An Ancient Greek Lesson

2500 years ago the Greeks created a way of life that others admired and copied all over the world. Ancient Greece is often called “the birthplace of Western civilisation”. Now Greece is leading the way in European political failleur. Other politicians should learn the Greek lessons of repeated political and economic  failures. It is time to wake up.

Philip Booth, editorial director at the Institute of Economic Affairs, looks at four aspects to the “Greek problem” in his recent post on Public Service Europe.

1. Deal with the unsustainable debt burden

2. The Euro-zone question

3. Wages must fall in both the private and public sector.

4. Major supply side reforms to allow productivity growth

The current crisis is first and foremost a public debt crisis. The problem is a reoccurring one and would have come about even without the onset of the financial crisis.

Even outside the Eurozone the same problem would exist. Outside the Eurozone in the past debt-holders have lost out due to a currency devaluation. Outside a currency union creditors would therefore demand a currency-risk-premium to fund Greek, Italian, Spanish, French and Portuguese debt, raising the demanded rates on government bonds further.  The fact of the matter is that all these countries are living beyond their current means and placing the burden on future generations.

Far from being the problem, debt-holders stand to loose. To increase the chance of repayment, they are forcing much needed economic intervention. They know that economic growth is the only way out. Some economists such as Paul Krugman, feel that this is in direct conflict with austerity. Yet fiscal expansion and more government debt is the last thing these countries want or can afford. For growth drastic reforms are needed to make these countries competitive. This will be hard with vested interests and a limited political backbone.

It is time for a political awakening. In the Eurozone wages can no longer be decrease  though inflation and currency devaluation. I believe this is a good thing.

“Why should competitive industries loose wealth though devaluation, because uncompetitive industries choose not to reform?”

Until now politicians have not accepted that labour flexibility, and less market regulation is needed in a currency union. But they must wake up and realize that the best way to generate economic growth is allowing  market participants to find the most productive way to serve each other.