This weekend the future of Greece as a European country may be established. While the world’s geography will not change, the short sightedness of European Union leaders may drive Greece out of the Euro and subsequently the EU. The reasons for this fate are many, but at the end of the day, the reasons are based in why Europe is such a nice place to visit and why in the past it was always poised to war amongst itself.
European countries are comparatively monolithic, speak their own language, and enjoy all aspects of their heritages.
The modern construction, the European Union, lead by Germany’s economic strength, has insisted upon a number of fundamental changes in the Greek national economy in exchange for further EU economic support. Greece is bankrupt and desperately needs a further infusion of Euros. The problem is that the Greek economy is like a bucket with a hole. The amount of tax revenues pouring in is less than the Euros than are leaking out through the hole. This picture does not get better without some fundamental changes by the Greek people.
Like many other third world (maybe second and a half is more apt) countries, the Greek wealthy are intelligent, sophisticated, and uninterested in paying taxes. The wealthy have a long history of avoiding tax payments and often justify this attitude by saying the government simply gives the money away and demonstrates little interest in fostering national economic growth.
The Greek Government (conservative or socialist) usually finds in oder to remain in power must placate the masses by generous entitlements such as pensions, early retirements, and bloated employment roles. The pleasant Greek lifestyle is simply not competitive on a European basis and not in the same universe as the global economy. Accordingly, unless the industry is focused upon the tourist, Greece does not compete.
The EU while in name representing all European countries is financed primarily by Germany. Accordingly, German influence wants an austerity approach in exchange for financial help. Austerity means less government workers and reduced pensions. The amount of the decrease would be determined by the amount of new tax revenues Greece raises. Fairly straight forward from the German perspective.
Democratic Governments, however, respond to the populous, even when the populous does not understand the situation it is in. Leaving the Euro and reintroducing the Drachma will allow Greece to inflate its currency and pay its debts with cheaper money. At first this looks attractive.
The problem with this approach is that again without more fundamental restructuring Greece will still be economically uncompetitive. The losers is situations like this are primarily the average person whose savings will evaporate and whose pension will become worth less and less each year. The wealthy will hide their money overseas or in assets somewhat immune to inflation.
Only when life gets so bad that the masses are about to rise up do countries finally make the tough fundamental changes. Fundamental changes, however, are not necessarily confined to the economy. Authoritarianism becomes popular too. And with this type of leadership, anything can happen.
The EU has called Greece’s bluff and in essence said take our offer or leave it. The “leave it” part will lead to Greece’s EU withdrawal and almost assuredly withdrawal from the Euro. I hope Germany has thought what this could cost Europe and that this amount is less than keeping the dialog open and the maybe restructuring the debt in some way.