No Special Grecian Formula for Debt Reduction

It’s a fable not even Aesop could create, an epic larger than Homer’s “Odyssey,” and a math problem that would stump Pythagoras: What the heck is going on in Greece?

If I miss paying a cable bill I get telephone calls, letters, and thinly veiled threats of loss of service. And it’s not like I owe them 300 billion euros.

Following a resounding “no” in its recent austerity referendum, Greece is searching for answers on debt relief while the rest of the European Union readies their checkbooks. For the uninitiated, austerity is a set of guidelines aimed at reducing government budget deficits by cutting spending, increasing taxes, or a bit of both. No wonder it’s unpopular.

With unemployment reaching 25 percent and most of its previous bailout money used for paying back international loans rather than fixing its broken economic system, Greece is in real trouble.

The question for Canada, however, isn’t necessarily all about what’s happening across the pond … it’s about whether or not it could happen here. As of May, the national unemployment average was 6.8 percent, with Newfoundland being the highest at 13.8 percent.

Truthfully, it’s unlikely that there is any immediate risk of a nationwide economic collapse. Ontario and Quebec, the two major economic drivers of the country, have no problem raising capital by collecting taxes and selling bonds. And while their debt load as expressed as a percentage of GDP is around 50 percent, it’s nowhere near Greece’s number, 160 percent.

Out west the picture isn’t as rosy.

The Conference Board of Canada has predicted that in western Canada, energy-sector job losses could reach 8,000 this year. With oil dropping to U.S.$50 per barrel, Alberta’s latest budget predictions are assuming $2.9 billion in revenue for this year (6.6 percent of total revenue). Last year the number was closer to 18 percent.

It’s likely that newly elected Alberta Premier Rachel Notley will be forced to follow at least part of her predecessor Jim Prentice’s plan of cutting spending and— shockingly for Albertans—raising taxes. In other words, austerity.

Alberta’s economy was the single biggest topic on the provincial campaign trail, and voters essentially said no to Prentice’s budget, which projected a $5 billion deficit.

Solving the problem of government debt essentially is the same for any business or household. Spending must be congruent with income. This may sound simple, but in real-world terms, it’s very difficult.

Serious limits on spending may be unpopular now (no Xbox One), but they will eliminate the chance of a much worse problem later on (no rent money).

It’s those hard choices like these that Danny and Sandy never had to make … that was a different Grease, though.