Daily Austerity Watch: Greece's Economy Is On Life Support

Just when things look like they couldn’t get any worse for Greece comes word that the Southern European nation grew at a mere 0.2% in the first three months of the year.  That is far worse than originally thought.

Critics of austerity, such as the UK newspaper The Guardian, are now arguing the economic situation has turned from alarming to dire.  The news comes as a second Greek bailout totaling 120 billion euros is about to be unveiled, higher than the original estimate of 90 billion.  Time is not on the Greek government’s side.

“…  the government now (is) facing paying 25.08% over two years if it tried to borrow from the financial market,”  the newspaper says. “The cost of insuring Greek debt against default also hit new record highs.”

The Greek bailout raises an even more troubling question of when does it end.  Not long ago, officials figured that one 110 billion euro bailout would be sufficient for the cash-strapped nation.  They were proven wrong.  Whose to say Greece won’t need a third or fourth bailout?  What about Ireland and Portugal?  It looks like they may need additional help paying off their debt.  The international community can only spend so much on countries unable to help themselves.

Similar austerity fights are happening in the U.S. at the state and federal level.  Lawmakers in several states are threatening to shut down their state governments unless steep spending cuts are made.  They tend to be Republican.  Democrats are by in large arguing that the way to right the economy is by raising taxes on the wealthy.  For now, austerity proponents are winning and winning big.

Bipartisan talks on raising the $14.3 trillion debt ceiling being led by Vice President Joe Biden are taking on a new sense of urgency thanks to the recent lackluster jobs report.  So far, they have been stymied by Republicans who are insisting on trillions in spending cuts in exchange for helping Uncle Sam avoid defaulting on his bills.   Their stance is having an impact as both sides say they have found $1 trillion in savings.

“Raising the debt ceiling that much would buy some time, though Congress would likely have to authorize a higher ceiling again in early 2012 when the government is projected to have again exhausted its debt capacity,” according to Politico.

And that would be pointless.  It would do little to assure many on Wall Street who believe that members of Congress have lost their minds playing a game of fiscal chicken where everyone loses.

–Jonathan Berr