Greece for example has seen its financial problems well and truly surface, and has been the focus of international attention recently. The systemic problems in its economy have been focussed on an overly generous social security system that funded fully paid retirement at the age of 50 years, as well as blatant tax evasion, and excessive government spending. Greece has been forced to take dramatic legislative action to reverse these trends and plan a long-term repayment of its debt. In the meantime, the International Monetary Fund (IMF) and European Union (EU) have agreed to provide a financial assistance package.

Despite the negative US debt position and its massive proportions, the general consensus opinion amongst economists is that it is manageable. One interesting factor in this, is that the USA tax regime is very generous -being the 4th lowest taxed country in the OECD. Logic says that the US could readily reverse the trend of its growing debt, and begin to repay it by simply increasing taxes. However, it is never that simple when endeavouring to balance economic growth stimulation with debt reduction. This is particularly true of the US which is primarily a consumer-driven economy. Hence there is currently a battle between the Republicans (who hold the balance of power in the US legislature) and Democrat President Obama to reach a deal on debt reduction. Suffice to say that the US has the mechanisms to reduce debt, but reducing that debt may have to wait for economic growth to be satisfactorily sustained.

In addition to these issues, the world’s ageing population is playing a greater role in the financial outcomes for many nations. In Australia we are fortunate to have a robust compulsory superannuation savings regime, which is designed to substantially reduce reliance on Australia’s social security system. However, many countries operate pension benefit schemes that are based on a tax levy paid over the term of employment by the taxpayer. A massive problem emerges when these schemes are unfunded, that is the government has used the money for other things, and when there is an increasing reliance on the scheme by a spike in the number of people retiring.

Whilst this could be seen as a cause for alarm, my take on the emergence of the current systemic issues is that regardless of the cause, they are being dealt with and that can only be seen as positive. After all it is the role of the IMF to monitor these issues – and where necessary, step in to force change.

These financial issues are not new – we have seen similar instances in South America and in particular Brazil during the 1970’s and 1980’s, as well as during the Asia debt crisis in 1997-9. There were threats of financial contagion during those crises also, but it didn’t happen then  and it won’t happen this time either.