With the Greek debt crisis lurching from bail-out to bail-out and Europe practically making Greece surrender much of its sovereignty in return for another €86bn, the prime minister Alexis Tsipras faces a task of Herculean scale (like cleaning the stables of King Augeas which held immortal cattle and produced an unfeasibly enormous quantity of dung), which obliges him to abandon all promises of ending imposed austerity measures. Thus he faces the wrath of the Greek people which might spell the end of his premiership.
Is the story of Greece instructive though? What could have been done differently? Closer to home, is an economy like Australia immune from being utterly shipwrecked upon the shoals of bankruptcy like Greece is?
If you look over the great economic empires of history, the Romans, the Persians, the Ottomans, the Mongols, the English, the Americans and now the Chinese, all have had one thing in common - the ability to control their own destiny with regards the goods and services they produce.
Greece currently finds itself in a situation where it produces very little of value that it can trade with and is financially ruined as a result. Say what you will, you just can't build an economy based on yoghurt, tourism, cement, concrete and reo-bars. In 2008 Greece's total GDP was €321bn compared with €226bn in 2013.
In a story not dissimilar to Greece, as Australia moves away from producing its own stuff, all that we have to trade with are things we can farm; be they agricultural goods or dirt. We're not even that good with our own dirt either, we sent it overseas to be smelted and it magically comes back as stuff.
If you look through the ASX200, maybe 11 companies are manufacturers? That doesn't seem very smart to me. It appears to me as though the financial system is largely parasitic and that the economy is mostly held up by farming and dirt. Like Greece, we're on the express train to oblivion but we can't afford the diesel to get there.
The biggest underlying problem with the Greek economy is that well before it even joined the Eurozone and the common currency, it stopped attracting foreign investment from about the mid 1990s. That lack of investment spending meant that there wasn't any future benefits to be reaped and this led to a slow process of deindustrialisation. As a result production slowed down, and the number of imported goods which had to be imported increased. Since the amounts paid for imports vastly exceeded the receipts collected on exports, the only possible outcome was an increase in the size of the deficit in the current account; that gets paid for by taking out loans.
Without private receipts, this means that there was an increase in the public debt. This was further compounded by the fact that businesses started to refuse to pay taxation and individuals couldn't sustain the same levels of taxation as they once did.
With falling real wages in Australia and the manufacturing sector withering on the vine (or in the case of the automotive industry, being dared to leave by the Treasurer from the floor of the parliament), Australia is in precisely the same conundrum. I find it utterly scandalous that the Federal Government would even think of contracting any of its capital defence spending to foreign nations; yet last year that's precisely what was being touted when the plan was to build replacements for the ageing Collins class the submarines offshore. What do you do when not even the government is on Team Australia? Of course, no-one particularly wants to set up manufacturing plants here because other countries' labour costs are far cheaper (and our labour costs are also driven by the need to pay for over inflated housing prices).
In Australia's case, this is absolutely an example of the "Dutch Disease" when an economy increases the economic development of natural resources and watches a decline in the manufacturing sector, as the corresponding changes in exchange rates distort prices. Maybe this is an example of the paradox of plenty at work?
Rather than invest in manufacturing, or education, or anything really, governments in Australia squandered the mining boom by giving away tax cuts; now that the price of many commodities (particularly coal, oil, iron ore and grain) continue to fall, the revenues which could otherwise have been collected have been undercut by burning the tax base.
The other thing that Greece tells us is that with issues like an aging population which will add to the cost of state pensions and welfare programs, governments need to think about their tax base structures. Unlike Greece, Australia still retains its own currency and so central banking functions remain relatively autonomous; so at least that's something.
The Greek financial crisis should serve as warning to Australia. Although Australia doesn't have the same sorts of issues of austerity being imposed upon it from the outside, relying on selling dirt isn't wise.
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