Wednesday, June 22, 2011

Fareed Zakaria: What Greece teaches the U.S.

Editor's Note: The following is a transcript of a Q&A with Fareed Zakaria.

Amar C. Bakshi: What lessons do you draw from Greece's economic crisis?

The situation in Greece highlights for me how different America’s economic crisis is from Europe’s economic crisis.

America’s economic crisis is one that is actually economically soluble but politically very difficult to solve.

If we were to repeal the Bush tax cuts, we'd get $4 trillion of revenue over the next 10 years. If we were to enact Simpson-Bowles, we’d get $1.5 trillion by closing various tax loopholes. With a few simple economic decisions, we can solve America’s budgetary problem.

Now, of course, you have long-term healthcare costs to deal with. That’s a huge problem and I don’t pretend it isn't. But in every other respect you can bring down America’s budget deficit to what would be among the lowest levels of any Western country.

Greece faces a much more fundamental problem. There isn't an easy economic solution.

Greece is simply not going to be able to pay back the loans that it owes. If you do the math, it is inconceivable.

That is what people like Alan Greenspan are pointing out. There’s simply no reasonable set of projections that will get you to a place where Greece is going to be able to pay back its loans.

So you can entirely understand why there is a great, great fear among European policy makers about a Greek default. If Greece defaults - and remember it would be the first rich country to default since 1939 - there would be a huge danger of a kind of Lehman Brothers-like spillover effect. (read more)