Forbes
April 29, 2010
The debt crisis in Europe gets worse with each passing day. Ratings agencies have recently downgraded Greek bonds to junk status, as well as lowered the ratings of Portugal and Spain. In response, the European Union and the International Monetary Fund are pondering whether to bail out Greece, perhaps to the tune of 120 billion euros.
This is the wrong medicine for Greece--and for Europe.
A bailout will not address the fundamental causes of Greece's fiscal problems. Greece has an expansive but highly inefficient civil service and an economy stifled by regulation, favoritism and rent-seeking. These policies have generated double-digit deficits and a debt-to-GDP ratio well over 100%. The situation is not even close to sustainable, so absent a bailout Greece will default on its debts.
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