Local echoes with the Greek crisis

Doug Letto sees startling comparisons between the current crisis in Greece and Newfoundland and Labrador's financial history.

I was driving home a few nights ago and listening to the national news and a story about the crisis in Greece. A story that brought the Greek economic problem came into focus.

A CBC reporter said that even with drastic budget cuts, massive tax increases, pension entitlement cuts and job holidays for civil servants, Greece was making little headway.

The reason was this: even as all that austerity was being put in place, the Greek economy was shrinking.

So, just as austerity targets get established, the target becomes smaller. Just one of a million problems dogging the people trying to get a handle on this crisis.

It's tough to fathom the problem from the North American side of the Atlantic. But we can try.

Greek Prime Minister George Papandreou has been at the centre of a financial crisis that has enveloped Europe. ((Petros Giannakouris/Associated Press))

For starters, you could fit three countries the size of Greece inside the landmass of Newfoundland and Labrador, and still have a couple of thousand square kilometres left over.

But that's not the only yardstick we can use to get a sense of what it is the Greeks are facing.

Newfoundland's meltdown

We had our own economic and fiscal meltdown. One so bad, we concluded the only way to get out of the mess was to give up democratic self-government, and agree to be run by a commission of appointed officials, answerable to the governor in St. John's, who was answerable to the government at Westminster in London. It happened in 1934.

Go back 80 years to 1931, and the raging world depression. The similarities are breathtaking.

Newfoundland had nearly $90 million in debt, and was using half its annual revenue just to make interest payments.

As the depression took hold and wrecked exports for iron ore from Bell Island, and depressed prices for our main export, salt cod, people's ability to purchase even the necessities took a huge hit.

Currency fluctuations took their pound of flesh too, with debt payments being made in pound sterling, as well as U.S. and Canadian dollars.

Seventy per cent of our revenue in 1931 came from a single source: customs revenues.

Imagine projecting $10 million in revenue in 1931, with $7.75 million to come from customs duties, as the finance minister Peter Cashin did in the budget that April.

Then imagine the economy contracting and producing a shortfall of nearly $2 million in customs duties.

All this revenue erosion happened as interest on the debt increased from $4.3 million in 1930-31 to $4.7 million in the next year, and $5.1 million the year after that.

Tackling the crisis

Fred Alderdice was Newfoundland's prime minister when the legislature effectively voted itself out of existence. ((Newfoundland and Labrador Heritage))

Prime Minister Richard Squires and the government turned to a combination of increases in customs duties and budget cuts: cuts to the education budget, to war veterans’ pensions, and civil service pensions.

But even that wasn't enough. Squires' successor as prime minister, Fred Alderdice, cut even deeper. More cuts to war veterans and civil servants' pensions, another cut to the education budget, additional cuts to the budgets of departments, including the shuttering of post offices.

The last breath [until Confederation in 1949] for the democracy that had bumped along in Britain's oldest colony for 77 years happened in the ballroom at the Newfoundland Hotel on a cold February day in 1934.

Newfoundland's Letters Patent were suspended. It could no longer govern itself. The legislature would go dark for 15 years.

Hope for Greece?

Is there hope for Greece? That's deeper water than I dare to tread in, but suffice it to say, whatever deals are reached to save Greece and the Eurozone, or if the decision is that Greece will stand alone, the pain that's been felt so far is likely only a taste of what's to come.