07 July 2015

The Real Greek Tragedy - Europe's Stagnant Economy

"Most problems cannot be solved. And most problems are made irrelevant by success."
 - Peter Drucker

If the Eurozone had grown by an average of 2.3% since 2006, Eurozone GDP would be 3 trillion euro bigger than it is now. To put that in perspective, 3 trillion euro is about 18X Greece's total GDP.

Now obviously the Great Recession played havoc on economic growth, but even if you go back 20 years, to 1995, Eurozone GDP growth has averaged less than 0.4% (that's not forty percent or even four percent - that's four-tenth of a percent).

The real tragedy is not that Greece is struggling to pay back the loan that either they were foolish enough to borrow or the Germans were foolish enough to loan (if anyone is a fool not to have seen this coming, than surely everyone is a fool; if Germany wasn't foolish to loan the money than surely Greece wasn't foolish to borrow it). The tragedy is that Eurozone GDP has not grown enough that Greek debt would be a rounding error. Indeed, if GDP had grown at a healthy rate, the entire Greek economy would be a rounding error.

Greece's economy is only 1.3% of the Eurozone GDP. Sadly, everyone is fixated on the Greek debt as if solving this little problem of their debt matters even half as much as the really, really big problem of stagnant growth. Healthy growth of 2.6% would mean the Eurozone was growing by TWO Greece GDPs a year. This would be sufficient to solve any debt problem.

Instead, the best minds, politicians, analysts, and reporters are wasting their time, attention, and imagination thinking up ways to "solve" the Greek debt problem rather than solving the European growth problem. That is the real tragedy of this crisis.

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