by Stephen Bryen
One of the best songs in the musical Cabaret is Money performed by Joel Grey and Liza Minnelli. “Money makes the world go ’round.”
And so it does, or at least it affects how the world goes around these days in the midst of the Euro crisis in Greece.
It is worth taking a look at where the money is, and where it isn’t.
For this I will use the per capita income as a measure. Per capita income is derived by taking the gross national product of a country and dividing it by the number of resident producers -namely people who are working. Since not everyone reports actual income and many countries have “black” or hidden economies, many industries keep two sets of books, one has to be careful in taking the numbers we have completely at face value. But even with the possible points of distortion in mind, the numbers are most interesting and revealing.
The highest reported per capital income is Norway with a whopping $97,363 per working person. The closest to this is the tiny municipality of Macao, which derives its income from gambling and comes in at $96,443 per capita. From that lofty number we go to some of the other Scandinavian countries with Denmark at $60,634 and Sweden at $58,887. Next comes the United States at $54,629 followed by Iceland and the Netherlands still in the 50’s. Germany, Europe’s economic powerhouse is lower at $45,620 per capita and the UK, France and Italy are in the mid to high 30’s. So too is Japan at $36,194. In fact, Japan is outperformed in terms of per capita income by the UK at $38,160 and by Israel at $37,031.
Then comes the bad news. Greece is at $21,682; Portugal at $22,080 and Spain, better off at $30,262. Russia is only at $12,735 per capita and Ukraine is at a mere $3,082 (practically bankrupt). Without the Donetsk area, which Ukraine no longer controls, the real per capita is likely to be even lower.
Some questions arise from this analysis.
Question 1: why would Russia be fighting a semi-secret war in the Ukraine which, if it fell into Russian hands (which is happening) would drag down Russia’s standard of living significantly? From an economic as opposed to ideological point of view, unless Russia can achieve something more, occupying the Ukraine is a significantly bad deal for the Russian people.
Question 2: would Russia attack the Baltic states (Latvia, Estonia and Lithuania) for economic reasons? They might certainly because all these countries have strong per capita incomes above that of Russia (Estonia $19,719; Lithuania $16,037 and Latvia $16,037). While Poland is less rich (per capita at $14,422) the ancient enmity between Poland and Russia remains a factor, but all these are NATO countries today which complicates Mr. Putin’s ambitions. Perhaps he is hoping for a continually weakening Europe, and he may get his way.
Question 3: what about Greece? Greece is worse off than Portugal and Spain not counting its substantial debt. Unless Greece can find a receptive Europe willing to write off its debt, its per capita income next year will be even lower. Almost all of this augurs for Greece either completely exiting the Eurozone or creating a second currency to live alongside the Euro. This would make the most sense, but sense does not seem to be an agenda item either for Greece or for Europe.
Europe is frozen into an ideological corner from which extraction is rather difficult for ideological and economic reasons. It is clear that the rich-poor dichotomy in Europe is not sustainable in a world that is increasingly interconnected and aware and politically more mature than when the Eurozone was formed. The European dream was to have a “united” Europe dominated by Germany with the political support of France. Some doubt that France is as strong as it looks and that the French people are so happy with German domination. And all these countries have been flooded with immigrants who drag down their economy and create intractable social and political problems exacerbated by the unwillingness of the newcomers to become French, or German or Dutch and the unwillingness of many nationalists to accept them. Insofar as the euro is concerned, it is a “sovereign” currency realistically only in Germany because the Germans call the economic shots in Europe. All the other have surrendered their national sovereignty to this system.
It still remains to be seen if some accommodation will be made with Greece and whether it can work. Without a significant debt write off, surely it cannot. And short of that Greece cannot survive without a new currency.