Wednesday, November 2, 2011

Greece

We all already know that Greece is a bad guy, but what must of the people do not know is that, in fact, Greece changed a lot during the decade in the Euro. GDP per capita started at the same level as Portugal and in those ten years they achieved Italy’s and Spain’s GDP per capita (in PPP terms).



Their improvements can also be seen in more broad indicators like United Nations HDI (Human Development Index). Here, again, Greece reached in just 10 years, Italy’s and Spain’s levels.


Note that Portugal performed worse than Greece in both aspects.

So, where was the problem? Two different indicators can help.

First, The GCI (Global Competitiveness Index) by World Economic Forum shows how regulations and government management were worsening. The following graph shows Greece and other PIGS and France evolution in rank terms. In 2006 Greece was already well below and in 2010 they were ranked 83. Many developing countries were more competitive than Greece. That had to have an impact sooner or later!



The other index that measures competitiveness is Doing Business Index of World Bank. And it also shows that Greece was performing poorly. The following graph shows ranks of PIGS and France in 2010. Greece was ranked 101! Half of the world countries were better for doing business.


Note that Italy is not far away.

Finally, take a look at how Greece was ranked according to GCI 2010 in key aspects of the economy.

Greece key rankings in 2010
1.08 Wastefulness of government spending ................................128
1.09 Burden of government regulation ....................................129
1.19 Efficacy of corporate boards........................................120
1.21 Strength of investor protection* ...................................123
3.01 Government budget balance* .........................................138
3.02 National savings rate* .............................................132
3.05 Government debt*....................................................133
5.03 Quality of the educational system...................................118
6.06 Number of procedures required to start a business* .................128
6.12 Business impact of rules on FDI ....................................122
7.01 Cooperation in labor-employer relations.............................127
7.02 Flexibility of wage determination ..................................133
7.03 Rigidity of employment*.............................................121
7.04 Hiring and firing practices ........................................126
7.06 Pay and productivity ...............................................118

When 120 countries are above you, you are not competitive at all.

So, the question is how Greece could finance the GDP and HDI increase when much of the money was leaked?

The most obvious reason is because they got into debt. They used part of their debt to finance growth and HDI improvements but also, they lose money in mismanagement. Today they realize that they can not pay their debts. Usually when mismanagement and corruption is around, countries do realize about their own problems when is already too late.

The only thing that still puzzles me is that only the government got into debt but not the private sector. In global terms, that means, including households, companies, financial companies and government, Greece was not so bad. So, why is there such a huge indebtedness problem?

Global Debt %GDP Year 2010
Greece .................. 230
Italy ................... 206
Portugal ................ 300
Spain ................... 330
Source: Mckenzie

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