July/August 2010

More than a year before Greece began self-immolating, literally and figuratively (a process we can safely assume has only just begun), Jagadeesh Gokhale, a prescient senior fellow at the Cato Institute, peered into the future of Europe and noted, in a report for the National Center for Policy Analysis, that “all European countries have large unfunded liabilities”—health care benefits, social security, early retirement, and sometimes, as in the case of Greece, even two months of guaranteed holiday pay. These, he warned, meant that European budgets are largely “funded on a pay-as-you-go basis.” Worse, he added, “no real resources are set aside and invested each year by government . . . to prefund future expenditures on such programs.” And the costs of such largesse, he promised, would, given Europe’s aging population and limited birthrate, only go way up in the future.

In fact, Gokhale observed, “The average EU country would need to have more than four times (434 percent) its current annual gross domestic product (GDP) in the bank today, earning interest at the government’s borrowing rate, in order to fund current policies indefinitely.”

And guess what? They don’t! They won’t! They can’t! To take one example at the heavily catastrophic end of the scale, Poland needs to have fifteen times its GDP invested in real assets. Forever. Spain, the eurozone’s fourth-largest economy, needs to have 244.3 percent of its annual GDP invested to keep on going as it has. Its jobless rate has just surpassed twenty percent.

Europe, in other words, is the functional modern equivalent of the old Southern Confederacy: united (sort of) but desperate, drained of resources, prudence, and initiative, with a long-established history of promising its citizens the moon. That tradition hasn’t altered much of late: indeed, translated into the language of cold, hard cash, it’s simply been rewrapped into a glittering one-trillion-dollar rescue package (including $321 billion in potential loans coming from the complaisant IMF), recently patched together by EU member nations both rich and poor.

How taking on lots more debt is supposed to help the debt-ridden is an interesting question few inside the EU have bothered to ask. Why should they? Under the new so-called rules of the rescue package, banks that made idiotic loans to irresponsible nations will not be punished. (Sound familiar?)

Bad risk? Not to worry. It doesn’t matter how much you’ve mismanaged your funds, how poorly you collect revenue, or how flagrantly your citizens scorn the role of government in their lives: austere or spendthrift, you can collect. Profligate Greece, for starters, gets $140 billion as a reward for its history of mendacity and savage fiscal irresponsibility.

Judy Bachrach is a contributing editor for Vanity Fair.