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David Oser, Shore Bank (USA): Sundown In Athens…

Blue, blue windows behind the stars, Yellow moon on the rise, Big birds flying across the sky, Throwing shadows on our eyes. Leave us helpless, helpless, helpless. –Neil Young

Compared to our hunter-gatherer ancestors, we who reside in the digitalized world of the 21st Century are helpless. They could find or catch their own food, make their own clothes, build their own shelters, keep themselves warm. A few of us today can do a few of those things; none of us can do all of them; most of us can do none of them. Of course, as Thomas Hobbes wrote in 1651 our ancestors’ lives were ‘mean, nasty, brutish, and short,’ but not as short as ours would be in their place. All we can do is make money. Mostly we make it not by producing necessary things but by selling each other services. When we can’t make enough money, we borrow it. In fact, some of us make money from the service of lending to others. The whole process works reasonably well…until it doesn’t. It isn’t working at all well in Greece these days. Though Greece is a small nation whose population of 11 million represents just 0.16% of the world’s people, its troubles and its helplessness in the face of those troubles could ignite a second global recession.

Greece’s gross domestic product is $340 billion (and falling), which comprises a paltry 2% of Eurozone GDP. It’s only a mild exaggeration to say that Greece doesn’t produce anything. The public sector accounts for 40% of GDP, with other services producing another 36%. The largest industry is tourism, which is 15% of GDP. Take another 3% off for agriculture, and you aren’t left with much. According to the World Bank, in 2008 Greek merchandise trade as a percentage of GDP was 29%, ranking it 170 out of 173 countries for which data was available.

The country’s standing is equally unimpressive in several small but crucial indicators of ambition and energy. Research and development spending as a percentage of GDP ranks 43rd out of 63 nations and totaled a mere $1.7 billion. In 2008, Greek residents filed 803 patent applications, far less than other small but developed countries such as Romania, New Zealand, Israel, Switzerland, Denmark, and Finland. Its high technology exports came to just $1.4 billion, a flyspeck and about the same as the tiny island nation of Malta (population 400,000). ∗

Not only don’t Greeks make anything, many of them don’t even work. The 2008 labor force participation rate was just 54%, placing the country 160th out of 184. In comparison, the US participation rate was 65.4%, and even welfare states like Germany (59.8%), the United Kingdom (62.2%), and Sweden (65.1%) topped Greece. And, according to the most recent CIA Fact Book, ‘immigrants make up nearly one-fifth of the work force, mainly in agricultural and unskilled jobs.’

In mitigation, though, it isn’t easy to work in Greece. The World Bank regularly conducts exhaustive studies on the ease of doing business in 183 countries. Greece ranked a dismal 109 in the most recent survey, which as the Wall Street Journal pointed out, places it last among Eurozone nations and 30 places behind the next worse, Italy.

These workers, at least, had their taxes withheld from their pay. According to a May 8 report on, ‘Why the Greeks are so angry,’ tax evasion runs at $38 billion a year. That’s not surprising in tourist economy, but it can be dispiriting. Perhaps that’s why Greek civil servants geteven by bribery, taking in more than €563 million in 2008. i

Rank Doing Business
Ease of Doing Business 109
Starting a Business 140
Dealing with Construction Permits 50
Employing Workers 147
Registering Property 107
Getting Credit 87
Protecting Investors 154
Paying Taxes 76
Trading Across Borders 80
Enforcing Contracts 89
Closing a Business 43

My intent, though, is not to bash the Greeks. They have been acting rationally, doing their best to achieve comfortable lives. It’s their environment—a cradle-to-grave welfare state unconnected to economic reality—that’s irrational. Successive governments promised the Greek people heaven on earth. When they couldn’t deliver, they came up with a brilliant scheme: join the Eurozone, the compact of 27 Western European nations with, among other economic benefits, a single currency. Like most countries, Greece benefited from the economic expansion of the later 1990s. Some real improvements mixed with a generous helping of ‘creative’ accounting, allowed Greece to qualify, just barely, for the European monetary union in 2001.

Europeans weren’t alone in swallowing the bait. Last month, I wrote at length on the new book, This Time Is Different by Carmen M. Reinhart and Kenneth S. Rogoff. These economists compiled a massive global data base that correlated similarities in financial crises through history. They touched on Greece from time to time, noting among other interesting facts, that ‘from 1800 until well after World War II, Greece found itself virtually in continual default;’ ‘Greece’s default in 1826 shut it out of international capital markets for fifty-three consecutive years;’ and ‘the ‘honor’ of the record currency crash goes to Greece in 1944.’ ii

Yet, the authors reported that, as of late 2009, Greece was on the verge of graduating to the status of countries that can be reliably counted on to avoid default on their sovereign debt. They defined graduation as ‘the attainment and subsequent maintenance of international investment-grade status; the emphasis here is on the maintenance part.’ Their willingness to classify Greece as a candidate for graduation was based on its progress up the rankings of the magazine, Institutional Investor. It’s not clear how the rankings are determined—perhaps the process is similar to Moody’s rankings of subprime mortgage CDOs—but Greece scored 81.3 with a score of 68 or less needed to graduate. But, Greece’s rank improved by 18.7 points since 1979, making it one of the biggest gainers and prompting Reinhart and Rogoff to include Greece along with Chile, China, Korea, and Portugal as “the countries with the potential for graduation.” iii Well, three out of five ain’t bad, I guess.

The point is that the rising tide of the global economic boom lifted all ships, including the Greek Argo. In such periods of widespread prosperity, it can be difficult to distinguish economies with strong underlying currents from those merely floating along on the froth. The subsequent crash forced European governments into a more nationalist stance; they had to provide benefits to voters back home rather than spread them through the whole Eurozone. That left Greece high and dry, at a time when it was already deeply in debt with a budget deficit equivalent to 12.7% of GDP.

Since it produces almost nothing for export, Greece can’t grow itself out of its problems. That leaves only the thorny path of charity and austerity. Charity will arrive via the European aid package totaling almost a trillion dollars that was agreed to earlier this month. Austerity will be harder. Actually, ‘austerity’ is a euphemism; it’s the noun form of the adjective ‘austere’, meaning severe in manner or appearance; uncompromising; strict; forbidding; rigorously self-disciplined and severely moral; ascetic; abstinent: grave; sober; solemn; serious. Now, these may be innate qualities or a chosen life-style, but an austere life, based on the dictionary definition, can’t be imposed on a person or a society. What can be imposed—and what it almost certain to be imposed on the Greeks—is an unpleasant, penurious, and scrimping life. Some, those with enough energy, cleverness, or luck, will adapt. Many—the old, the infirm, the unlucky, and those too set in their ways—will face suffering and misery. They will lose many of life’s pleasures, their peace of mind, perhaps their homes. They will realize their helplessness, which is why so many Greeks have taken to the streets in protest.

In the past, Greece could have sought to relieve the pressure by debasing its currency. The government could simply have turned on the printing presses to create inflation. That would make foreign tourists’ money go further and many more of them would come to spend it. But now Greece can’t debase its currency. It’s on the euro and doesn’t have its own currency to debase. So, why don’t Germany and France and the other rich Eurozone countries just kick Greece out of the club? As it happens, the Eurozone is a club that’s much harder to leave than join. The Union’s treaty requires a unanimous vote of all 27 member nations for ejection. That’s not a likely prospect.

History is littered with broken treaties, but the Eurozone is a grand experiment that will not be abandoned easily. If it were, the consequences would be incalculable. That’s why global financial markets are suffering from such a bad case of jitters. With the first genuinely strong signs of recovery showing up in the US, stocks should be rising and interest rates rising. Instead the opposite is happening. Fear of a European disintegration has us all feeling helpless.

∗ High-tech exports in 2008 totaled $1.74 trillion. Six countries—the US, China, Germany, Japan, Singapore and France—accounted for 64%. The top 25 countries accounted for 96%. Greece ranked 44th.

iBribes in Greece (
ii Pps xxx, 12, & 6.
iii Pps 283-7.

Opinion Piece courtesy of David Oser, Shore Bank (founding member of the GABV). 


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