The question of whether Greece will withdraw from the euro has become a prickly problem for the world economy. To make matters worse, following a general election on May 6, Greek political parties have been unable to form a new government. A survey revealed that 78 percent of Greeks reject the bailout agreement arrived at between Greece, the IMF and the European Central Bank (ECB), and the austerity policies it entails.
Greeks have easy and comfortable lives. Their average wage is higher than those of other countries with comparable economies. Greek welfare provisions are generous and civil servants enjoy high pay and benefits.
Following the launch of the euro in 1999, EU member states started to discuss the possibility of further integration. Countries that wished to be a part of this process had to abide by the rules of the Stability and Growth Pact.
Because Greece did not meet these criteria, it did not initially qualify to take part in the integration process.
In 2001, for policy reasons, Greece was allowed to participate, but its government continued overspending and so was unable to significantly cut its national debt and budget deficit. Then came the global financial crisis of 2008, which finally exposed problems such as Greece’s longstanding poor credit record, falsification and concealment of data, and opportunistic raiding and illegal short selling by global investors.
This year the IMF, the ECB and the Greek government agreed on a large-scale debt bailout plan. The plan called for strict fiscal cuts and austerity measures, including wage cuts, bonus freezes, longer work hours, later retirement, pension cuts, tax rises and so on.
However, these terms provoked resentment among the Greek public, with the result that the government fell from power and the election that followed failed to produce a new government.
Taiwan’s model of economic development is different from that of Greece. We have no foreign debt and our foreign currency reserves are among the biggest in the world.
However, the worrying thing is that Taiwan has hidden debt amounting to about NT$18 trillion (US$601 billion), including a massive national health insurance deficit, local government debts, generous pension and consolation provisions for civil servants, benefits for specific social groups and so on.
The election system tends to make matters worse, as competing parties make excessively generous campaign promises. It is therefore likely that Taiwan’s finances will deteriorate over time.
Under the administration of President Ma Ying-jeou (馬英九), Taiwan’s economy has stagnated at about the level it was at 14 years ago. When the driving forces of a country’s economy are unable to keep up with the times and state debt keeps piling up, sooner or later fiscal problems are bound to break out. When that happens, will Taiwanese be forced to accept a fall in living standards, as the Greeks have?
That Taiwan has no foreign debt does not mean that we will never be threatened by bankruptcy. Another possible interpretation of Taiwan’s lack of foreign debt is that nobody abroad wants to buy our debt and so we cannot spread our fiscal risk abroad to let other countries share the burden.
If those in government do not strive to improve this country’s fiscal structure, when the time comes Taiwan may suffer an even more daunting set of choices than Greece.
Lai Chen-chang is president of the National Taipei College of Business.
Translated by Julian Clegg
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