The Global Economy in Turbulent Times

CHAPTER 47 PIIGS Can’t Fly: The Trouble with Greece¹

On my way back to Kuala Lumpur after attending Asia Vision 21: Values, Conflicts and Change in Asia, organized by Harvard’s Asia Centre and Harvard Kennedy School’s Ash Centre, I could not help but feel sorry for the people of Greece, given the predicament they are now in. Greece’s problems are well known. My Harvard teacher, Martin Feldstein, had in late April 2010 judged Greece to be already insolvent and “at that point, will default,” or, more politely in negotiated default.² This can take many forms, including an “organized restructuring of the existing debt, swapping new debt with lower principal and interest for existing bonds.” That’s certainly one way to go, where everyone (including creditors) shares in the pain.

Over the February Chinese New Year holidays, the debt “death trap” that engulfed Greece was all over the place. In Chapter 76, “The Kiss of Debt,” I discuss Greece’s dilemma and argue that Greece might have been able to avoid the outcome if it were not in the eurozone and had its own currency, the drachma, back. Greece was not alone in this. Together with the other eurozone PIIGS (Portugal, Italy, Ireland, Greece, and Spain), these so-called Club-Med members of the European Union (EU) share some common traits: weak fiscal and debt positions; weak exports; weak balance of payments; and weak productivity (too high wages) caught in a zone with a strong euro, which made them all the more uncompetitive.

As I ...