A lost decade and generation for Greece?

Darren Gershby Darren Gersh, Washington Bureau Chief

History is never far away in Greece.  When I taught English in Thessaloniki, my class was filled with kids named Pericles, Socrates and Helen — as in “of Troy.”  It is useful to recall that sense of history now, because it helps to know the depression grinding through the country will not destroy Greece. Greece will survive.  They survived the Nazis and the Ottoman Empire. And the Roman Empire.

Compared to the past, this depression and debt crisis may prove a relatively short episode, but it will almost surely destroy the prospects of at least one generation of Greeks, if not two.

Just consider the latest debt restructuring plan.  It would be polite to call the views of many skepticism when it comes to thoughts on whether the current restructuring will allow Greece to escape default.  In this note the Center for Economic and Policy Research lays out the case for Greece leaving the Euro. The key point is that policy makers have consistently underestimated the collapse of the Greek economy and overestimated the impact of the rescue plans.

A key fact tells the story.  Greece is paying 6.8% of it’s GDP in interest.   For comparison, the US pays about 5% of GDP for Social Security.

At best, Greece will see it’s debt-to-GDP ratio fall to 120% by 2020.  But to do that Greece will have to remake its government to actually function and its economy to be more competitive.  The first I have no idea how to do.  The second requires freeing the natural competitiveness and work ethic of the Greek people.

How could this be done? I asked Nicolas Véron at the Peterson Institute.  He emailed back:

If they are competitive they can thrive by being good at some niches and serving the domestic market. Tourism (for which Greece definitely has a competitive advantage), some agricultural products, regional hub for services to the Western Balkans (as Greek banks had started to do before the crisis). Lowering wages at this point may be necessary, and is happening to a degree. It wouldn’t be so bad a situation if they had more effective government and lower debt.

As Speaker Boehner likes to say, “If “ifs” and “buts” were candy and nuts, every day would be Christmas.”

Greeks have a word for the reaction young people have to a country with an ineffective government facing a long-term economic depression: “Exodus.” The logical thing to do now for a young Greek with internationally competitive skills is leave. History provides an example. Between 1890 and 1914, one-sixth of the Greek population left the country, most heading to the United States. Back then a collapsing Greek economy convinced able-bodied Greeks to flee the country.

But the Greek government aided the outflow, counting on remittances to help prop up the country. Will that happen again? Greece pretty much invented history, now they seem to be reliving it.

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