Greek PM tries but fails to win political consensus | ReutersGreek Prime Minister George Papandreou sought but failed to get consensus from opposition leaders on Tuesday on a new set of austerity measures aimed at averting default.
Desperate to secure the next tranche of a 110 billion euros EU/IMF bailout, Athens decided on Monday to jump start privatisations and push through six billion euros worth of extra fiscal measures to convince lenders and markets it can pay down debt without restructuring.
This situation, even if it is temporary, highlights the headwinds that can occur in democratic societies when leaders need to push policies that require sacrifice. The risk is that voters would eventually change a government if its persists on a course that is unpopular or the government would retreate before an electoral judgment against it. Unfortunately, when societies avoid difficult choices, they can accelerate the onset of a crisis. Such crises can pose risks to those societies' economic, political, and social stability.
Greece remains a lesson in what happens when countries postpone difficult choices. The U.S. is not at such a position right now. However, a continued absence of credible fiscal consolidation would increase those risks in the medium-term and beyond. Currently, much work remains to be done in the U.S. Aside from political leaders needing to negotiate an increase in the debt ceiling (likely) with some degree of fiscal consoldidation (likely to be modest and backloaded, with tough concrete choices being put off), there is perhaps an equal need to educate and inform the American public on the drivers of the nation's fiscal imbalances and the consequences of delay.
One should also bear in mind that a nation's financial situation also has an impact on its political, military, and economic power. Hence, delay could lead to a situation where the U.S. would be relatively weaker than it might otherwise have been and such an outcome would pose risks to some of its important overseas interests.