Ross Perot was running for President as a third candidate. He was a smart man who had articulated the reasons why the U.S. had a dinosaur economy based on consumption. The North American Free Trade Agreement (NAFTA) was under discussion then. Perot predicted that NAFTA would generate a “giant sucking sound” (jobs leaving the U.S.). Those jobs would be gone forever. Thereafter, “we all sell each other hamburgers and buy Chinese crap and South Korean cars and televisions”.
I was mistaken to think that Greek political leaders, but above all EU-political leaders, would have considered that something similar might happen in Greece with the Euro. Alright, I forgive them for not thinking about it before the fact. But I would have never thought that, later on, they would not have noticed that “giant sucking sound” of imports and loans being sucked into Greece and domestic production being decimated.
Finally, I would have thought that EU-leadership would have noticed, once the Greek crisis erupted, that the Greek economy had de facto become a zombie-economy of services. To paraphrase Ross Perot: an economy where people sold each other souvlaki at inflated prices and paid for it with money borrowed abroad.
Had they admitted the right diagnosis, I would have expected them to make the following announcement: “Severe imbalances of product and capital flows have developed between the Core and the Periphery leading to the cross-border debt problem of today. We have to implement policies and incentives within the Eurozone which will lead to a reversal of this process. We will incentivate companies in the Core to shift some of those investments which they would make outside the Eurozone to the Periphery of the Eurozone. The Core will be incentivated to buy more of the products which the Periphery will then produce”.
Much has been said about Greece’s being by nature more of a services economy than a production economy. If one accepts that as an unalterable fact, then one has to accept that Greece will by nature return to being a poor economy.
A service economy can only survive if enough services are provided to customers outside the country to generate the foreign funding necessary for the import of production goods. Could Greece exist purely as a service economy? Theoretically, it could. In practice, very unlikely.