Greece and the welfare state in ruins

But in practice, a bailout is proving hugely controversial. If Greece is aided, won’t other countries demand — or require — rescues? Is this possible, considering that even France and Germany have high debts and that a Greek bailout is unpopular, especially in Germany? One way to mute the problems is for Greece to embrace a harsh austerity that reduces its borrowing. Greece has already pledged to cut its government workforce and raise taxes on alcohol, tobacco and fuel. The other euro countries want more. Their dilemma is that either rescuing or abandoning Greece is a gamble.

To some economists, Greece’s situation is so dire that default is inevitable, though it may be a few years away. The required austerity would be too punishing, says Desmond Lachman of the American Enterprise Institute. Greece would need spending cuts and tax increases equal to 10 percent of GDP, he says. The resulting savage recession would worsen existing unemployment, already about 10 percent. “No sane country is going to accept that,” says Lachman. Greece may get a temporary rescue, he thinks, but will someday miss debt payments and revert to its old currency: the “drachma.”…

Almost every advanced country — the United States, Britain, Germany, Italy, France, Japan, Belgium and others — faces some combination of huge budget deficits, high debts, aging populations and political paralysis. It’s an unstable mix. Present deficits may aid economic recovery, but the persistence of those deficits threatens long-term prosperity. The same unpleasant choices confronting Greece await most wealthy nations, even if they pretend otherwise.