In these digital days it is far easier to foment a revolution than it is to find the means to sustain one. That may or may not been the the Greek Syriza party has to learn in the coming weeks. Hanging hard against German based technocrats may yet pull off some important concessions, but without cash (or rather the means to raise sufficient cash) the Greeks face a hard road to stay inside the Eurozone.
Cormac Lucey, returning to the basic problem of Europe’s common currency, cannot see how Greece’s economic interests are served by trying to stay inside a hot and sweaty German run kitchen:
A decade of loose credit conditions spawned the illusion of very high economic growth rates and the reality of very substantial cost increases across the Eurozone periphery. This sharply reduced the international competitiveness of countries like Ireland. Examining real effective exchange rate data compiled by the Bank of International Settlements, Irish costs rose by nearly 35% relative to Germany between 1998 and 2008. Rating agency Fitch reckoned in 2012 that a new Greece currency could drop 76% compared to Germany!
As for solidarity, it seems that Irish tourists prefer to help the Turkish economy these days:
…in the first 10 months of 2014, CSO statistics indicate that only 36,297 people departed Dublin Airport for Greek destinations. The figure for Turkish destinations was 92,799. Trapped in the Euro, Greece’s real effective exchange rate is too high. As a result, it is uncompetitive. And a European Union which aims at boosting trade among its members is inadvertently discouraging it.
And the debt problem is already huge (for Greece at least)
Current plans envisage Greece repaying to its creditors about 4% of national income over each of the next five years. The new Greek government wants to reduce this to 1.5% of national output each year. With debt of 177% of GDP, annual payments of just 1.5% of GDP would mean that Greek debt wouldn’t even cover its interest cost. Greece’s creditors might as well concede a formal debt write-down, as the real value of their debt would have been significantly impaired.
…substantial concessions may end up being made to Syriza even though the EU will fear that they will spur demands elsewhere in the Eurozone. Let us hope that the mandarins in the Department of Finance have our application ready. The problem for Syriza is that while such concessions may go some distance towards fixing its debt problem they can do nothing to fix its real effective exchange rate problem. And, in my opinion, that is the larger of the two problems confronting Greece, and most of the Eurozone periphery. Syriza may win a significant battle in the coming weeks but still lose Greece’s economic war.
Bundling of such diverse economies has long been recognised as significant design fault. Keeping Greece inside a currency mechanism it was never ready to join (which of course everyone involved knew at the time, but refused to acknowledge).
Lucey’s argument is broader than though