Published Saturday, Feb. 18, 2012

As fires from the latest rioting smoulder across Athens, the question must be asked: How did Greece get to this point? And could it happen here?

In simple terms, the country borrowed more than it could repay and its creditors have called a halt. Before any more loans are authorized, the government must slash spending, cut 30,000 public sector jobs, raise taxes and push back the retirement age.

But while the predicament is simple enough, the consequences are anything but. Cuts that severe will derail the country's economy.

Gross domestic product is already down seven per cent, and the worst of the rollbacks haven't even started. Pushing through austerity measures that harsh would be a tall order anywhere. In a country with a long history of military coups, it might be a bridge too far.

Yet what are the alternatives? Greece could declare bankruptcy. That would wipe clean the debt slate and allow for a new start. But it would also mean no more borrowing for years to come. The government would be forced to balance its budget immediately - an even tougher program than the creditors are demanding.

The other possibility is to plead for a more generous settlement. And there is certainly a case. Analysts are calling the deal imposed on Greece a Carthaginian peace - named for the ancient burning of Carthage which ended that city's war with Rome.

But indebtedness on this scale makes generosity impossible. Countries that hold Greek bonds, such as Germany and France, have already lost billions. Their taxpayers are refusing to foot the bill for additional bailouts.

As a result, the end of the road has arrived, and the only choice facing the people of Greece is whether they jump off the cliff voluntarily or wait to be pushed.

Brutal as these circumstances are, they should be considered, in a grim way, instructive. There are lessons here for other heavily indebted countries.

As little as a decade ago, Greece was in fair shape. The country had an annual budget deficit that represented around three per cent of the national economy. That was believed to be sustainable.

But when the recession of 2008 hit, the deficit topped 10 per cent of the national economy and Greece tumbled too far into the pit to climb out.

Some of the same warning signs are visible on this side of the Atlantic. South of the border, the U.S. federal deficit has also reached 10 per cent of gross domestic product.

Yet America's politicians are in denial. President Barack Obama's latest budget proposal would add trillions to the country's debt load.

A member of the president's party called the package "a nervous breakdown on paper." But not because it hiked spending too far: Because it didn't raise spending enough.

Here in Canada, the signals are mixed. In Ottawa, it appears things are going in the right direction, if slowly. The deficit is falling, and the finance minister is trying to rein in spending.

But in the country's largest province, it's a different story. Ontario has a massive deficit of $16 billion and there are no plans to balance the budget anytime soon. A revenue shortfall that large places Ontario in the same ballpark as Greece 10 years ago.

Quebec has amassed a mountain of public debt that represents more than half the province's economy. Even B.C., with relatively manageable borrowing levels, faces significant challenges.

Of course, no one expects Canada to find itself in the position of Greece. But just a few years ago, neither did the Greeks.

The message here is plain. In the long term, public indebtedness can become a trap. Fall into it, and normal human values such as compassion and generosity fly out the window.