What questions would you ask?
Well, first of all you would ask why this is so. The answer would not be that the Southern countries have such high budget deficits (from the spaceship you wouldn’t even see the budget deficits…). Instead, the answer would have to be that the Northern countries are doing something better than the Southern countries. In short, they are more competitive.
Perhaps you would look for the switch “Competitiveness – on/off” and try to pull it. Regrettably, that wouldn’t work because there is no such switch. Instead, there are systems (business frameworks) which lead to more or less competitiveness. You would have to conclude that the North has better such systems than the South.
So the conclusion would appear obvious: implement in the South the systems which seemingly work so well in the North. Except that new systems can’t be implemented just like that. Once the rules of the free market get out of whack (and they have gotten extremely out of whack between the North and the South), those rules won’t cure the problem any longer. It’s a bit like hoping that free market forces will correct the downsides of a cartel!
One needs the process of a “managed economy” (not to be confused with a planned economy!) for some time. If one wants to have more or less good employment throughout the Eurozone, one needs to bring the commercial flows, the real economy, back into balance. It’s not good enough for Germany to announce that they want to import more from Greece. Germany would first have to concern itself with the question how Greece could produce the products which it is prepared to import.
An economic development plan in a free market environment really doesn’t do that much planning. Instead, it sets new incentives so that the plan’s objectives come about by themselves. One such incentive could aim, for example, at shifting some of the investments which Germany makes outside the Eurozone to the South of the Eurozone. Obviously, the South would have to provide the business framework so that those investments make sense.
One such instrument would be government guarantees for foreign investment in Greece. A radical new thought? Not really! Countries like Austria or Germany have had, as part of their government programs for international trade promotion, such programs in place seemingly forever. The Austrian company which wants to invest in a foreign country can get government insurance for a very reasonable fee. It can get insurance for either the political risk or the economic risk, or for both. The deductibles are very manageable (in some cases no more than 10%).
Not all countries are eligible for that insurance and I doubt that Greece presently is. But what would it take to make Greece eligible? Not all that much, I would guess. Bear in mind, however, that foreign investors do not transfer their capital simply because they get government insurance. They only transfer it if they see good business opportunities in the country at issue. That is where Greece’s responsibility would come into play.
What is the incentive for the Germany’s (or for the EU in general) to implement such policies? It can only be in the interest of a Germany to have strong trading partners in the periphery. Weak trading partners stop trading. A case in point: German exports to Portugal declined 14,3% in the first 6 months of 2012. Wouldn’t it be a lot smarter for Germany to have manufacturing companies in Greece which need to import machinery from Germany?
To me, what is desperately missing in the debate about the Eurozone is a focus on the real economies of the EZ-countries. Many years ago, the EU had implemented the instrument of structural funds. Their idea was to shift capital to underdeveloped regions so that those could develop and create value on their own. At the end of the day, both parties were expected to benefit from that, and in many cases that happened.
It seems to me that what the Eurozone needs more than anything else is an expanded version of such structural funds. It is no longer a region of Greece which needs to be developed. It is now the entire country which needs that. I hasten to add: particularly in the case of Greece, it is not so much money which is required. Money will flow quickly on its own if there are good investment opportunities. What Greece needs above all is know-how transfer. Know-how of all possible kinds, not only technological know-how. For example: know-how about management, about corporate governance, etc.
In my opinion, if ways cannot be found where the flow of investments within the Eurozone concentrates on those areas where investment is needed the most, the Eurozone will not get out of the financial troubles it is presently in.