the danger of prophecy

Back in 1998, when I was 17 years old and head over heels in love with Greece – not that I’d actually ever been here or anything, mind you – I bought a book at the college bookstore. I bought it for one and only one reason: it was the only book about Greece in the store. That, for me, was good enough. However, the subject matter was pretty dry and I never made it past the first page. So it sat on my bookshelf. It came to Greece with me, and moved from one house to another, but it was never opened, not even once.

Until last night, that is. My husband has a terrible flu, high fever and total misery, and while I’m trying to keep his spirits up, or at least talk him out of drowning himself in orange juice, and despairing of anything new to read, I opened this book, published in 1997. And this is what I read:  (bolding is mine)

The Greek economy is intensive in what is known as interindustry trade, which is traditional trade and still much determined by comparative advantage.  The EU, however, is predominantly engaging in intraindustry trade in which there exists two-way trade in mutual products, and which is explained more by differences in tastes, technology, rates of innovation, and economies of scale than by comparative advantage. The creation of a single market will foster intraindustry trade rather than interindustry trade.  A country like Greece will find itself losing entire industries that are unable to compete in the new unprotected environment. In fact, Greece and Portugal are perhaps the most exposed economies under the single-market formula.  Twenty-one percent of Greece’s industrial employment is in interindustry-type sectors; only 9 percent is found in labor-intensive sectors.  the remainder is in capital-intensive sectors in which Greece does not have a comparative advantage.  Thus, Greece is ultimately the most vulnerable economy in the EU because its high-tech, high-growth sectors are all characterized by interindustry trade.  The possibility of intense “negative” adjustment is very real as barriers are removed.  And the development of “poles of growth” and “poles of stagnation” within the EU is increasingly likely due to the heterogeneous nature of the member states’ economies.

It is not surprising, then, that the Greek economy experienced severe setbacks  in the 1980s.  Comparatively speaking, the Greek economy weakened against other Mediterranean economies and against the EU as a whole.  The vitally imporant years immediately after Greece joined the EU proved to be a period of maladjustment, as the Greek economy exhibited production decline and serious levels of business disinvestment – both of which may have had debilitating effects on the economy.  The structural weakness of the Greek economy, moreover, became evident as the trade decifit increased and the structure of its trade put it at a seemingly perpetual disadvantage.

This situation was certainly not what the member states of the EU had in mind when they considered expanding to include countries of the Mediterranean.  Moreover, this reality does not conform to the expectations of Greek policymakers about the possible rewards of membership in the Community.  Yet the data starkly indicate the level of disadvantage of the Greek economy relative to the larger community and point toward serious weakness in both the short run and the long run.  (page 184)

The 1993-1998 convergence program published in December 1992 is designed to pave the way for Greece’s participation in the Economic and Monetary Union.  …  The essence of the convergence program indicates a belief that there must be some transfer of capital from the EU core to the less-developed countries.  The latest EU expansions have brought in members whose economies are substantially less developed.  The result has been a seemingly comprehensive attempt to integrate the new Mediterranean members.  In 1985, the EU adopted what have been called integrated Mediterranean programs (IMPs), which are adjustment assistance policies designed to enable Mediterranean members to deal with the competitive challenges of their membership.  Unfortunately, these programs have inexpensively shoehorned newer members into the Community’s ideal of economic competitiveness rather than truly adapting their economic abilities to the higher level of competition that exists in the Community.

But the larger question of intercountry income transfers suggests that Greece might still be negatively affected by its EU membership.  Certainly, budgetary transfers to Greece have been positive, but income transfers between consumers and producers in Greece on one hand and EU member economies on the other have been decidedly negative.  One study has shown that due to variable levies and tariffs, as well as the structure of Greece’s trade, the Greek economy is much more open to the EU than vice versa.  The EU’s penetration of the Greek economy results in direct income transfers between consumers and producers in Greece and the other economies.  Only recently, when budgetary transfers increased significantly, has the overall balance of direct transfers been positive.  But this proves the point that Greece may very well become dependent upon these budgetary transfers without truly adjusting its economy to the requirements of full membership.  It may never be able to equilibrate its economy so that income transfers balance out.

In this demand for convergence there is also a belief in reduced government – that a viable private sector needs infrequent intervention on the part of the public sector.  The EU avers that the Greek government produces a significant drag on Greece’s national economy through its domination of the credit markets and that any development in the economy will come at the expense of the government’s central role.  The debate over this issue is still being played out in Greek national politics, with the New Democracy party in opposition pursuing a pro-EU agenda and the PASOK government putting forth more populist policies.  Whether New Democracy, if returned to power, would operate any differently than PASOK remains to be seen.  

… The structure of trade is such that Greece will continue to run huge deficits, and the recent period of disinvestment must have had serious effects on the competitiveness of the Greek economy.  Economic performance in many of the sectors important to participation in the EU will continue to deteriorate or remain flat.  Greece will miss out on the many benefits of membership in the Community.  It most assuredly will not capture much of the “value added” currently accruing to the economies of the North.  Moreover, the budgetary transfers to Greece, though substantial, can only mask the effects of the overall transfer of income to the EU from Greek producers and consumers.  

 A real danger exists that Greece may end up the constant recipient of subsidies from the EU’s center and form one of the economies of the periphery.

… The needs of the Greek polity, at a time when it was trying to consolidate its fledgling democracy, did not coincide with the demands placed upon it by membership in the EU.  When membership demanded sacrifices and economic adjustment, the Greek government pursued policies designed to shore up its domestic support, creating imbalances that may never be totally eradicated.  In this context, therefore, it is hard to see how Greece will be able to effect successful integration into the EU.  Its destiny may very well be to remain a peripheral economy within an incomplete global economic powerhouse.  (pages 191-193)

Greece’s incomplete development and its accession to membership in the EU will combine to create new difficulties that will weaken the Community itself and threaten to leave Greece on Europe’s periphery.  This is because Greek accession to the EU represents increased linkage of economies and preservation of national sovereignty more than it does a serious alteration of the political status quo.

… But membership in the Community, according to Stavros Thomadakis, will more likely result in the increased dissipation of the economic decisionmaking authority of the Greek government; as yet there are no direct stipulations for the transfer of that authority to some central, multilateral power within the Community.  Just who will have the ultimate authority to manage national economies is unclear, as is accountability in the case of failure.  Thus, national economies will be more vulnerable in the EU than they are currently as a reallocation of functions between the state and the market takes place in the guise of deregulation and the emergence of private economic agents to provide services previously provided by the state.  As competition in the form of indirect tax cost-shifting between national economies within the EU intensifies, only states that exhibit fiscal fitness, technical expertise, efficient provision of public services and goods, and political legitimacy with regard to imposing rules for the game will succeed.  Greece possesses none of these and thus will have a particularly difficult transition into full membership within the EU.

… The public’s low perception of the Greek state’s reputation as an economic manager, regulator, and mediator of social processes will create obstacles to its integration.

What does the Greek experience tell us?  Perhaps the pattern of Greek historical, economic, and cultural development is so unique that generalizations are impossible.  Yet contemporary Greece, with its chronic contradictions and problems, may be a harbinger for the futures of the other states on Europe’s periphery.   What does seem incontrovertible is that Greece and other countries on the Mediterrean littoral and in the Balkans have had histories and developmental patterns quite unlike those of the states in western Europe.

… That Greek civil society will be less likely to accept the pattern of participation embodied by the EU bodes ill for the eventual integration of the Community; it also begs the question of the inevitability of having an emergent core and perpetual periphery within the EU.  That Greece will be included in that periphery seems a foregone conclusion.  In fact, recent proposals for a European Union with “two or more speeds,” suggesting that core countries maintain different rights and obligations than the periphery, is a logical reaction to the difficulties in achieving a fully integrated community. (pages 201-208)

Source:  Keith R. Legg and John M. Roberts.  Modern Greece:  A civilization on the periphery.  1997.

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7 thoughts on “the danger of prophecy

  1. It looks like the timing of your discovery seems perfect for the times you’re in, as well as the place your perception is in and ability to absorb the implications. (If you’d read it before the meanings wouldve been unimportant and lost to you, so what affect would it have had compared to now?)
    This piece really highlights the fallacy of wishful thinking and hones in on the underlying reality that all countries are not the same -in retrospect more care should’ve been taken in studies before signing on to the EU. It is astonishing that any government would ever had entered into the EU with such knowledge available in a college-level book. If I were Greek I would be FUMING over this failed experiment and in the streets to get my country back- to wrench it from the hands of those who ruined it trying to twist it into something it never could’ve been and was not meant to be.
    It’s really sad to see this happening to the cradle of democracy, that it’s national treasures are being sold off.
    ZeroHedge.com has had several indepth articles lately on what’s happening with Greece now, with the ideas attached to bailouts that amount to taking over – nullifying it’s sovereignty. I wonder how many Greeks feel it’s better to try to stay in the EU now? I saw many rallies being talked about & taking place on the concept of standing with Greece as well as identifying with it: “We are all Greeks now”!

    • The timing is indeed perfect, and you are absolutely right: none of that would have made any sense to me even 3 or 4 years ago. Now this book is literally a page-turner – I couldn’t put it down! (Maybe I should have been an economist!) For me one of the most disturbing things is that people like the current prime minister and the man mentioned in the excerpt above, S. Thomadakis – these are people who not only knew this stuff but were saying it out loud back then – and they were ALSO the exact same people who were the architects of Greece getting into the EMU, and now, the prime minister at least is desperately trying to keep us in there. Sovereignty is a very big issue right now – some of the ‘soundbites’ coming out of Germany are very obviously intentionally provocative on the issue of Greek sovereignty. I’m not sure what their intentions are with that.

      I have seen many polls about Euro/EU membership and they are all over the place. They range anywhere from 70% for staying to 70% to leaving. Most people I personally know are all for leaving. It seems to be the view held by the most irrational and the most coldblooded (polar opposites – those who want things to get better tomorrow and those who want things to get better in 10 years), and the moderates want to stay (those who want things to get better in 2-3 years). Personally I consider myself coldblooded and very pragmatic, and I think that we might as well get it over with, lose 50 lbs each, and get ourselves on a recovery track sooner rather than later, because I think eventually it’s going to be necessary; at least if we do it now, we have a few extra pounds to lose. In another couple years of austerity measures, we might not.

      • Wow Heidi, we get the same kind of numbers here (never can rely on them), so I really appreciate your birdseye view and insight. I don’t even know why I care- maybe because like those who protested around the world- Greece IS us, and it’s still possible that we could go the same financial spiral down (enacted differently but with the same results).
        It matters little, but I agree with your pragmatic view of taking losses now while everyone still has an inch to pinch rather than waiting for austerity to take it’s toll. Maybe it wouldn’t be so bad with aid from other countries for humanitarian purposes! Why can’t ‘the powers that be’ see the sense in that route? I read a story (Huffington Post UK version) on the suffering already… one single mom unemployed for a year finally got a job and STILL couldn’t take care of her young child – and took her child to the church (running an organization like an orphanage). There were a few of those stories as told by the mother and the priest. If it’s that bad now it’s frightening to think of waiting until all the rest of us don’t have the funds to send aid…. because I’m pretty sure we’re all going down this road eventually.
        Hang tight, Heidi – and keep baking that wonderful artisan bread, it’s aroma comes thru the pages!

  2. Pingback: a new form of contraception in Greece | homeingreece

  3. Well Heidi a prophesy indeed. It certainly would have been a lot to put your head around when you purchased it. In hind sight it is amazing.

    Thanks for pointing it out to me. I might have to read it a couple more times to fully appreciate the authors foresight.

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