Why Greece Matters

Flag of Greece

Before answering the question “Why Greece matters?” it is important to revisit the formation of the European Union and of course a singular currency, the Euro.

The European Union was formally established when the Maastricht Treaty came into force on November 1, 1993. Both Germany and France, Helmut Kohl and Francois Mitterand respectively, were the chief architects in this historic experiment. Some not so simple facts: Since that time 28 sovereign states have joined. The member states encompass almost 1 3/4 million square miles. The total population is over 500 million inhabitants or 7.3% of the world’s population. In 2014, the nominal Gross Domestic Product (GDP) was 24% of global nominal GDP and 17% of purchasing power parity, $18 1/2 trillion. It is collectively the largest economy in the world. It matters!

The EU did not come out of thin air. Prior to its establishment, since WWII, all of Europe had been searching for an alternative, escape, from extreme Nationalism. The Hague Conference in 1948. The European Coal and Steel Community in 1952. The Treaty of Rome which created the European Economic Community (EEC) in 1957 were all forerunners of today’s European Union.

On December 1, 2009, the legal structure changed to create a permanent President of the European Council. In addition, the 751 members of the European Parliament (MEPS) are directly elected by EU citizens on the basis of proportional representatives every five years.

Other than military, the EU tries to function as one unit disregarding decades and even centuries of wars, conquest and mistrust.

In order to accomplish this goal, on January 1, 1999, the EU introduced its new currency, the Euro. In the beginning, the Euro, paralleled the continued use of Marks, Francs and Drachmas, etc. Within 3 years, however, the Euro replaced the domestic currencies and was established as the everyday currency. However some countries, such as Great Britain, did not adopt the common currency.

In theory one currency makes European pricing transparent. No longer does one have to use a currency calculator to find out what something is worth in Francs vs. Pesetas. Labor and goods can flow more easily across borders. They say everyone is on a level playing field. Of course, they all have the benefit of being managed by the European Central Bank (think US Federal Reserve). All would appear to be rosy?


Rosy, however, is not where we find ourselves today. At the time, the strength and value of the German Mark far exceeded the currencies of countries such as Greece, Spain and even France. The drawback was that the so-called strength made German goods and services much more expensive. The US dollar in tourism went farther in Mykonos than it did on the Rhine. Autos from Germany were much more expensive, currency translation, than from other European producers.

Disadvantage Germany

How to level the playing field in prices? Simply develop a common currency. The Euro made German products cheaper and all others more expensive which was the main reason for Helmut Kohl’s backing.

Over the decade the German quality and discipline came to dominate at the expense of all others. Contrary to opinion,

Advantage Germany

At first it didn’t seem all that significant, however, as time went by worldwide growth continued to slow. The competition for market share came to two simple choices, quality and price, and in that regard Germany was dominant. German quality and engineering was unquestioned. Now that competition, the ability to devalue currency and adjust pricing, had been eliminated, it was smooth sailing for the Huns but problematic for all others.

Year after year non-German businesses folded, unemployment rose and on the horizon economic collapse.

DOES GREECE MATTER?

In and of itself, NO. A country 1/3 the size of California with an insignificant manufacturing base and an economy dependent on tourism should not dictate much of the world’s attentions as it has for the past five years.

Why does Greece matter?

How the Troika (EU, ECB, IMF) handle the financial woes of Greece will set the template for other countries such as Italy, Spain, Portugal and even the United Kingdom. Should accommodations be made for the Greek government so too will the same accommodations be expected for all others. Concessions for one, means concessions for all.

Should that be done it is only a matter of time that the grand experiment will ultimately collapse. So prolonging the inevitable, kicking the can down the road, has been the order of the day.

Now, however, we come to the end of the road and creditors want payment. Greece has no money and is unwilling to make the cuts acceptable to the Troika.

So is “Grexit” (Greek exit from the European Union) inevitable? Is it back to the Drachma? One would think so. Should this happen, however, what looms on the horizon is even more daunting.

https://www.youtube.com/watch?v=oYVyT-NaeTM

The largest economy in the world is about to come unglued and the reverberations will be felt from Wall Street and Washington to Beijing and Moscow.

DOES GREECE MATTER?

Because it is a flashpoint of a worldwide change and the end of the great European Union experiment

GREECE MOST CERTAINLY MATTERS.

Written by
With his passion for economics, Bill Tatro has been entertaining audiences on the radio and in seminars for over 30 years. Bill’s dynamic and no nonsense style has made him one of his stations’ most popular show hosts.