Greek election sorted – now we just have to solve demographics, competitiveness and bankrupt governments….
The reaction to the weekend’s Greek election was more interesting here in the USA than you might think. On major network news broadcasts, the news anchors pronounced that Greek’s had voted for the “safer” option and avoided a result that would have seen them “turning to radical leftists” and “precipitating a major economic meltdown by leaving the Euro.”
The poor Greeks – like the Irish in their General election last year, the only alternative to centre-right-steady-as-she-goes-austerity-in-the-Euro was a bunch of left-wing nutjobs. In Ireland it is only really Sinn Fein who stand for a different course in Europe – but like their Greek radical counterparts the rest of their portfolio of ideas is unrealistic, socialist hokum that would deliver all the downsides of leaving the Eurozone with none of the common-sense economics to make the best of the new competitiveness.
How tragic that sensible market-minded patriots who can see the train-wreck that is coming cannot get aligned to help countries follow the Icelandic path. It is a bit like the folks in Egypt in their weekend Presidential runoff having to chose between a Mubarak-era throwback and the Muslim Brotherhood. Not what many in Tahrir Square ever envisioned. Change, like peace, comes dropping slow sometimes.
The buzzword this week at the G20 summit in Mexico will be GROWTH! No doubt this is the right goal for governments who want to get the world’s economies back on track. The challenge is not to just call for “growth”, it is to actually know what will be needed to do something about the growth challenge.
Mentally, the greatest challenge to overcome for world leaders is to know that a lot of the last decade of growth in the western economies was largely phoney growth. It came from debt and property bubbles that were not real. It came from very loose policies over money supply – especially in the past four years as central banks have printed as fast as they think they can get away with. It gave a false sense of prosperity to many, and they spent that money hand over fist. It cannot and should not be a goal to just return to where we recently came from.
In Europe in particular we have become sclerotic as economic bodies. If we were companies we would be shuttered – dead and gone. But running countries is not always the same as running companies. Companies may come and go, but life for people must go on and societies have to continue to function.
Where countries ARE like companies is that they cannot continue to borrow indefinitely to solve their problems. Eventually Greece, Ireland, Spain and all other countries in the world have to make, produce or sell enough things that other people want to buy. Whilst most of any economy is largely domestic, at some point wealth must be created to both sustain and grow that economy AND to pay for all the goods and services that must be imported (let’s start with oil in most cases, food, cars, white goods, raw materials, steel, etc.)
That means Western economies have to continue to change and evolve. It also means that our social models have to change and evolve – meaning government taxation and spending need to be able to shift massively in the hard times.
Clearly Germany has done better than most – in being angry at them for refusing to acknowledge the massive boost that the Euro has given their economy, I don’t miss the fact that they have continued to develop their economy in a superb way. They make stuff people want, they make it well and they have exercised some restraint in wage/entitlement growth even if much of their relative wage competitiveness comes from a phony currency.
I can’t see Ireland or Greece or Spain or Portugal making enough stuff that people will want in sufficient volumes to pay the debts they are running up at a sovereign level. Having lower costs is the first shift in an economy that gets into trouble. Remember how cheap it used to be to go on holiday in Italy or Greece or Spain? A step-change in tourism is an example of a more immediate impact that a currency change would have – one that immediately brings foreign currency into a beleaguered economy.
The distractions of the Greek election will be over soon enough once a government is actually formed. Unfortunately for the leaders of Europe it is now one less circus to distract from the numbing reality of the choices that must be made – all available roads will lead to pain.