Greece’s political and monetary future in Europe remains uncertain, even as the continent’s leaders rallied this weekend with the goal of starting new bailout negotiations with the embattled and indebted nation.
The threat of Greece leaving the Eurozone has loomed larger and larger in recent months, with the worst fears being that a so-called “Grexit” could trigger a contagion that infects the foundations upon which the European Union has been built.
Greece’s present dilemma can be summed up simply: Greece owes hundreds of billions of dollars to creditors and says it is unable, or unwilling, to pay that money back.
Though Greece (with a population of 11 million) is the reigning poster child for fiscal irresponsibility on a national scale, it is far from being alone in terms of governments grappling with hangovers from decades of overspending. For example, on this side of the Atlantic, the United States territory of Puerto Rico (population 3.5 million) has run up more than $70 billion in debt and is now lobbying the U.S. Congress to pass legislation that would allow the island to declare bankruptcy – a move to which the city of Detroit famously resorted in 2013.
Greece, Puerto Rico, Detroit and other political jurisdictions in similar financial straits share several common denominators. These are: The civil service grows in number until it is way out of proportion to the size of the population. The oversize civil service organizes into a singularly powerful special interest group that is able to negotiate overly generous pensions, healthcare and benefits packages that are locked in for the long term. Lawmakers must then raise taxes, cut back on services and, often, borrow massive amounts of money, just to preserve the agreed-upon arrangements and appease the civil service.
(Note that the pattern described above is not purely a public sector paradigm – but, with the substitution of the appropriate terminology, also outlines what can happen over time to large private sector entities as well, such as American automotive companies, or, though we are loathe to admit it, American newspaper publishers.)
Let us now retreat from the outside world, and cast an introspective eye over the Cayman Islands. How are we doing in regard to these measures?
As of June 2014, Cayman’s public sector employed more than 5,800 people, about 10 percent of the islands’ population. That number has remained virtually unchanged since mid-2010, when government embarked on its period of “austerity” following the onset of the 2008-2009 recession. Since the 2011/12 budget year, the government personnel costs have grown from $213.3 million annually to $252.4 million.
In regard to pensions, the government seems to have contained a future crisis, thanks to abandoning “defined benefit” plans in favor of “defined contribution” plans for civil service workers hired after April 2000. The same cannot be said about healthcare, however, as the Cayman Islands National Insurance Company is on track to accrue some $1.2 billion in liabilities over 20 years.
On the debt front, our country’s lawmakers and taxpayers should spend a moment on bended knee each night at bedtime, out of gratitude for the firm-handed guidance from United Kingdom authorities, who thrust the Framework for Fiscal Responsibility upon Cayman’s budget writers in 2012. Thanks to Mum, the temptation to indulge in “credit card-fueled” spending sprees has been removed from our local leaders, and Cayman’s budget outlook has grown healthier every year since.
Beware, though, Cayman may no longer be required to gain U.K. approval for our budget, starting next year (which, we remind our readers, is the budget preceding the 2017 election). While some lawmakers have said they would like more freedom to stimulate the economy and construct capital projects – that, in our opinion, is the sort of political independence that Cayman is better off without.