A week after the deal was signed there is near consensus that one way or another Greece will default and possibly leave the euro. That would enable it to regain international competitiveness freed of restrictions of the single currency on one hand and the high-handed, not to say bungling, unelected Brussels bureaucracy on the other.
It makes no economic sense to expect Greece, with a current account deficit of 8,4% of GDP, or Portugal (8,6%), Spain (3,8%) and Italy (3,5%) to compete on a level playing field (same currency) as Germany (surplus of 5% of GDP) and the Netherlands (7,8% surplus).
The commonsense solution is for the Greeks to take the gap, but economic commonsense departed the eurozone scene years ago. For the past 20 years, the eurozone has grown 1,7% annually, compared with 2,3% a year for all industrialised countries and 2,7% for the United States. Yet those responsible for this track record of failure are still determined to micro-manage Greece and any other eurozone country in difficulty.
The bottom line for the eurocrats is the survival of the single currency, regardless of the cost to the people of the uncompetitive peripheral countries in terms of poverty, unemployment and human suffering. Ironically, these are the very same experts who are so free with their policy advice, telling governments in Africa, including Zimbabwe, how to eradicate the very poverty they are busy entrenching in Southern Europe.
The irony of this situation will not be lost on African leaders. Forced for decades to listen to pious lectures from EU donors on human rights, good governance and democracy, they are now watching the eurozone destroy democracy in its peripheral states, including the very cradle of democracy itself, Greece. None other than German Finance minister Wolfgang Schauble admitted as much last month when he proposed that Greece should postpone its elections as a condition for further help.
The parallels with Zimbabwe are inescapable: It is denied foreign assistance from the EU and subjected to futile sanctions because governance here does not meet the standards required by Brussels. Zimbabweans are punished because Zanu PF does not allow free and fair elections, but the Greeks are punished because they actually want a say on how their economy is managed. EU-style democracy is selective — good for Zimbabwe, bad for Greece.
Brussels under strict German supervision, with hangers-on from the IMF, will dictate fiscal policy not just in Greece but elsewhere in the Eurozone. Voters will not be free to choose whether they want austerity or growth, whether they prefer reduced social spending and lower pensions to higher taxes. Those decisions will be made in Berlin and Brussels by the champions of this new “choiceless democracy”.
Financial Times columnist Wolfgang Munchau put it right when he wrote last week: “We are at a point where success (of the bailout) is no longer compatible with democracy.” What matters is not the wellbeing of the peoples of Southern Europe, but what suits Brussels, the euro and the new German economic empire.
Ultimately, the euro crunch will come, not from excessive debt levels in the periphery as Germany insists, but because the pain of “internal devaluation” — lower wages and pensions, longer working lives, high and sustained unemployment, higher taxes and lower state spending — will spark a voter backlash or worse. Those who can compete using a “hard” euro as their currency — the Germans, Dutch, Belgium, Austria, Finland and possibly France and Ireland — will stay in an increasingly centralised, markets-hostile, sluggish-growth economy. The others will have to go it alone or set up their own “soft” euro.
Yet resolving the single currency crisis — a bad idea that went wrong — is no more than a sideshow, albeit an important one. Historian Andrew Roberts put the EU’s decline into context last month when he wrote: “Birth rates, defence expenditures, bond prices, welfare spending versus wealth creation; everything that historians look to in order to gauge the health of empires suggests that Europe’s fire has gone out”.
The EU’s breathtaking hypocrisy over democracy aside, two lessons of the eurozone crisis are potentially important for Zimbabwe. This country’s dependence on foreign aid is set to grow at precisely the time when the global aid industry is headed for the rocks. Bailing out their own in Europe and coming to terms with the home-made debt crisis in the US will force donors to cut aid budgets over the next decade. This penny has still to drop. The donors are not the players they think they are. Their disbursements are swamped by private sector flows not to mention diasporan remittances. The Dfids, USAids, and eurocrats seem slow to grasp the simply reality that their taxpayers have wearied of funding their endless round of seminars, workshops and pretentious reports that no-one reads and that add no value. That party is over and not before time.
The second lesson is for Sadc, which must now abandon its proposed monetary union and single currency after 2018. If the Europeans cannot make a single currency work — and they cannot — what chance is there for 14 Sadc states with very different economic structures?
While in 2012 this issue may sound terribly arcane for dollarised Zimbabwe, in fact it has very real significance. Zimbabwe is already part of a single currency zone. Peripheral eurozone countries are in economic distress because they cannot compete within a single currency zone. Germany, the Netherlands, Belgium, Austria and France all rank in the top 20 of the World Economic Forum’s Global Competitiveness index, but Greece is 90th, Spain 36th, Italy 43rd and Portugal 45th. For how long can two such disparate groups share the same currency?
Zimbabwe ranks 132 but the currency we use is that of a country ranked fifth. How sustainable is that? So long as commodity prices boom, Zimbabwe has fresh natural resources to exploit (diamonds) and the US devalues the dollar we might get by despite such a massive productivity gap, but that cannot continue for very long.
Sadly politicians and labour unions seem not to understand this. They talk of relating wages and salaries to some spurious regional average or to some arbitrarily-chosen poverty line. Even worse, some politicians believe that civil service wages should be determined by the country’s diamond revenue!
In such a world of make-believe economics, there is no place for productivity and competitiveness. Although per capita incomes (US$8 800 a year) in Botswana or South Africa (US$8 300) are 11 times greater than here, the politicians believe school teachers or policemen in Zimbabwe can and should be paid a Batswana or South African wage. Where is the logic in that?
Output per head is a good a measure of macro-productivity as there is, which means that wages rise with income per head. Moreover, the speed at which that indicator improves sets the ceiling for wage awards. If per capita incomes rise 7% then average wages ought to increase no faster.
The limited and unreliable data that we have suggest that since 2009 average wages have risen much faster than productivity in Zimbabwe. Given where we have come from it is no surprise that we should be trying to play catch-up, but in a fixed exchange-rate dollar currency zone this is unsustainable over the medium term. Indeed, it is the road to Athens.
Professor Hawkins teaches Economics at the Graduate School of Management at the University of Zimbabwe.