Stelzer: Greece’s financial crisis might become the United States’ crisis 

Don’t look now, but we just loaned almost $7 billion to Greece. That’s our share of the International Monetary Fund bailout for the country.

Don’t worry, though, we can always borrow from China or raise taxes, in the likely event that Greece can’t repay the IMF and the eurozone countries that are contributing to enabling Greece to refinance the loans coming due this month and the rest of the year, and next. A bit of an exaggeration, but you get the point.

It’s hard to tell whether the bailout of Greece is farce or tragedy.

Farce, because some of the workers taking to the streets to protest the cutbacks in government spending don’t want their retirement ages extended from the current level of 50 years and the wealthy want to continue evading the tax collector.

Tragedy, because the decision to bail out the munificent Greek welfare state, in return for promises to be more frugal in the future — promises the bond markets simply do not believe — creates moral hazard.

What is good enough for Greece is certainly good enough for Spain, which also is finding it difficult to borrow still more money, and Portugal and even Italy. I say “even Italy” because, unlike Greece, which owes billions to foreigners, Italy’s government debt is held largely by Italians.

So if Greece defaults, it will create huge problems for the German, French and other banks that hold its sovereign paper.

So far, we have benefitted from Greece’s problems. Whenever there is a financial crisis of this sort, there is what investors call a “flight to safety.” That means get your money out of the threatened region and buy U.S. Treasury bonds and notes. That keeps the prices of those securities up and interest rates down.

That’s just what the Federal Reserve and the White House want, so as to make it easier for consumers to find mortgages they can afford and for businesses to invest.

But the Greek crisis is not entirely good news for America, itself deeply in the red.

Faced with a similar inability to pay off the enormous debt with which the Obama administration has burdened Americans for generations to come, we can always print our way out of the problem. That, the Greeks cannot do, since long ago they gave up their drachma for the euro and with it the power to devalue their currency so as to increase their international competitiveness.

Of course, if we do run the mint we will pay more for all those imported goods, and cheat those who have frugally saved for their retirement. Inflation is a medicine with serious side effects.

Examiner columnist Irwin M. Stelzer is a senior fellow and director of the Hudson Institute’s Center for Economic Policy Studies.

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