From a small northwestern observatory…

Finance and economics generally focused on real estate

Why I’m not that worried about Greece

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Pundits (and yes, to a degree, I’m one) have taken every position possible over the Greek debt crisis.  I’ll toss in my 2 cents, and hopefully I’ll add a bit to the debate.

First, I’ve never been to Greece, but one of my colleagues from Greenfield just came back and brought me a bottle of Ouzo (than you, U.S. Customs Service).  Also, I had a nice lunch at a Greek restaurant a few days ago.  As economists go, that must count for something.

Here is Greece’s problem in a nutshell — as a stand-alone economy they suck.  Their people are old, the bright young folks go somewhere more productive as soon as they are old enough to read a map, other than feta cheese they don’t export much of anything, and there simply isn’t enough austerity to balance the budget.  Hence, they’ve hocked everything worth hocking right down to the scrap value of the Parthenon to pay for social services and little things like food and medicine.  Additional austerity (demanded from what passes for the right in Europe) will salve the wounds for a while, and additional high living (essentially a non-starter, but none-the-less demanded from the left) simply isn’t in the cards.  The credit cards are maxed out and the repo man is backing up into the driveway.

By the way,  Greece has roughly the same population as Ohio.  Greece’s most important industry is tourism, which accounts for 20% of Greece’s GDP and employs one out of five people who actually have jobs.  In 2014, tourism was an estimated $12 Billion slice of the economy.  However, to put that in perspective, Ohio’s tourism is estimated at $40 Billion per year.  You see?  The most important thing in Greece is about a 4th the size of one of the least important things in Ohio.

We don’t really think about it here in America, but if the 50 states tried to exist as separate nations, some would die on the vine and others would prosper very nicely.  (Although, to be fare, the worst unemployment in America, West Virginia at 7.2%, sits right in the middle between the two healthiest economies in Europe, France and Germany.)   We don’t think about that because of the crucible of the Civil War, which you may have read about in your history books.  Not withstanding some of the news from South Carolina lately, the Civil War was about several things.  Slavery was at the top of the list, for sure, but southern “heritage” types (and yes, I was born and reared in the South) would posit that it was all about states rights versus the central authority of Washington.  Let’s go with that for a minute, just for the sake of argument.  Let’s assume that was the central theme of the war.  How did that turn out?  Huh?  Turns out, the north won.  America was one nation, undivided, period, exclamation point.  Along the way, we’ve made numerous economic decisions which would not be rational if we were 50 separate nations, but make perfectly good sense in the long shadow of the Civil War.  Hence, some states don’t pull their own weight, economically, but we drag them along, sometimes kicking and screaming, as the rest of us march forward into the economic future.

Europe also had a recent crucible.  Indeed, one might think of the 20th Century as one long, amazingly painful period.  It essentially started with the “War to End All Wars”, and then a massively painful depression, followed by, “War, the Sequel”, and then followed by, “Let’s all count down to nuclear Armageddon” as the superpowers stared each other down across Germany’s Fulda Gap.  By the time the Eurozone was created, thinking people in Europe were willing to do whatever it took to unite the continent and make sure that the casus belli of the past no longer existed.

So, that takes us to Greece.  One might not think of Greece as being a focal point, but that would be short-sighted in the extreme.  Of course, anyone who has studied anything about western civilization thinks of Greece as the fountain of democracy.  That said, it is right at the crossroad of Europe and Asia, and has been central to pretty much every argument in that part of the world in the past two or three thousand years.  More to the point, the reasonably solid economies of Europe look at the laggards with pity but also with fear, because a splintering of the Eurozone removes the warm blanket of unity that staves off the kinds of wars that Europe is all too familiar with.

So, like it or not, Europe will hold their noses and cut a check to help pay for Grandma Greece’s hospice bills.  They will probably make her move to from a private room to a semi-private one, and she’ll have to settle for generic medicines from now on, and eat in the cafeteria like all the other folks, but she won’t be allowed to starve, and she’ll get a card every Christmas, as long as anyone remembers the 20th century.

Written by johnkilpatrick

July 10, 2015 at 4:38 pm

Posted in Uncategorized

Tagged with ,

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