NEWS,07.07.2012

From Ireland to Greece: Tragedy and Renewal in the Eurozone Crisis

The past several years, I have engaged intensively in research on post-Celtic Tiger Ireland. One thing I frequently hear in Dublin is "well, at least we're not Greece." So, after three trips to Ireland in the last half year, I jumped at a chance to visit Greece after the recent elections. What I found is that the two nations have more in common than either would like to admit. In terms of data (via Eurostat), Ireland is marginally better off illustrated by some minor but important recent steps towards market financing of its debt and an increase in American investment over the last year. Yet both are not near the bottoming out of their crisis. Greece, for example, owed at the end of 2011 approximately 165 percent debt relative to its gross domestic product Ireland was at about 108 percent. This is better for Ireland, but if Greece were not in the Eurozone, Ireland would only be surpassed by Italy as Europe's worst. In terms of annual deficit, Ireland entered 2012 worse than Greece with about an annual deficit of about 13 percent of gross domestic product and Greece at about 9 percent. Greece, on the other hand is deeply mired in depression with gross domestic projected to decline by at least 5 percent and projected Irish growth just under 1 percent positive for 2012. In Ireland, however, one has to discount for multinational corporations which pay insufficient tax into the economy and produce few new jobs to sufficiently affect indigenous economic growth. Greece's unemployment is over 20 percent -- while Ireland's has now hit 15 percent. Ireland's would be higher were it not bleeding its talent via emigration. This is particularly evident in youth unemployment (under age 25) which in Greece is over 50 percent, but in Ireland around 30 percent. Ireland and Greece are mired in the midst of major international bailouts of their economies which are based on unsustainable economic and political assumptions. In both countries, if you are a public sector employee you are being paid with money borrowed from other countries mainly Germany. Both countries are caught in enforced austerity via these bailouts. On the other hand, both would have to make massive public sector cuts anyway as their finances had run far behind their social ambitions.Neither have realistic alternatives. Ireland and Greece have gone through recent national votes and reaffirmed their commitment to the Eurozone while revealing significant political shifts. Ireland voted to approve its ability to draw on future European stability mechanism capital a clear reflection that the people there understand that a second bailout is likely after 2013. The Greek vote also was an investment in stability and achieved a new centrist coalition government. But neither could be read as an affirmation of support for the status quo. In Ireland, the second most popular party in the country is nationalist Sinn Féin and in Greece a new grouping of leftist parties called Syriza nearly won. Both parties are drawing support in a growing anti-European Union and anti-austerity mood though few people in either country want to bolt the Eurozone. Neither party has a realistic plan for governance, but in opposition, they need only to play off people's emotions and fears for political advantage. Had Ireland and Greece voted differently, both countries would have confronted likely bank runs, capital flight, foreign direct investment concerns, and even shortages of basic supplies likely leading to a deep decline far beyond that experienced to date. Ireland might have fared better given their capacity to export and their proximity to the British Pound, but it would have been a catastrophic outcome regardless. Tragically, the main purpose of the bailouts has not been to save these economies, but rather contain them from spreading further economic chaos. Once the Eurozone crisis hit Italy in fall 2011, both Ireland and Greece lost their remaining leverage to drive a hard bargain on better bailout terms now both must wait to see if comprehensive European solutions will work. What struck me most in talking to people in Athens and other parts of Greece was how common the refrains were from my visits to Ireland. People in both countries want the world to know the pain they are feeling. They want the world to know that they understand that they have to pay for years of excess but they desperately need relief and a sense of a future. Neither country, in particular, has a sustained sense of advocacy for the youth among the political class which risks the good faith of generations with nothing to do with the crisis but who are suffering the most from it. Sitting at café's in the Plaka in Athens it was hard not to notice the lack of tourists and the steady flow of local Greeks, out for a stroll, but not spending money. This I frequently see in Ireland as well though tourism has rebounded there while it is down by about 15 percent in Greece. In either case, tourism will not offset the fact that consumer spending in both countries has fallen dramatically. Only indigenous growth will solve the economic crises. Both Ireland and Greece offer the world extraordinary human capital, which is being wasted via austerity without simultaneous targeted investments for the future. No doubt, too, both countries face even harder choices in the coming months. In Ireland, another round of deep budget cuts will force a re-examination of a compact on public sector employment and benefits and put major strains on the governing coalition with a large junior partner Labour Party. In Greece, the government must make massive cuts in the public sector to qualify for further bailout payments - including shedding an additional 150,000 people from the public sector workforce by 2015. Without those bailouts, the government will run out of money and the threat of chaos would return. The people of Ireland and Greece, who did not cause these situations, need relief. Germany and other lender states will only get paid back if these economies have room for growth. This means they need to be able to use the bailout funds flexibly and they need major infrastructure projects that put people to work and stimulate future business investment. Most importantly, they need more time a lot more time to meet the terms of the bailouts regarding both cuts and interest rates. While I cannot say what that would mean for Greece, in the case of Ireland it means they need their bailout terms to extend over 30 years and likely at a 2 percent interest rate.At the end of the day, what the people of Ireland and Greece deserve is a sense of dignity and respect for each nation's contribution to the world history, culture, tradition, innovation, and a deep commitment to democracy. The people in both countries understand they will not see prosperity for generations. Instead they are relearning that pure materialism does not necessarily bring real wealth and that growth is vital, but sustained growth is more important than the quick win or fudged balance sheets. Hopefully, Germany will realize that it cannot, having achieved positive vote outcomes in Ireland and Greece, now put these countries to the back burner. Finally, now is the time to visit Ireland and Greece! The deals are great, the people extremely welcoming. I had multiple hotel managers say to me in Greece that people had cancelled reservations in advance of their vote last month for fear of riots. This is absurd. Go to Ireland and see the origins of the great literature and music of the world and the most beautiful scenery you will ever see. Go to Greece and see the Acropolis, Delphi, or take in an island and swim the Mediterranean Sea. You will be greeted with open arms and you will experience real riches offered by two of the great civilizations the world has known. Hopefully, as more people do that, the world will also realize that it is time to rethink the balance of austerity to include investment in the rich tapestry of people that Ireland and Greece have to offer.