The past couple of weeks certainly provided the citizens of Greece and the European Union with intense negotiations and drama. Recently, Greece voted with an overwhelming majority against the European Union’s loan extension requirements. The measures demanded by international lenders were rejected by Greece’s population on the recommendation of Greece’s recently-elected leftist Prime Minister.
Here is the frank reality: Greece is broke. One in four people are without a job; the economy has shrunk dramatically, and the country cannot pay its bills. Their banking system is in near-collapse and the economy is in crisis. The country cannot borrow on the public markets as it has such dramatic levels of public debt. The banks were closed and people lined up at ATMs for spending money to a maximum daily withdrawal of $84 CDN. With no bargaining power and excessive debt, it was certainly bold and strange that the Greek government tried to be the one demanding terms from its reluctant lenders.
Now consider Canada’s economic situation. Financially, we are strong. We have balanced our federal budget. We have consistently increased our transfer payments to the provinces since Prime Minister Stephen Harper came to power.
Our unemployment is around the 6 percent range (which means employment is close to 94 percent). So why does it matter to Canada? It is because we live in a fragile inter-connected international economy. It is because the world does business in integrated world economic and financial markets.
Like the ripples you see when you toss a stone in a pond, Greece’s financial situation affects the Eurozone currency, which impacts Canada and the world. This is a cautionary tale for Canada, the rest of Europe and the world. It also puts new relevance and truth to the old quote from former British Prime Minister Margaret Thatcher: “The trouble with socialism is that eventually you run out of other people’s money.”
Canada is certainly not immune to the problems we are seeing in Greece. This week, Standard and Poors, a bond rating service, downgraded the Province of Ontario’s credit rating. This means long-term borrowing costs by the province are likely to rise, meaning less available provincial money to reduce hospital wait times, support education, and our schools.
Governments are just like households, businesses or farms in that you cannot continue to spend more money than you take in – and budgets do not balance themselves. That is why Canada needs strong economic leadership – now more than ever. Let Greece be an example to us here at home about the need to balance the budget and keep a watchful eye on an unpredictable global economy.