June 7, 2015
Hoosiers Should Fret About Greece
Negotiations over a structure debt repayment plan for Greece have entered what foreign policy analysts call a tense phase. For Midwesterners who are enjoying the first enduring hints of the magnificent summer awaiting us, this may seem a distant worry. We should not be so sanguine. There are two major concerns about Greece that should capture our attention. One is big enough to rightly trouble us, the other is worse.
Greece is a small country with an economy that in 2010 was about the size of Michigan. Today its economy is about that of Oregon’s. This is due to a drop of about one-third or more of its total GDP. It is hard to determine exactly the size of the economy, because so much of it is unreported that even physicians and hospitals engage in barter to dodge taxes. However, the collapse of the Greek economy is outside of the historical record for a modern nation at peace.
This has delivered to the Greek people nearly a decade of hard times. The nation is broke, and because it belongs to the European Monetary Union it cannot print Drachmas to pay the debt. This means that the nation will either get a large debt restructuring, which will look a lot like bankruptcy, or it will default. A good debt deal should help lift the European economy, while a default will almost certainly mean a deeper European recession accompanying the utter collapse of the Greek economy and government.
Even a mild European recession will have repercussions here. About 2.5 percent of Indiana’s GDP is exported to the rich nations in Europe. That means perhaps 75,000 direct jobs linked to the manufacture and transport of these goods and another 45,000 indirectly across the state. A meaningful downturn impacting northern Europe will cost tens of thousands of Hoosiers their jobs. What happens in Greece will impact us, and so we ought to care about the economics of a debt restructuring. Still, that is not what keeps me up at night.
The Greek governing party, Syriza, is in a coalition government with some very extreme groups, including Marxists. This reflects the anguish felt by a population with no tangible prospects of an improved economy in the next generation. Domestic violence has already boiled over, and the entire Balkans remains potentially volatile. Dramatic economic collapse can spread easily to southern Europe. War is more than a remote possibility. Three successive generations of my family have already fought wars in Europe, most recently in the 1990s. As the father of teenagers, that scares me a lot more than a recession.
The Greek people bear a hefty share of blame for their plight, to be sure. They are citizens of a democracy. Turning a blind eye to ubiquitous tax fraud, clearly unsustainable budget deficits and unfunded pensions is malfeasant citizenship and serves as a good lesson for us. While the Greeks richly deserve the worst that may befall their nation, let us hope that the rest of Europe does not let that happen.
About the Author
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