On Sunday July 5th the Greek people are going to vote in a referendum whether they approve or disapprove of the Troika terms for further financial assistance. The left-wing government is making last minute moves, in effect begging the Eurozone for more loans. The Greek people are frightened and worried. The truth is that the government has defaulted and that it has dragged down the banks towards default. The savings of the citizens are in danger of being partially lost if the country remains part of Eurozone.
The only way for the bank deposits to remain intact is if either the Greek people fully accept the Troika terms (i.e. they vote “yes”) or if the government introduces a national currency (Drachma). This second option requires very skillful handling on the part of the government. Up to now the government has exhibited complete lack of managerial ability of even the simplest tasks, so the Greek people are rightfully worried for their future under all possible outcomes of the referendum.
In this situation, it is only natural for anyone to ask: In the 50s, 60s and 70s the Greek economy was one of the fastest growing and healthiest economies in the world. How is it that the same people three decades later lost their ability to work productively?
There are some simple explanations. If we imagine the economy as a passenger car and the government as the driver then the following things have happened since the 80s (after Greece became a member of EU) and especially after 2001 when Greece adopted the euro as its currency.
The driver (the government) has been always drunk. The EU was showering the Greek economy with structural and agricultural funds. Considering the size of the economy, the amount of money per capita was huge, the people became lazy (they didn’t need to work too much), the corruption became endemic and the elected government (the driver of the car) adopted the mentality of a dependent-addicted person.
VERDICT: The EU’s international socialism breeds laziness, inefficiency and corruption on a grand scale.
Since the mid-80s the Greek economy started receiving hundreds of thousands of EU bureaucratic, socialistic and unnecessary laws and regulations that were rubber-stamped by the Greek parliament. That meant the economy was gradually becoming inflexible and inefficient and that the passenger car was becoming an extremely complicated machine, with a huge engine, loaded with all kinds of automations and instruments. The engine was the same for the nearby German car but our driver was nevertheless happy and drunk and very proud to have at last the same engine with his German neighbours.
VERDICT: The EU’s law-making machine makes the Greek economy inflexible, slow moving and uncompetitive.
Early in the 2000s Greece adopted the Euro as its currency. The neighbours had promised our driver that with the Euro he would always be rich and happy. Our drunk driver started now singing songs of happiness (everybody was able to borrow under very nice terms) and increased his travelling speed. However, having lost his national currency (the Drachma) our passenger car had now lost its shock absorbers. The car, when passing over potholes (external shocks to the economy), could not “absorb the disturbance” – the currency could not be devalued as needed.
Our drunk driver carried on driving but when he passed over one such big pothole (the international financial crisis of 2007-2008) the chassis developed a huge crack. The driver didn’t notice. He was drunk and singing. But by that same time the car had developed many other problems. Having abandoned its currency, the Drachma, half the driver’s electronic board did not function. The Greek economy had lost its monetary warning indicators (particular interest rates of Drachma, exchange rate of Drachma) and the Greek government (the driver) since 2001 (introduction of Euro) had lost the indicators that show levels of engine oil, engine water, engine temperature, brake fluid level and many others.
The Greek government finances were in terrible shape but this could not be reflected in the exchange rate or in the interest rate of the Euro. The driver had no way to see this in the electronic indicator board in front of him neither he could see that the levels of engine oil and water as well as brake fluid were extremely low (i.e. he could not see that the Greek economy had become unproductive because this was not reflected in the currency or in its interest rates). Finally the drunk driver saw smoke coming from the engine (the Greek government borrowing had become very expensive) and when he stopped and got out of the car he realised that the engine had been totally burnt and that the chassis had huge and unrepairable cracks.
VERDICT: Abolishing the Greek currency (introducing the Euro) erases all the monetary indicators for the particular economy. This means the economy participants (markets, investors, citizens and government) have a very tiny ability to access the health of the economy until it is too late.
If this is the situation in Greece what can be done? Obviously the car has to be rebuilt with a new engine and chassis (i.e. structural changes for the economy to become productive and competitive) and the national currency reintroduced (replace the driver’s electronic board and the car’s shock absorbers) and replace the driver with one who is not addicted.
CAN THIS BE DONE? Usually successful structural changes are the result of a people’s own efforts after fully realising the whole problem and not the result of a command and control process from above (Troika). Even if the currency changes to the Drachma and the structural changes from above are implemented successfully, it is almost certain that any new driver of the economy (any new government) will very soon become drunk (become addicted to the international socialism, bureaucracy and lack of democracy of EU).
In the long run there is no way for any bureaucratic, command and control economy to be successful. Individual and national freedom and responsibility is the only way forward.