To quote the memorable duo Abbott & Costello - "This is another fine mess you have gotten us into!"
Greece and the European Union, pretty much in equal measures, have indeed made a whale of a mess and are now facing the real possibility of collosal debt default, financial market collapse and Greece's exit from the Euro. The International Monetary Fund, with U.S. encouragement from the sidelines, is urging debt forgiveness as part of a long term rescue plan. The main U.S. concern may not be primarily the financial issues involved, but rather strategic military concerns about seeing the collapse of NATO's south-eastern flank in times when relations with Russia are none too good. On the other hand, we have the Germans who cannot wait to see the back of the Greeks.
Incidentally, this is the same Germany that twice did its utmost to destroy Europe during the last 100 years, defaulted on its WWI debt obligations and was put back on its feet after WWII through massive aid and debt foregiveness from its former U.S. and European enemies. The past sins of the Greek have been rather more prosaic.
But to keep on lending money to the Greece we see today will solve nothing. If the European and NATO communities wish to save Greece, a long term "Marshall Plan" involving investments - not more debt - will have to be put in place. A quick look at some Greek macro-figures will tell why this is so.
Greece is a country with a population of about 10.8 million. The median age is 43.5 years - not far from that of stagnating Japan - and there is no population growth. Youth dependency rate is 22.5% and for the elderly it is 30.5% for a total of 53% of the population. Pretty much every citizen over 55 years of age is on pension. Over-all unemployment currently hovers around 25% and for youth around 55%.
Gross Domestic Product (GDP) has probably by now shrunk to around USD 230 billion, a miserable USD 21,300 per capita, about 60% of the European Union average. GDP is comprised of 96% private and public consumption, 12% investment, a total of 108% propped up by an unaffordable 8% trade deficit. A sustainable and progressive GDP makeup should be more like 80% + 20% + 0%, respectively.
How to get from here to there is the question which begs an answer. A 10-year program of annual direct investment by EU and IMF of around USD 20 billion (0.12% of EU GDP) should do the trick, coupled with labor market and pension structural reforms. But how to add an element of economic growth - say 2% p.a. - with a stagnant population?
Labor productivity growth would be one answer, but next to impossible to achieve in a national economic environment based on 3% agriculture, 16% industry and 81% services. First step would be to find jobs for one million who currently find themselves unemployed, say another 10 year program of 100,000 new jobs per year. After that there would have to be immigration, for which the Middle East has plenty of candidates already, as we speak.
For any of this to happen, there has to be willingness for meaningful assistance from the EU, as well as reciprocal willingness on the part of Greece to accept it. For EU and NATO, saving Greece is undoubtedly worth the effort. Time will show whether the parties are up to the task.
