Greece, economic powerhouse?

A friend - to be known on this blog as to scranton (singular, neuter substantive) - has forwarded to me an article about the debt crisis by a Greek writer living in London. The piece is a good example of what many young Greeks, including many of those who are joining the protests in Syntagma, seem to be thinking about what is happening in their country. I thought I might discuss it here, partly because it has a certain rhetorical force and is a good read in itself, but also because it may allow us an insight into what is driving the resistance of many Greeks to their government's attempts to clear their debt.

The real substance of the article lies in an attempt to distinguish between reality and what the author thinks are simply 'media myths'. The core myths, according to the author, are those that support the notions that Greece is an uncompetitive economy that should not have been admitted into the Euro, and that austerity measures are now necessary if the nation is not to default on its loans, a situation that would lead to economic disaster for Greece as well as its neighbours. The author's obvious partiality to his native country, we might think, may turn out to be balanced by his insider's knowledge of his country's situation.

It is always useful to be made to question timeworn assumptions, especially if they take the form of prejudices, such as 'the Greeks are just lazy', that are flattering to ourselves by implicit comparison. And indeed, the author of the article presents data drawn from respected international institutions (such as the OECD) suggesting that Greeks work more hours per year than Germans or Brits, and that they produce more per hour than the Germans, Brits, or Americans. But though one of these claims may well be true, it seems difficult to combine both of them without coming to the conclusion that Greece has a higher annual GDP per capita than Germany, Britain or the USA; and if the author of the article believes that, he will have to argue against the figures of the IMF, the World Bank and the CIA. (I have to suspect, then, that there is something awry at UPenn's Center for International Comparisons, the source for his data on productivity per hour.)

The author devotes one paragraph to arguing against the view that Greece has a weak economy, citing the World Bank's classification of his country as 'high income', and boasting that Greece came 24th in the World Bank's 2009 list of wealthiest countries by GDP per capita. Nobody would deny that, in global terms, and compared to third-world countries, Greece is a high income economy. But the real point - and the real cause of the current crisis - is that Greece is a low income economy compared to other nations within the Eurozone. That Greece is much wealthier than Tanzania (145th on the World Bank's list) isn't relevant to the debt crisis; that it is significantly poorer than the Netherlands (9th on the list), with which it shares a currency, is sharply relevant.

In trying to show that Greece is a longstanding member of the club of wealthy, democratic nations, the author overreaches himself. The claim that 'Greece became the first associate member of the EEC outside the bloc of six founding members (Germany, France, Italy and the Benelux countries) in 1962, much before the UK' is unimportant and misleading: associate membership, granted to countries who need time to prepare for full membership, is hardly a mark of economic maturity. What is important is to recall that Greece was allowed to become the tenth full member of the EEC only in 1981, 8 years after Britain had joined and only 7 years after the reestablishing of democratic governance after the regime of the colonels.

A final 'myth' the author wishes to explode is the idea that the bailouts are designed 'to help the Greek people', whereas in fact they are calculated 'to stabilize and buy time for the Eurozone'. But only the grossest dogmatism would lead anyone to think that the bailouts must be designed either for the benefit of the people, or of the Eurozone (and its financial markets), but under no circumstances of both. And part of the reason for the resilience of the current global crisis is that the finances of different nations, banks, and individuals are now all inextricably interconnected, so that a Greek default might harm the Spanish just as much as it harms the Greeks.

To be clear, what would likely happen if Greece were to default would be as follows. Greece would be kicked out of the Eurozone by its other members. The ancient drachma would be revived, only to depreciate rapidly. This might help Greece's competitiveness somewhat, making tourism in the country even more attractive and boosting its few exports. But it would be very difficult for Greece, after having defaulted, to borrow money from anyone, and it would be forced to go through with its cuts on social programs in any case. Meanwhile, the money lost by creditors in France and Germany would weaken these large economies, casting ripples of instability through Europe and out beyond into the wider world.