected $9.7 trillion in budget deficits in this decade will drive the nation's debt to 90% of GDP (Greece's is 124%).
So some people say that to avoid a Greek-style crisis, America should adopt a value-added tax.
But Europe's most troubled nations -- the PIIGS: Portugal, Ireland, Italy, Greece and Spain -- have VATs of 20%, 21%, 20%, 21% and 16%, respectively. As part of its austerity penance, the Greek government is going to give itself more money by raising its VAT to 23%.
Germany Turned Off
Germans are furious about being the biggest bailers in this bailout of a nation where tax evasion is pandemic. They've not been assuaged by being told by their chancellor, Angela Merkel, that the stakes are stupendous: Their money will save "Europe."
Hearing that, Greeks bearing banners proclaiming "Out with the IMF" might think:
Why accept "austerity" (as that is understood in Greece -- no more annual bonuses of two months' salary, no more retirement at 53)? Suppose, after pocketing some of the bailout, we threaten to collapse and make a mess of "Europe"?
Greece now knows the terrific strength of weakness. Beware of Greeks -- or any other people -- receiving gifts.