| I disagree. The solvency problem is ongoing, even regardless of current debts. Greece cannot raise more taxes. It's trying, but taxes are declining. A government system can't be reformed in a few years and achieve 40% savings without (a) causing mass unemployment and knock on effects, further reduction in tax base, etc and (b) massive reduction in government services, including those necessary for economic activity that is necessary in order to "put those resources to their highest value use" to borrow some vocabulary from the more free market side of the debate. Think of the US' Detroit. Decline breeds decline. Once the Government cannot keep the roads or pay the cops people leave and tax declines further and on it goes. I realize that Keynsian economics is unpopular here and I am pretty sympathetic to free market ideas myself. Greece is in a bing that we don't know how to solve. Unless creative destruction of Sovereign States is on the table (easy to say when you're far enough away) what real options other than inflation are there? If Greece defaulted tomorrow, and all the banks and lenders took the loss without collapsing the financial system again, what then? Greece would not be able to pay salaries the following day without borrowing money. I have the same reaction as I assume you do when I see Greeks demanding government jobs when that is what caused this. But, that doesn't mean "austerity" is working. We have seen pretty much no cases of countries rapidly slashing their spending and managing to stabilize their budgets. Inflation (AKA monetary easing, printing money..) is the way countries get out of these binds. I genuinely like a lot of Austrian-inspired ideas for putting losses where they belong, and allowing market feedback to do its job. But nothing guarantees that a government will not run into insolvency at some point. At EU scale, its practically guaranteed once a decade (once every 300 years per country). We still need to answer the question "What happens when a State is insolvent?" Printing money carries risks and costs, but it works. What else works? |
As a service provider, the state has 2 sources of revenue, primarily: private customers i.e. people, and corporate customers i.e. companies. Both those customer groups pay for services in the form of taxes. Now, those customer groups must be, by and large, wealth creators for there to be any wealth that can be taxed or even redistributed (if that is your political inclination).
So, it simply won't do to just reform the state, to spend less, etc. A system has to be put in place rapidly that boosts wealth creation. This includes: minimal bureaucratic lag in the creation of new companies (Chile, for example, enables new company creation within 2 days), very low taxes, easy interaction with regulation bodies, a business-friendly environment, etc.
If the state is too sclerotic to reform, it can be set up through free-trade zones in isolated parts of the country. This was China's route, when they essentially replicated Hong Kong in Shanghai, Shengzen, and all the other FTZs. It allows to you to be ultra-reformist in small experimental areas without putting at risk the power structures that exist in the state at large.