Europe’s inevitable Greek divorce

By Felix Salmon
February 22, 2012
on Canadian TV yesterday, laying out my genius solution to the Greek crisis: Canadians.

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

I had a little bit of fun amidst all the seriousness on Canadian TV yesterday, laying out my genius solution to the Greek crisis: Canadians. (My segment starts at about 19:20 in.) Essentially, Germany wants Greeks to become German: to stoically accept real wage deflation while working hard and paying their taxes in a good Protestant manner. Canadians are well-educated, productive, and very good at paying their taxes; what’s more, they’d probably like somewhere warmer to live, especially in the winter. So bring all the Canadians to Greece, where they could help turn the economy around, and leave Canada to the commodity companies and the Chinese property speculators. It’s basically the Davos to Greece idea, taken to its logical conclusion.

Underneath it all is the simple truth that economic growth is caused by people. Ever since the Eurozone was created, Europe has been quite clear about the fact that economic and monetary union can’t work without labor mobility. But sadly, the ability of Europeans to work in any EU country has meant an outflow of skilled professionals from Greece, when what it really needs is an inflow.

If you really want structural reform in Greece, a lot of that is going to have to come from new blood — northern European entrepreneurs and corporations setting up shop in Greece to take advantage of the large supply and low cost of labor there, as well as all the advantages of being both in the EU and in the Mediterranean. But that’s not going to happen so long as you read stories like this one, about how it took ten months to get permission to launch a website selling olive-oil-based products to the US market.

Antonopoulos and his partners spent hours collecting papers from tax offices, the Athens Chamber of Commerce and Industry, the municipal service where the company is based, the health inspector’s office, the fire department and banks. At the health department, they were told that all the shareholders of the company would have to provide chest X-rays, and, in the most surreal demand of all, stool samples.

Once they climbed the crazy mountain of Greek bureaucracy and reached the summit, they faced the quagmire of the bank, where the issue of how to confirm the credit card details of customers ended in the bank demanding that the entire website be in Greek only.

When politicians talk about “structural reform” in Greece, they mean cutting out a lot of this kind of red tape. But that takes time, which Greece doesn’t have. Besides, you need some kind of financial system to support new businesses, and Greece’s banks are barely lending at this point.

The really big picture here is that European monetary union is a marriage — and not a happy one, right now. In any marriage, if one partner falls on hard times, it’s incumbent upon the other to support them. If they can’t, or won’t, then divorce is surely in the cards. Similarly, if one partner doesn’t trust the other, then the marriage will not last long. The latest Greek bailout is being sold with the idea that Europe will support Greece indefinitely, and trusts Greece to do everything it’s promised. Neither passes the laugh test. And so, rather than moving to Greece to help rebuild its economy, the rest of Europe will ultimately split up with its noncontiguous partner. The only question is when.

27 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

“when” is up to the greek politicians, under the terms of the European Monetary Union

the eurozone is a tough monetary club and becoming tougher
you have to achieve or ride in your car, or currency

there were slack fiscal holidays in the past, but now the economic climate is unforgiving of debt-fueled growth

issues like the olive oil website stupidity require a different form of persuasion for political change – the troika

but your constant grizzling that greece should leave ….
you sound like a nanny

as one reuters correspondent wrote, the pons asinorum is not a bridge you are fit to cross, despite all the fun and games with legoland and rubber duckies

Posted by scythe | Report as abusive

this whole bail out system is better discribed as ROUND TRIPPING.

funds are channelled thru “greece” to flow back to the banks.

No hands “greasing” for Greece here, just deeper and deeper in the pit.

Once the Round Tripping is finalized and the main elections (France and Germany) are over, the final DUMP can start.

Fact !

Posted by Willvp | Report as abusive

You also need to end massive tax evasion, huge public sector subsidies to cronies of the government and cut back on the amount of red-tape one has to go through to do business there.

As for lack of trust, the Greek government has failed over and over again to keep its promises.

Posted by Danny_Black | Report as abusive

“Antonopoulos and his partners spent hours collecting papers from tax offices, the Athens Chamber of Commerce and Industry, the municipal service where the company is based, the health inspector’s office, the fire department and banks. At the health department, they were told that all the shareholders of the company would have to provide chest X-rays, and, in the most surreal demand of all, stool samples.”

Say they found sh*t or E. coli in the product. It would be logical to assume that it came from an employee, so having on file such information is perfectly logical…
On the other hand, there are nefarious individuals that might try and extort money from the company by finding sh*t (by putting their own) in the product. Therefore, it is even more logical to get stool samples from all customers as well.
;)

Posted by fresnodan | Report as abusive

In other countries, at other times, such “red tape” would be an open invitation to hand the official a modest gratuity to help expedite the request.

Posted by TFF | Report as abusive

>> When politicians talk about “structural reform” in Greece, they mean cutting out a lot of this kind of red tape. But that takes time, which Greece doesn’t have.

Felix, you haven’t explained why this takes time. It should take no time at all, unless you still don’t want change.

Posted by Curmudgeon | Report as abusive

So how great of an economy do you think Canada would have if they weren’t able to export all that oil, gas, timber, hydropower, and other stuff they extract out of the earth, most of it without any regard to the environmental consequences? I’m guessing it would be nothing to brag about.

Nothing against the Canadians, but if you put all of that energy (or just a fraction of it) under Greece (or say, under a desert somewhere), you can mask lots of economic sins.

Posted by KenG_CA | Report as abusive

Maybe all the Greeks should move to Germany?
Then those people would owe nothing. And nobody could ever move to Greece because doing so would require them to give all their money to Germany.

Posted by wilddollar | Report as abusive

I question the Canadian warm weather thesis. They may say that would like a sunnier climate, but I doubt they can give up their harris tweed undies.

Posted by ARJTurgot2 | Report as abusive

@KenG_CA

That’s like saying if Shaq wasn’t 7 feet tall he wouldn’t be good at basketball.

There are lots of countries with resources that are in far worse shape than Canada. Yes we take advantage of that, but it’s not like the U.S had no resource based gains in history.

A more prudent point is, let’s not praise Canada because we haven’t experienced a problem yet…we may be judging this too early.

Posted by evwarsh | Report as abusive

evwarsh, not it’s not the same. Felix is giving Canadians credit for their healthy economy, as if it’s just because of the people. I’m saying they have an advantage that Greece doesn’t – far more natural resources than they could possibly consume. If they had to import as much energy per capita, I don’t think their economy would necessarily be much better than Greece’s. Besides the income the exports generate, and the savings they realize from not having to import a bunch of energy, what kind of work do you think all of those resource industry employees in Canada would be doing if they didn’t have all those resources?

btw, Shaq is still over 7 feet tall, and hes not very good any more. Height isn’t everything, he still needs skills that have disappeared with age.

Posted by KenG_CA | Report as abusive

This story doesn’t sound at all accurate. What difference does it make anywhere whether they start a mail order arm of an existing business or a website? That’s really all a web site is. All they are doing is trying to advertise the product more widely?

All the tax forms and health issues seem to be more concerned with starting the business itself from scratch, however the products are sold or to where. Did you check this out yourself? There must have been some effort to ensure product safety when the firm started producing ever for the domestic market. It may also be possible that the firm never exported outside the country and what those forms are doing is making sure the products meet EU standards? Some of that delay may actually be due to trying to obtain US health documentation as well, what ever that is called? Greek policy or payoffs may not be the issue at all?

Why on earth would these guys need anything more than a domain name and a web hosting service if the business was there to begin with? It almost sounds more like a publicity experiment along the lines of a HULU documentary about corn production. But something just doesn’t sound right.

Posted by paintcan | Report as abusive

Paintcan, you may want to check out Shawn Tully’s recent Fortune article on the red tape in Greece, and the half-hearted efforts to create some sanity (sorry, can’t find a link, but it was only about two weeks ago). I’m not passing judgment on this particular tale, but it does seem to ring true in light of Tully’s reporting.

Posted by Curmudgeon | Report as abusive

Paintcan: “Why on earth would these guys need anything more than a domain name and a web hosting service if the business was there to begin with?”
Because it’s Greece, that’s why. Does the term Byzanthine mean anything to you?

Posted by amateurediteur | Report as abusive

@amateurediteur – Yes it does! It’s the part of the decaying Roman Empire that actually managed to stay alive and prosper while the rest of the Western Empire was being taken apart by hungry Huns, Vandals and Visigoths.

Posted by paintcan | Report as abusive

@ KenG_CA I’ll point out the uncomfortable truth that all over the world the further you get from the equator the wealthier nations get.

Never freezing to death means the people who don’t plan ahead well can still survive until their childbearing years. Canada’s emence resourse base helps them pleanty… but not as much as their culture of work and saving… one which has litterally been bred into the population for hundreds of years.

Posted by y2kurtus | Report as abusive

y2k: Argentina, Chile, Iceland, Russia, Belarus, North Korea, Kazakhstan. Exceptions to your rule?

Still, answer my question – what would Canada be exporting if not oil, gas, timber, and hydro power? Or would they just be a subsistence nation, content with growing enough food for themselves and missing out on the technological revolution (you have to pay for those gadgets somehow)?

Posted by KenG_CA | Report as abusive

More than 70% of the Greek economy is services. Since being in the EURO they cannot devalue, the only way for Greece to become more competitive (e.g. Tourism) is for wages to fall significantly, but all economists know that wages are “sticky” and cannot easily – or rapidly – be reduced; similarly, prices would also have to be reduced, yet another “sticky” problem. So, with the EURO, Greece is condemned to many years of recession, high unemployment and dangerous deflation in a vicious circle.

By contrast, a sizable devaluation can bring about swift and automatic changes in all Greek wages and prices relative to its neighbors and the rest of the world. This would have an immediate positive effect on current account income (especially through tourism) and, on the manufacturing side, the sudden devaluation would severely compress imports, thereby forcing domestic production and hence supporting employment gains. The effect would be to significantly ameliorate the present economic and employment crisis in Greece, as well as immediately improve its current account deficit. Leaving the EURO is by far a better policy for Greece’s future.

As to the external debt, fears have been magnified out of all proportion: many other countries have defaulted in the recent past and, after a useful period of non-payment, have negotiated very favorable debt-reduction plans. Greece would continue to owe EUROS on most of its external debt, but it would stop payment for a recovery time as others have done (similar to what companies sometimes do when they go into temporary bankruptcy). With its domestic banks, that hold a sizable portion of Greek debt, the Greek government could simply exchange those bonds for new Drachma ones, thereby avoiding a domestic banking crisis with the support of its resuscitated Central Bank.

It is time for Greece to leave the EURO before it is too late and its economy collapses further, with great social suffering that could be avoided.

Posted by luiscatan | Report as abusive

@ KenG_CA. I totally agree with your premise that Canada would not be as well off without their massive exports of natural resources. Many of those (timber, water, windpower, hydropower, wheat) are renewable. If you rank Canadian Companies by market value the top 3 are banks. After that 14 of the next 20 are oil, gas, or metals companies further proving your point. There are a few non resource plays. Canada invented the blackberry which was the biggest thing going 7 years ago.

I feel like most of the exceptions you listed really aren’t. Even after their national bankrupcy Iceland is a rich nation. Even Chile with a GDP/capita of 14,000ish, is among South America’s richest nations… double the GDP of Colombia, tripple the GDP of Ecuador or Paraguay.

Saving and investing for the future is a deeply cultural trait. If your garden produces 12 months of the year and you can sleep with the windows open on new years eve than your culture simply won’t value planning and saving the same way as a culture where you either have enough food or fuel to make it through the winter or you starve / freeze to death.

Posted by y2kurtus | Report as abusive

y2kurtus: Maybe. It’s not that simple. I got into this debate almost 20 years ago when Saxenian published her book Regional Advantage, which trumpeted the superiority of the Silicon Valley business culture over that of the Boston area. One of the points often raised in the debate was that because losing your shirt in sunny and warm California didn’t mean you would freeze to death in the winter, entrepreneurs there were more willing to take risks. If it is in fact true, it seems to contradict your last statement.

Posted by Curmudgeon | Report as abusive

y2kurtus, the warmer climates derive more of their income from agriculture. The colder climates are forced to turn to industry. Over the past century, industry has been vastly more profitable than agriculture, and has seen even greater gains from automation.

Moreover, the industrial nation will trounce the agricultural nation in a war every time. North vs. South in the Civil War (one of the major dynamics both in the roots of the conflict and in the outcome was industry vs. agriculture). Germany vs. France. Japan vs. China. Is it any surprise that the industrial nations ended up on top in the 20th century?

I’m strongly suspicious of arguments that depend on a claimed “moral superiority” of one culture over another. Most of the time these arguments are used to plaster over historical dynamics that we don’t care to dwell on.

And Curmudgeon, your argument also fails the sniff test. Very few people in Boston freeze to death. (More likely to die of a heart attack from shoveling your driveway or from a broken hip caused by slipping on ice.) Those who do are not entrepreneurs who are down on their luck, they are the mentally infirm and/or career homeless. Very different circumstances.

Posted by TFF | Report as abusive

TFF, point taken, but the freezing to death was really more of a symbolic phrase for having to deal with more difficult circumstances in general due to a harsher climate.

Posted by Curmudgeon | Report as abusive

Curmudgeon, you might better argue that the favorable climate makes Northern California an attractive destination for young, educated, highly mobile engineers?

Boston is also a technology hotbed (perhaps in different fields), largely due to the concentration of top schools in the area. An entrepreneur will consider various factors when choosing a location. One of the most important is the quality of the workforce in that area.

Steve Jobs was born in San Francisco, but how many other entrepreneurs were born elsewhere and moved? Zuckerberg was born in White Plains, NY. Meg Whitman may have run for governor of California, but she comes from Long Island originally.

Posted by TFF | Report as abusive

If the Greeks don’t default they will be forced to sell parts of their territory. They shouldn’t do that.

It is also obvious to me that the business community everywhere is more shark and predator than responsible fiscal manager. No wonder the Chinese keep tight control of their currency, banking and speculation. They were colonized before and it wasn’t to their benefit.

The sharks deserve to have their backs broken and thrown back in the sea as food for other species for a change, or they’ll never stop eating the small fry. The global economy is creating conditions for the evolution of mega predators. They can eat governments and whole countries now. I’m never going to like or trust the giant businesses like Facebook, Google, Microsoft, or the mega merchandising chains etc. Gravitational attraction alone can make them larger and when they die they leave enormous carcases. They are all like a revival of the age of the dinosaurs. They are even more frightening because they can grown bigger brains while the dinosaurs couldn’t. And the command of life is to survive and they will do that regardless of the cost to the rest of the human population.

BTW – One thing the Africans and the warmer climates have always had working against them were/are environmental diseases and nasty predators. The colder climates have winter to contend with as many comments mention. The cold weather seems to kill off insects and mammal species before they evolve into more aggressive species. Even the fauna have to work to survive the winter and don’t seem to become large carnivores because the vegetation is much more plentiful.

The environment did a lot to keep Africans in a state of subjugation and they could stand to live in hot climates better then the Europeans. That made them a useful commodity. The Greeks have a very rocky set of islands and peninsulas that don’t appear to be very lush or fertile. Their small population doesn’t work to their advantage either.

Posted by paintcan | Report as abusive

Here’s the link to the Fortune article mentioned by Curmudgeon – http://finance.fortune.cnn.com/2012/02/1 5/greece-economic-reforms/

Putting it in the context of the Canadian comparative advantage/natural resources discussion, it’s notable how much Greece has done that holds back its tourism/resort industry, on top of a generally inflexible economy with rent-seeking incumbents guarding their privileges (see trucking and pharmacies in Tully’s article).

Posted by realist50 | Report as abusive

wait a sec, TFF, you’re not suggesting Whitman is an entrepreneur? She was a big business consultant when she was given the plum job of running ebay, which had already started to take off. She used her big business acumen to waste money on Skype, and was the antithesis of an entrepreneur. Her only entrepreneurial venture was running for governor of California, and she failed miserably at that (I still don’t know how she lost big time to Jerry Brown).

Silicon Valley became the first Silicon whatever because that’s where the first silicon companies were located. They drew engineers there because of the work, not the climate. They always had an advantage over every other region because the knowledge was there. The only reason any other area can challenge the valley is because their biggest creation, the internet, has enabled less expensive areas to compete. New York isn’t still a financial capital for any other reason than it is the financial capital. Inertia is a powerful force.

I’m with you on your point about “moral superiority”. While I think there are differences between cultures that give them some advantages, natural resources and climate have a huge impact on a society’s success or failure. One of my favorite books is Collapse by Jared Diamond; he gives great examples of how climate and resources greatly influenced how civilization evolved.

And Y2K, most of the US is south of most of Europe, and they’re not richer than us. In fact, any edge that those northern European countries might have over the US is solely due to how much we spend on the military, which they don’t do. If we had a “defense” budget proportionate to those countries, we would have a lot less debt. And debt is the problem that Greece is facing, not poverty.

Posted by KenG_CA | Report as abusive

“wait a sec, TFF, you’re not suggesting Whitman is an entrepreneur?”

Sorry, KenG, I realized after I posted that I was conflating two ideas. :) No, not an entrepreneur. But she sprung to mind as an East Coast transplant!

And yes, Boston is at the same latitude as Rome. Same daylight hours, just a little more snow. :)

Posted by TFF | Report as abusive