Amateur Economist’s Corner, Part 2
June 22, 2011 § 7 Comments
Persolaise comments on yesterday’s post:
Thanks very much indeed for this, and for the links as well.
I’m no economist (how many times have you heard people say those words in the last few years?), but I’ve been trying to construct an understanding of this whole situation by reading various books and watching certain films, and the question I keep coming back to is: how come nobody knew that you can’t go on spending more than you earn forever?
Anyway, it’ll certainly be interesting to watch how the Greek situation develops.
Haven’t you got rid of the ants yet?
Well, I figured I’d answer in a new post, so I can blather on more publicly. I’m not an economist either, but before I became “that happy thing, a perfume critic,” I spent a few years writing articles on things like Treasury bonds, corporate governance, ratings agencies, and debt, so I know just enough to get me in trouble.
The theory, if I understand correctly, behind bringing laggard economies like Italy and Greece onto the euro was that, via infusion of massive EU development funds, they would revamp their economies and eventually contribute positively to the overall financial health of Europe. (Not every economist bought this even ten years ago, when Greece joined the eurozone.) In Greece also the 2004 Olympics should have been a turning point, a real kick in the pants to spur development. So the short answer to your question is that it was not expected that Greece would continue spending more than it earned; it was thought, reasonably, that given the opportunity it would eventually earn more.
But the economic crisis has hit the smaller developing economies of Europe hard; much of Greece’s good economic times in the previous boom came from real estate, which has gone, as you know, stone dead, hence the “for rent” sign in my previous post. Furthermore, an embarrassing quantity of European development funds and Olympic investment money went to the vast unofficial tax on business that is called corruption. When Greeks have tried genuinely to develop and export their real assets, it hasn’t quite worked. For example, a few years ago, excellent Greek wines came onto the market, because there was EU funding; the funding dried up, and unaccountably the wines did too. This is a shame, since Greek wines, I can attest, are great. They ought to be on tables all over the world next to Italian wines, in place of all the lousy expensive French wines the Chinese buy up. Greek honey is exquisite, dark and perfumed with thyme or forest sap. Greek olives are flavorful, varied, plump and perfect. Greek lemons, peaches, lettuces, melons, berries are better than anywhere else I’ve lived, and I lived in California. But I remember in London at Waitrose picking up packets of berries from Africa. Something is not working properly in the EEA when fruit from another continent is being sold in London instead of fruit from Greece. Something is also utterly fucked up when hard mealy Dutch tomatoes turn up in Greek supermarkets. I smell the stagnant mildew of an un-free market somewhere.
Now could be the chance the Greeks have to remake their whole economy and government at last. The trouble is that Greeks, facing pay cuts and job cuts and higher taxes, are hardly viewing European proposals as their salvation. They’re beginning to view Europe as the new Ottoman Empire. And no wonder: as I said, the proposed austerity measures are simply harmful and serve only to please German taxpayers who don’t see why they should pony up for crappy Greek civil servants with guaranteed jobs. (And one can see the Germans’ point too.) Unfortunately the very people losing the most here happen to be the only people whose taxes can be easily collected: payroll employees. Cut their income, and where does the revenue come from to pay the state’s bills? Also, once these Greeks are unemployed, their unemployment benefits are a further drain on the budget.
The solution here must undoubtedly be absolute top-to-bottom reform of bureaucracy, union busting, aggressive tax collection on the self-employed, privatization, and genuine development of Greek manufacturing and export as a lasting source of income. But none of this can happen without more cash, and unless an enormous petroleum geyser starts spraying within national borders, that cash is going to have to come either from Europe or from global finance, and both have just become extremely reluctant to give Greece any more credit.
I suspect also the solution involves the revival of a little thing called the drachma, though this is not so popular an opinion because the consequences for the rest of the eurozone are incalculable.
And no, the ants are indefatigable, the spray I bought seems nutritious to them, and our landlord is indifferent.