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Dear Mr. Berko: One simple question: Can you explain what’s going on in Greece in everyday English so the average Joe like me can understand? 鈥� R.R., Des Moines, Iowa

Dear R.R.: Greece is the proverbial canary in the coal mine. Frequently in the last 10 years, the Greek government borrowed billions of Euros by selling bonds to the big banks in France and Germany. Those Greece-guaranteed Eurobonds were issued to pay Greece’s 20 years of escalating obligations, just as the U.S. Treasury sells Treasury bonds to pay for its continuing obligations.

And like the U.S., Greece developed an appetite for more Euros to sustain enormous annual increases in its pensions, national health plan, business subsidies, social programs, schools, hospitals, airports and to pay tens of thousands of redundant workers. And those growing costs are paid in Euros, the currency of many of the members of the European Union.

Politics being politics, Greece blithely continued to increase civil service pay, grant larger pensions and expand free health care, and politicians continued to borrow more Euros to give workers what the unions demanded as the nation fell deeper into debt. Sound familiar? The unions were happy, the workers were happy and the politicians got reelected, but the Greek economy began to go down the toilet.

When it came to pass that Greece’s profligate spending exceeded its declining income, the big banksters got all wobbly and refused to further feed the country’s viral indulgence. So the nation that gave us Plato, Archimedes, Ptolemy, Socrates and Hippocrates was ignominiously forced on its knees to beg.

Greece had two choices. The first would be to quit the European Union, default on its Euro debt, print an avalanche of new drachmas (the currency of choice for thousands of years) to replace the disappearing Euros in circulation, and continue along merrily on its way. However, bad currency always forces good currency into hiding, and within a year of flooding the economy with its newly printed currency, the drachma would become as worthless as the German mark of the 1930s. Foreign nations would refuse to accept a drachma in payment for its exports; Greek merchants would not exchange their products for a debased currency; and anarchy would begin to reign in Greece.

The second choice would be for the European Union (primarily Germany and France) and the International Monetary Fund to lend Greece $100 million Euros if the government were to promise to slash excessive entitlements, pensions and health spending; stick government workers with furloughs; lower salaries; and spend less on bloated infrastructure programs. In essence, Greece would be put on a financial diet to eliminate decades of political extravagance and redundancy.

Is there a lesson here? If Greece agrees to reform, the EU and the IMF will open its lending window to fund essential services that run the country. Then, perhaps after several years of fiscal constraint, Athens might be able to repay its debts and become economically stable!

Sounds simple, right? Well, I don’t understand how it’s possible to borrow yourself out of debt.

Knowing that government can easily give entitlements to its citizens but cannot as easily take them back, the unions prompted workers to riot, to close schools, airports, hospitals, rail and postal services, and virtually shut down the country in hopes of derailing the country’s austerity plans.

Sadly, many Greeks fail to realize that a government that continues to give half of its people increasingly larger entitlements to be paid for with future borrowed tax dollars is a government that will collapse. And when half of the inhabitants recognize they don’t have to work because the other half will take care of them, the latter will soon realize that it’s useless to work because the first half is going to be given what they work for. Sound familiar?

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or e-mail him at [email protected]. 漏 2010 Creators.com