Greece is well positioned geographically to prosper in the two major growth areas of the 21st century, Africa and the new Silk Road envisioned by China’s leadership. Instead of looking to the future, recent Greek governments have simply reacted to Europe’s demands, in all reality, Germany’s demands. Greece should look to the future, not the past, even if there is short-term economic pain.
Greece’s membership in the Eurozone has been its major problem. The situation is that productivity-adjusted wages in Germany have been far less than those in the southern Eurozone countries. Since all countries in the Eurozone use the same currency by definition, the countries in the south cannot devalue their currency to improve exports relative to Germany. The current crisis does not address this issue at all. In fact it exacerbates the situation by restricting the ability of the Greek government to stimulate its economy enough to pay interest on the debt burden. And lenders to Greece have not assumed their part of the responsibility for the debt problem.
The result is that the workers in Greece are hurting and continue to hurt. They voted in the Syriza-led coalition to implement change. But no change came; just negotiating game-playing by the finance minister, Yanis Varoufakis. Unfortunately Greece has received no significant support from the other European countries such as Italy, Portugal, or Spain. In fact, France’s president, François Hollande, who could have stood up to Germany’s Angela Merkel concerning the disequilibrium of the euro, has simply been her poodle. The Eurozone is not a well balanced organisation; it is dominated by Germany.
Greece needs to leave the Eurozone and repudiate the debts, but also forget the drachma. Greece should look toward the future, not the past. Greece should exit the Eurozone so it can adjust its currency independently, but carefully. It needs to forget the debts that are dragging it down. Of course in this process tax collection must be improved. Greece must adopt a new currency with a name like med after the Mediterranean Sea region. Resurrecting the drachma would just bring an aura of failure.
In addition banks and merchants should be adroit at accepting any of several major currencies. The world is in the digital age; transactions could be made in euros, dollars, yuan, meds, or pounds easily at the point of sale. The Greek government could facilitate these exchanges by strictly regulating any exchange rate fees close to, or at, zero. Initially, the med should be pegged one-to-one to the euro to raise confidence in the new currency.
If the med is structured correctly it would be very useful in the future for north Africa countries to accept it or adopt it as their own currency providing they have sound fiscal policies. The med could evolve into a regional currency; the drachma never could.
As Greece returns to prosperity the reaction of the southern European countries can only be to jump ship also. Their exports would benefit greatly with the med as their currency because of the ability to devalue with respect to the euro. While the benefit to Greece in leaving the Eurozone would be primarily getting rid of the debt, the benefit to the other European countries leaving, even France, would be the possibility of controlled devaluation of the med.
Alexis Tsipras, the prime minister of Greece, should be talking to China, the Asian Infrastructure Investment Bank, and countries along the new Silk Road as well as nations in Africa. He should have already developed other sources of loans. Greece did have a primary budget surplus, before interest payments. Repudiating these debts would be a huge breath of fresh air.
Would this pivot away from Europe and toward North Africa and the New Silk Road be difficult? Yes, it would be very difficult, but such a radical realignment and the near-term pain will produce a bright future for Greece. Remaining in the German dominated Eurozone will do nothing except ensure a continuing depression. The relevant number is the unemployment rate, especially for the young people. It is around 25% for all workers and over 50% for the youth, an unsustainable situation.
There is an even bigger problem than Greece’s economy that should give pause. The Eurozone and the United States have economies, which have been too slow to recover and may slip back into recession. The reason is a policy of austerity again. Merkel’s policies are not only bad for Greece, they are bad for the entire Eurozone. Even Germany’s export driven success could be shattered by China’s emerging high technology manufacturing capabilities. Germany’s economy may be far more fragile than realised.
In the US, president Obama lost his chance to reform the country’s very unequal economy as he was taking office. He and his party’s speaker of the house at the time, Nancy Pelosi, rushed through bailouts for banks and large corporations without extracting New Deal style reforms from the Republican opposition. Wealth inequality has increased under the Obama administration. And then Obama and Pelosi forced through an unpopular healthcare reform that resulted in a loss of control of both houses of the Congress. In fact the Democrats now have the worst representation in the House of Representative since the election of 1928. Clearly Greece should not depend on either the EU or the US.
In short, in sticking with the Eurozone, Greece will be adopting an inferior position with a weak group of countries. In contrast, as China continues to develop a consumer economy and develop the new Silk Road, Greece would be in an enviable position as a major participant in this growth.
A very interesting aspect of the Eurozone issue is that shipping, even that in Greece, is relatively immune to the Greek government’s fiscal problems or the identity of what currency Greece uses; however, shipping is greatly hampered by the lacklustre performance of the Eurozone and U.S. economies.