Interesting Times Ahead

Greece is the canary in the mine. It is that it is the first developed country to reach the limit of its borrowing capacity and is no longer in control of its economic policy but must obey the IMF and ECB. It has been bailed out for a couple of years but it is still not clear it will be able to get its debts under control and avoid some kind of default in a few years’ time. As a result the costs of borrowing will rise for other Club Med countries with large deficits and high debts such as Portugal, Spain and Italy. Five years ago it was inconceivable that a member of the Eurozone might be unable to repay its sovereign debts. However, we should expect our own politicians to sound more like Papandreou in the future than the insane hubris and boasting we heard from Gordon Brown in the years that the locust has eaten. Brown encouraged us to blame the bankers, though ultimately the bank crash was a policy failure of regulation and monetary control. The fact is that governments will be strapped for cash, year in, year out, for a generation. A shrinking workforce, paying through taxation for a rising number of retirees, will redefine concepts of fairness and equality. Is it “fair” to tax hard-working young people to pay the pensions of people who have not been self-disciplined enough to save for their own retirement? Or to pay for the health care of people who have undermined their health by smoking and not taking any exercise? In the decades ahead, we too will live in “interesting times” when these questions will be answered.

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