George
Friedman
The Greek crisis is moving toward a climax. The
issue is actually quite simple. The Greek government owes a great deal of money
to European institutions and the International Monetary Fund. It has
accumulated this debt over time, but it has become increasingly difficult for
Greece to meet its payments. If Greece doesn't meet these payments, the IMF and
European institutions have said they will not extend any more loans to Greece.
Greece must make a calculation. If it pays the loans on time and receives additional
funding, will it be better off than not paying the loans and being cut off from
more?
Obviously, the question is more complex. It is
not clear that if the Greeks refuse to pay, they will be cut off from further
loans. First, the other side might be bluffing, as it has in the past. Second,
if they do pay the next round, and they do get the next tranche of funding, is
this simply kicking the can down the road? Does it solve Greece's underlying
problem, which is that its debt structure is unsustainable? In a world that
contains Argentina and American Airlines, we have learned that bankruptcy and
lack of access to credit markets do not necessarily go hand in hand.
To understand what might happen, we need to
look at Hungary. Hungary did not join the euro, and its currency, the forint,
had declined in value. Mortgages taken out by Hungarians denominated in euros,
Swiss francs and yen spiraled in terms of forints, and large numbers of
Hungarians faced foreclosure from European banks. In a complex move, the
Hungarian government declared that these debts would be repaid in forints. The
banks by and large accepted Prime Minister Viktor Orban's terms, and the
European Union grumbled but went along. Hungary was not the only country to
experience this problem, but its response was the most assertive.
A strategy inspired by Budapest would have the
Greeks print drachmas and announce (not offer) that the debt would be repaid in
that currency. The euro could still circulate in Greece and be legal tender,
but the government would pay its debts in drachmas.
The Deeper Questions
In considering this and other scenarios, the
pervading question is whether Greece leaves or stays in the eurozone. But
before that, there are still two fundamental questions. First, in or out of the
euro, how does Greece pay its debts currently without engendering social chaos?
The second and far more important question is how does Greece revive its
economy? Lurching from debt payment to debt payment, from German and IMF
threats to German and IMF threats is amusing from a distance. It does not,
however, address the real issue: Greece, and other countries, cannot exist as
normal, coherent states under these circumstances, and in European history,
long-term economic dysfunction tends to lead to political extremism and
instability. The euro question may be interesting, but the deeper economic
question is of profound importance to both the debtor and creditors.
In our time, economic and financial questions
tend to become moralistic. On one side, the creditors condemn Greek
irresponsibility. The European Union has dropped most pretenses about this
being a confrontation between the European Union and Greece. It is increasingly
obvious that although the European Union has much at stake, in the long term
this is about Germany and Greece, and in the short term it has become about the
IMF and Greece. Germany feels that the Greeks are trying to take advantage of
its good nature, while the IMF has institutionalized a model in which sacrifice
is not only an economic tonic to debtors but also a moral requirement. This is
not frivolous on the part of Germany and the IMF. If they give Greece some
leeway, other debtors will want the same and more. Giving Greece a break could
lead to Italy demanding one, and Italy's break could swamp the system.
On the Greek side, the Syriza party's leaders
are making the decisions. Those leaders have only limited room to maneuver.
They came to power because the mainstream eurocratic parties had lost their
legitimacy. Since 2008, Greek governments appeared to be more concerned with
remaining in the eurozone than with the spiraling unemployment rate or a deep
salary cut for government workers. That stance can work for a while, if it
works. From the Greek public's point of view, it didn't; many Greeks say they
did not borrow the money and they had no control over how it was spent. They
are paying the price for the decisions of others, although in fairness, the
Greeks did elect these parties. The Greeks do not want to leave the euro,
interestingly. They want to maintain the status quo without paying the price.
But in the end, they can't pay the price, so the discussion is moot.
The Greek government is thus calculating two
things. First, would covering the next payment be better or worse than
defaulting? Second, will behaving like the eurocratic parties they forced to
the wall leave Syriza internally divided and ripe for defeat by a new party?
The German calculation has to be whether a default by the Greeks, one that
doesn't cause the sky to fall, would trigger recalculations in other debtor
countries, causing a domino effect.
The Future of Free
Trade
The more fundamental issue concerns neither the
euro nor the consequences of a Greek default. The core issue is the future of
the European free trade zone. The main assumption behind European integration
was that a free trade zone would benefit all economies. If that assumption is
not true, or at least not always true, then the entire foundation of the
European Union is cast into doubt, with the drachma-versus-euro issue as a
short footnote.
The idea that free trade is beneficial to all
sides derives from a theory of the classical economist David Ricardo, whose
essay on comparative advantage was published in 1817. Comparative advantage
asserts that free trade allows each nation to pursue the production and export
of those products in which the nation has some advantage, expressed in profits,
and that even if a nation has a wide range of advantages, focusing on the
greatest advantages will benefit the country the most. Because countries
benefit from their greatest advantages, they focus on those, leaving lesser
advantages to other countries for which these are the greatest comparative
advantage.
I understate it when I say this is a
superficial explanation of the theory of comparative advantage. I do not
overstate it when I say that this theory drove the rise of free trade in
general, and specifically drove it in the European Union. It is the ideology
and the broad outlines of the concept that interest me here, not the important
details, as I am trying to get a high-level sense of Europe's state.
To begin with, the law of comparative
advantages does not mean that each country does equally well. It simply means
that given the limits of geography and education, each nation will do as well
as it can. And it is at this point that Ricardo's theory both drives much of
contemporary trade policy and poses the core problem for the European Union.
The theory is not, in my opinion, wrong. It is, however, incomplete in looking
at the nation (or corporation) as an integrated being and not entities made up
of distinct and diverse interests. There are in my mind three problems that
emerge from the underlying truth of this theory.
The first is time. Some advantages manifest
themselves quickly. Some take a very long time. Depending on the value of the
advantage each nation has, some nations will become extremely wealthy from free
trade, and do so quickly, while others will do less well, and take a long time.
From an economic point of view this may still represent the optimal strategies
that can be followed, but from a more comprehensive standpoint this distinction
creates the other two problems with the law of comparative advantage.
The first of these is the problem of
geopolitical consequences. Economic power is not the only type of power there
is. Disparate rates of economic growth make the faster growing economy more
powerful in its relation to the slower growing economy. That power is both
political and military and can be used, along with economic advantage, to force
nations into not only subordinate positions but also positions where their
lesser comparative advantage diminishes even further. This does not have to be
intentional. Maximizing comparative advantage makes some powers stronger than
others, and over time that strength can leave the lesser power crippled in ways
that have little to do with economics.
The last problem is the internal distribution
of wealth. Nations are not independent beings. They are composed of autonomous
human beings pursuing their interests. Depending on internal economic and
political norms, there is no guarantee that there will not be extreme
distinctions in how the wealth is distributed, with a few very rich people and
many very poor people. The law of comparative advantage is not concerned with
this phenomenon and therefore is not connected to the consequences of
inequality.
Breaking the Law of
Comparative Advantage
In looking at the European Union, the
assumption is that each nation pursuing its comparative advantage will maximize
its possibilities. By this I mean that each country will export that thing
which it does best, importing things that others produce more efficiently. The
comparative aspect is not only between nations but also between the products
within the nation. Therefore, each nation is focusing on the things that it
does best. But "best" does not tell us how well they do it. It merely
tells us that it's the best they can do, and from that they will prosper.
The problem is that the time frame might be so
long that it will take generations to see a meaningful result of this measure.
Thus, Germany sees the results faster than Greece. Since economic power can
translate in many ways, the power of Germany limits the practical possibilities
of Greece. Moreover, whatever advantage there is in free trade for the Greeks,
it flows unequally.
This is when comparative advantage runs as it
should. But it has not run that way in Europe, because Germany has been forced
by its economic reality to pursue exports of not only those products where it
has a comparative advantage internally, but many products for which it lacks an
internal advantage but has a comparative advantage externally — these are not
necessarily the things it does best, but it does them better than others. Since
Germany is efficient in multiple senses, it has advantages in many products and
takes that advantage. Germany has a staggering export rate of more than 50
percent of gross domestic product. Comparative advantage assumes it will want
to export those things that it produces most efficiently. It is instead
exporting any product that it can export competitively regardless of the
relative internal advantage.
Put another way, Germany is not following the
law of comparative advantage. Social scientists have many laws of behavior that
are said to describe what people do and then turn into moral arguments of what
they should do. I am not doing that. Germany empirically is not driven by
Ricardo's theories but by its own needs. In other words, the law of comparative
advantage doesn't work in Europe. As a result, Germany has grown faster than
other European countries, has accumulated more power than other countries and
has managed to distribute wealth in a way that creates political stability.
Comparative Advantage
and the Greek Issue
The result is that Greece is answerable to
Germany on its debts. In the same way that no moral judgment can be drawn about
Germany, none can be drawn about Greece. It is what it is. However, whatever
problem it has in maximizing its own exports, doing so in an environment where
Germany is pursuing all export possibilities that have any advantage decreases
Greece's opportunity to export, thereby creating a long-term dysfunction in
Greece. The German superiority perpetuates itself.
It is important to note that Germany did not
operate without protections after World War II. It protected its recovering
industries from American competition. The United States, an economic colossus
that exports a relatively small amount of its production, also was heavily
protectionist in the late 19th century. Similarly, the United Kingdom
maintained tariffs to protect the British Empire's markets. Greece has no such
protection.
The theory of comparative advantage is
generally true, but it doesn't take into account time disparities, the
geopolitical consequences of time lags or internal social dislocation. That is
why I said it was both true and incomplete. And that is also why the European
Union, however it might have been conceived in its simplest sense, suffers from
massive disparities in the speed that nations accumulate wealth, has nations
that do not behave as the theory predicts they should, and creates geopolitical
imbalances externally and social dislocation internally. It's not that free
trade doesn't work. It's that it has unintended consequences.
This is why I would argue that the Sturm und
Drang over Greece's debt and the future of the euro misses the point. The
fundamental point is that the consequences of free trade are not always
positive. It is not clear to me how Greece ever recovers without the
protections that Germany or the United States had during their early growth
period. And since nations do what they have to do, the issue is not the euro,
but free trade.
And this is Germany's dread. It is a nation
that exports as much as it consumes, and half of that goes to the European free
trade zone. More than anyone, it needs the free trade zone for its own
well-being. This is why, however the Germans growl, it is not the Grexit they
fear but rising tariffs. The European Union already allows substantial
agricultural tariffs and subsidies. If they allow broader tariffs for Greece,
then when does it stop? And if they don't, and Greece crumbles socially, where
does that stop? Free trade can be marvelous or dreadful, depending on
circumstances, and sometimes both at the same time.
George Friedman, Stratfor, April 21, 2015
"The
'Grexit' Issue and the Problem of Free Trade is republished with
permission of Stratfor."
Relacionados:
Nenhum comentário:
Postar um comentário
Não publicamos comentários de anônimos/desconhecidos.
Por favor, se optar por "Anônimo", escreva o seu nome no final do comentário.
Não use CAIXA ALTA, (Não grite!), isto é, não escreva tudo em maiúsculas, escreva normalmente. Obrigado pela sua participação!
Volte sempre!
Abraços./-