Obama’s Ill-Conceived Comments on Greek Debt

Imagine that one of the American states — let’s say California, which is already deep in the red — indicates that they are unwilling to pay a substantial debt to the federal government in Washington, or to convert it into a virtually interest-free loan with no fixed maturity date. What would President Obama think if the leader of a European government publicly called on him not to make an issue of it? He would probably feel that the European leader should mind their own business.

Yet Obama felt he needed to urge northern eurozone countries to compromise with the new ultra-leftist Greek government, which is unwilling to implement further reforms — even reversing previous reforms — and which is trying to wriggle out of existing agreements on the repayment of its debts.

Obama’s comments to CNN were rather cheap, in the most literal of senses. It’s easy to say that another country should foot the bill for Greek mismanagement. It would have had a greater impact if Obama had turned his words into actions by taking over the Greek debt from the European financiers. Even if this would, of course, be extremely unfair on American taxpayers. Just as unfair as the impact that the policies called for by [Alexis] Tsipras and Obama will have on European lenders and, above all, the taxpayers.

US at the Same Level as Belgium

It should come as no surprise that Obama supports the southern European policy of further increasing public spending. It is, after all, a policy that reflects Obama’s own approach. In the first six years of his presidency, national debt has risen in absolute terms by no less than 78 percent. Even when compared with the gross domestic product (GDP), American national debt increased by 52 percent during that period to 103 percent of GDP. In terms of the debt-to-GDP ratio, the United States is approximately at the same level as Belgium, and isn’t all that far below Italy. The American debt ratio is 1 1/2 times higher than that of the Netherlands, and nearly twice as high as Poland, for example.

Obama claims that he has been able to stimulate the American economy by opening the money faucet. However, the relationship between economic growth in the U.S. and additional public expenditure has not been proven. Estonia has already achieved growth rates of 4 to 5 percent for years without such additional state expenditure. The country currently has a debt ratio of no more than about 10 percent. Perhaps the American economy is simply growing faster than most European countries because the labor market is more flexible, and the regulatory burden is, generally speaking, lower. And Estonia is probably an exception to the European rule of stagnation, because its government has liberalized its economy extensively. However, one outcome of Obama’s expenditure is guaranteed: The bill will (one day) need to be paid by taxpayers. They will be left to pick up most of the bill long after Obama has left the White House.

New Deal

For many, the explosion of various countries’ national debt, including that of the U.S., is justified by the tough economic climate since 2008. It seems strange, then, that the current debt-to-GDP ratio is considerably higher and has risen much more than in the 1930s under Franklin Roosevelt, who was in power at a time of much deeper economic depression. Roosevelt, of course, also became known for his attempts to stimulate the economy with large-scale public works. There is still disagreement among economists as to whether that policy worked. Various highly regarded economists argue that the eventual economic recovery had nothing to do with Roosevelt’s New Deal.

Rather than carelessly promoting public finances to southern European countries, Obama could concentrate on controlling and, better still, reducing his own sky-high debt. In the countries above the Alps, Greece is now mainly associated with feeding off (and emptying) its pockets. For future American taxpayers, Obama’s name may well become synonymous with “He’s had his party, and we’re still paying the bill.”