Let’s talk Greece.
But first, let’s talk about how I came about writing about Greece. You see, I’ve been sitting at my desk for hours, flipping through news articles, trying to decipher economists’ words, and my mind drew a blank, which stayed blank for days. How do I write this, so that the average population, without sophisticated business degrees, can understand this? That is, until I changed my location, and spent the night with my best friend, watching a chick flick. And then, it was when I realized, Greece and its debt is like watching the plot of a typical chick flick. Girl meets boy, they fall in love, they go through many trials and tribulations, but at the end of the 2 hours, they are together and all is well. In this case, Greece meets Euro, Greece likes Euro, gives chase and finally adopts it as its own, but things don’t go as planned and we are in the middle of the movie where Greece and the Euro are having many trials and tribulations.
Don’t get me wrong; like any blossoming relationship, it is very good in the beginning, especially for Greece. Things were looking in the up and up. The Euro was shared amongst the Eurozone countries; thus, it doesn’t appreciate or depreciate based on Greece’s actions and events that affect the country. Now, because Greece adopted the Euro, they get many benefits that they otherwise wouldn’t receive if they had used their own currency, the drachma. When the Euro didn’t depreciate, foreign goods will be cheap, hence Greece consumes more, but at the same time, they produce less. The other benefit that Greece received from adopting the Euro was that countries have confidence in the Euro; hence they kept lending money to Greece without second thought. The point in the movie we are at now, is when the girl is asking her boyfriend to buy her more luxury goods, while she herself has quit her job, and stopped taking care of herself.
So now, we come to the part where the boyfriend is growing tired of the girlfriend. The European Union is having doubts about the relationship with Greece. What will come of it?
The main problem with Greece is the country is not earning enough to support its spending. It has come to our attention that Euro’s girlfriend, as sweet as she is, has a debt to GDP ratio at 160%, which is roughly 3 billion Euro. That’s more than 4 billion USD! This is due to the above situation, where Greece started to import more while exporting less with the Euro, as well as the loss of competitiveness in the private industries and finally, very generous retirement packages that are not sustainable in the long run. The average retirement age in Greece is around 50 years old for women and 55 years old for men and its citizens receive full pension benefits. This causes problems, as the population is very used to its comfortable lifestyle and any attempts of change lead to large riots and protests. It also doesn’t help the fact that the unemployment rate in Greece sits at 18.5%. With early retirement age and generous retirement packages along with the high unemployment rate, it’s no wonder that Greece isn’t earning enough to support herself.
So the question is, how will Greece get out of its current predicament? Because of the enormous competition gap, production costs are generally 30-40% higher in Greece than it is in Germany, which is also a part of the Eurozone and is one of the major supporters that contribute to the Euro’s strength. While the rest of the world is cutting back and adopting protective measures, do we have the luxury of waiving the exiting debt of Greece? And even if we had this luxury, would Greece achieve a balance in its budget? Or will they spiral in debt again?
And we don’t have a remote that lets us fast forward the movie to find out the answer in the end.
Europe’s quickening procession to breakage (The Nation)
Greek Prime Minister: Staying in Euro is the only solution (WSJ)
US-Greece Unemployment (Reuters)