The EU serves a double whammy to Greece

The EU serves a double whammy to Greece

Nicholas Fourikis

Abstract. The austerity measures imposed on Greece by the European bankers increased unemployment in Greece to such an extent, it led many Greek professionals to migrate to other EU countries, and Greek businesses to Bulgaria. This double whammy effectively cripples the Greek economy. Greece’s tragedy is further intensified because only few EU members care about Greece’s fate. A case is therefore made for Greece to exit the ‘EU paradise’. As Greece has several allies outside the EU derived from its history and its geopolitical position, Greece’s exit will not be economically traumatic.      

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Northern European banks lent excessive amounts of money to Portugal, Italy, Ireland, Greece, and Spain, the group that is euphemistically abbreviated as PIIGS.  As the governments of the PIIGS countries could not service their excessive loans, the banks imposed strict austerity measures on the citizens of the PIIGS countries.

While the bankers continue to support austerity measures, Paul Krugman¹, the 2008 Nobel laureate for Economics, argued that prosperity through pain is a fantasy. And Noam Chomsky² declared that austerity is just class war.

            The austerity measures imposed on Greece led many Greeks to migrate to Northern European countries to escape the miseries resulting from sky high unemployment^3&4. Over 200,000 Greeks left the country since the financial crisis began in 2010³ and many⁴ of the 200,000 Greeks who left Greece for Germany and Britain were university graduates. Overall 10% of the total university educated workforce migrated. That portion of university graduates represents the best graduates in Greece. Furthermore an estimated 35,000 medical doctors are believed to have left Greece⁵. Assuming that it takes doctors 6-8 years of study to complete a medical degree that is a humongous loss of human capital!

In a parallel development, 11,000 Greek businesses moved to Bulgaria, the poorest member of the EU⁶.While many commentators focus their attention on money matters, the issues related to the human capital leaving Greece are just as important.  

How could Greece improve its world competitiveness and repay its loan if it loses its human capital, year after year while the austerity measures are in place?

The European Union is supposed to be a union of European countries and yet Greece seems to be isolated from the rest of the EU members⁷.

In a recent development the EU is about to introduce more stringent austerity measures on Greece even though 61% of the Greek people voted against the existing austerity measures.

“Secret documents show creditors’ baseline estimate puts debt at 118% of GDP in 2030, even if it ( Greece) signs up to all tax and spending reforms demanded by troika⁸”. In less technical language Greece would face an unsustainable level of debt by 2030 even if it signs up to the full package of tax and spending reforms demanded of it, according to unpublished documents compiled by its three main creditors.          

Strauss-Kahn offers us a broader picture of an ideal EU as an organization⁹:

“In counting our billions instead of using them to build, in refusing to accept an albeit obvious loss by constantly postponing any commitment on reducing the debt, in preferring to humiliate a people because they are unable to reform, and putting resentments – however justified – before projects for the future, we are turning our backs on what Europe should be, we are turning our backs on Habermas’* citizen solidarity. We are expending all our energies on infighting and running the risk of triggering a break-up. This is where we are. A eurozone, in which you, my German friends, would lay down your law with a few Baltic and Nordic states in tow, is unacceptable for all the rest.”

*  Jürgen Habermas German philosopher/ sociologist 

The EU as an organization can change but it will take a long time for any changes to take place. The pious hope is that if few PIIGS countries prosper after departing from the ‘EU family’, the changes that Straus-Levy sketched will be adopted sooner. 

Can Greece afford to lose its human capital year after year over the next ten, twenty, or thirty years? If not, what are the prospects for Greece if it leaves the EU?  In that event Greece would need to import the items shown in Table 1¹⁰ .  

Table 1 – Typical Imports to Greece¹⁰

Oil [$21.5 billion]

Pharmaceuticals [$3.5 billion]

Machines, engines, pumps [$3.4 billion]

Electronic equipment [$2.8 billion]

Ships, boats [$2.5 billion]

Vehicles [$2.6 billion]

Plastics [$2.6 billion]

Meat [$1.3 billion]

Dairy, eggs and honey [$1.1 billion]

Iron, steel [$1.1billion]

          With Greece out of the EU several scenarios are possible. Closer Greek- Russia relations¹¹ must come on top of the list because of the existing cultural links between the two countries. While Russia cannot afford to lend money to Greece it can offer energy – oil /gas - to Greece. More creatively one could propose that Russia could gain access to a Greek Mediterranean port, in exchange for commercial benefits for Greece.

Would Europe and the US accept such a move? That is doubtful from the strategic point of view. Can Greece use the close Greek-Russian relations to gain a better deal while it remains in the EU? Of course it can but there is no evidence that the newly elected Greek government used such a ploy during their negotiations with the EU.   

          Turkey and Greece developed close links after the Izmit earthquakes¹² – August 17 and 22, 1999 - when Greek rescue teams rushed to the scene to help Turkey manage the disaster. Less than a month after the Turkish disaster, on September 7, 1999, at 2:56 pm local time, it was Athens' turn to be hit by a powerful, magnitude 5.9 earthquake. This was the most devastating and costly natural disaster to hit the country in 20 years¹², and Turkish teams came over to Greece to help.

          The deep friendship forged between Greece and Turkey is reflected in recent times by the many offers of help Turkey extended to Greece^13&14.

          In the past the Greeks of diaspora¹⁵ – 7 million Greeks residing in the Americas, Africa, Australia and Asia - helped Greece get over the devastations created by natural disasters e. g. earthquakes, floods and forest fires. Their help was partly material but the Greeks of diaspora often supported Greek interests in various world forums.

“Diaspora Greeks have proved time and again that they love Greece more than its inhabitants, they are anxious about its fate, and are ready to help¹⁶.

          Assuming that Greece exits the EU and prospers, other PIIGS countries will follow and the resulting negative publicity will be substantial. It is not hard to imagine the following newspaper headlines:

Germany introduces harsher austerity measures in Greece after

61% of Greeks voted against the existing austerity measures.

OR

Germany puts the boot in . . .

Considering all these factors, the EU managers might decide to offer substantial “loan haircuts” to the PIIGS countries or better still abolish the payments of all loans so that the PIIGS countries would have enough capital to introduce and adopt world competitive practices.

“Germany has shown no common sense regarding the European economy, nor compassion,” Stiglitz, a Nobel prize winner in economics, stressed, disapproving the measures imposed to Greece by European forces, and suggested a “brave” haircut to the Greek debt. 

Concluding Remarks

All indications point to a grim economic future if Greece remains in the ‘EU family’. A case is therefore made for Greece to exit the ‘EU paradise’. As Greece has several allies outside the EU derived from its history and its geopolitical position, Greece’s exit will not be economically traumatic.

Considering all these factors, the EU managers might decide to offer substantial “loan haircuts” to the PIIGS countries or better still abolish the payments of all loans so that the PIIGS countries would have enough capital to introduce and adopt world competitive practices. 

          The EU has to adopt the vision that Strauss-Kahn outlined to survive in the twenty first century for Germany’s stewardship so far has alienated many member countries.

          The newly elected Greek government did not use its close relations with Russia to derive better outcomes while the country is still a member of the EU community. Similarly the close links between Greece and the Greeks of diaspora were not used as leverage to derive useful outcomes for the Greeks residing in Greece.          

References

[1]  P. Krugman. “Right now we need expansion.” Der Spiegel interview. 23 May 2012.

[2] Noam Chomsky. “Austerity is just class war.” Alternet, July 2, 2015

[3] Kimberley DeRose. “Young Greeks flee abroad as crisis deepens.” CYFI Youth Newsletter, July 2. 2015.

[4] Christina Lamb. “Unemployment forces young into their own personal Gexit.” The Australian Newspaper, July 20, 2015.

[5] Helena Smith. The Guardian. 20 Jan 2015. “Young, gifted and Greek: Generation G – the...”

http://www.theguardian.com/world/2015/jan/19/young-talented-greek-generation-g-worlds-biggest-brain-drain.

[6] V. Sergueva. “Greek business exodus to 'safe haven' Bulgaria - Business Insider

http://www.businessinsider.com/afp-greek-business-exodus-to-safe-haven-bulgaria-2015-7Jul 24, 2015.

[7 ] Heidi Moore. “With friends like the European Union, does Greece...

http://mashable.com/2015/07/07/greece-still-in-the-european-union-enemies

[8] Albero Nardelli. “IMF: austerity measures would still leave Greece with unsustainable debt. “The Guardian”. 1 July 2015.

[9] Dominique Strauss-Kahn, addressing “German...

http://yanisvaroufakis.eu/2015/07/20/dominique-strauss-kahn-addressing-geTop [10] Top Greece Imports - World's Richest Countries

http://www.worldsrichestcountries.com/top_greece_imports.html

[11] Seema Mody CNBC.“Russia may win politically if a Greek deal falls...”

http://www.cnbc.com/2015/07/13/russia-may-win-politically-if-a-greek-deal-falls-through.html

[12] Greek– Turkish earthquake diplomacy - Wikipedia,...

en.wikipedia.org/wiki/Greek%E2%80%93Turkish_earthquake_diplomacy.

[13] ekathimerini, News, 30/06/2015 “Turkey says 'ready to help' Greece out of...http://www.ekathimerini.com/198722/article/ekathimerini/news/turkey-says-ready-to-help-greece-out-of-economic-crisis 2015

[14] Tyler Durden. “NATO member Turkey Breaks ranks : Slams EU Austerity, Offers Greek Aid.” 06/30/2015.

http://www.zerohedge.com/news/2015-06-30/nato-ally-turkey-breaks-ranks-slams-eu-austerity-offers-greek-aid

[15] Greek diaspora - Wikipedia, the free encyclopedia. en.wikipedia.org/wiki/Greek_diaspora

[16] Tom Ellis. Ekathimerini.com. 12/05/2015 “Engaging the Greek diaspora | Comment”

http://www.ekathimerini.com/196861/article/ekathimerini/comment/engaging-the-greek-diaspora.

[17] Katerina Papathanasiou. “Nobel prize winning economist Stiglitz meets with Greek government officials.” ECOS Jul 12, 2015.