IN case you have not spent any of your valuable time following the telenovela negotiations over the debt disaster in Greece for the last several months, the final episodes are now showing.
There has been little attention here in the Philippines paid to this unfolding financial drama. Perhaps, the best that our local commentators could come up with was a review of their own personal travel diary to Greece. “The country has friendly people, great food, beautiful beaches, and it’s really a shame their economy is going to collapse.”
Given a reversal of fortune, perhaps, that is what Greek commentators would be saying about the Philippines if our banking system was on the brink of failure.
The current situation is nothing more than a continuation of the tribal warfare than has been “Europe” since they first crawled out of their caves and began throwing rocks and spears at each other for economic conquest.
The 1992 Maastricht Treaty created the European Union (EU), and led a few years later to the euro currency. Germany, because of its size, became wealthy, in part, by exporting nearly 60 percent of its goods to the “Little Europeans”: Greece, Italy, Spain, Portugal and Ireland. Those nations essentially exported all their cash to Germany. When they ran out of money, the EU loaned them more cash to buy more and to finance their ineffective and inefficient governments and economies.
But Greece is a particular case, and its experiences do offer some lessons for the Philippines.
Greece owes an amount equal to 180 percent of its economic output that, to ever be repaid, would require continuous economic growth of 3 percent to 5 percent. But the Greek annual growth rate has been negative for 26 of the last 30 quarters, and the economy has shrunk by nearly 30 percent.
The Economist magazine puts it all together very clearly. The problems in Greece are: “The structural impediments to growth—rampant clientelism; hopeless public administration; comically bad regulations; a lethargic and unreliable justice system; nationalized assets and oligopolies; and inflexible markets for goods and services and labor.”
The specifics are uncomfortably close to what we have in the Philippines. One economist, John Mauldin, broke it all down this way. “Government bureaucracies tend to favor businesses already in place and create unnecessary rules for new competition. [Think Philippine mining and retail.] The bureaucracy is heavily geared toward patronage and employing family and friends. The rules are such that many of the most important industries have only two actual providers of goods or services, neither of which is incentivized to compete on price. It is extremely difficult to create a new business to compete with these oligopolies. [Philippine telecoms?] The justice system is notoriously fickle, and subject to pressure and bribes and crony capitalism. Many of the state-owned businesses, like the railroads, are hopelessly mired in losses and inefficiencies.”
It is easy to look at others and shake your head at their failures. It is much harder to carefully examine yourself and make changes to avoid the same mistakes.
2 comments
i agree with most of the commentary but disagree on the most important point of debt. A quick check shows that Philippine government debt to gdp is now 37 % which is a whale of a difference from the 180% of greece. There is a lot of room for improvement in our country but the Philippines will not be a Greece in the near future.
The author is right about lots of things in common between the two nations but there is a profound difference. Greece is tied to a common currency while the Philippines is not. Greece can be dictated upon in running its economy by the EU lenders while the Philippines is free to go its way. Unfortunately for Greece, the austerity prescription by the lenders choked fatally its economy. The Philippine economy is going great in the hands of Cesar Purisima and by PNoy standing pat on his anti corruption crusade.