the logic does not go both ways, though: A business hostile government will most likely drive business out of the country. However, businesses that leave and close down factories do so for various reasons. Most of the factories that have shut down in the US or Europe did so because of locations that offered incentives such as cheaper labor.
In order for the EU to survive, it has to implement Fiscal Transfers
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There's another facet to this, and that is that Germany and Greece (for now) share the same currency. And there's an economic effect between exporting industries that use the same currency.
It's obvious that the imports of a country compete with one another. That is, if Japan imports more oil, then, over the long term, it has to import less of something else. (Or it has to export more of something, but we'll look at only one trade balance side at a time.) But in order to keep the currency in balance, the same principle applies to exports. If Japan exports more cars, then, over the long term, it has to export less of something else.
One of the consequences of this effect is that a country which has a great deal of a commodity, say oil or gold or beef, has great difficulty in industrial development. They have plenty of money, but the imported goods are made too cheap by the huge amounts of exported commodities. This makes local manufacturing too ridiculously expensive compared to those cheap imports.
This principle applies to regions which share the same currency and it follows from the requirement that currency flows balance. And in the case of the Euro, it means that all the exporting businesses, which use the Euro, are in competition with one another.
But Greece is in a position of owing Euros. To pay off that debt, haircut or not, it needs Euros. And to get those Euros, it needs to export something. That means it is not enough for Greece to compete with the business abilities of Germany. It has to out compete Germany.
Out competing Germany in exports is not impossible. Ireland seems to be doing it. A weaker country like Ireland does it by being cheaper for land or labor, or by giving better taxes, etc.
The problem with Greece is that none of the political parties seem to understand this. They understand that what they need is growth, but they stupidly think that to get that growth all they need to do is to stimulate the economy. No, stimulation of growth is not what they need. What they need to do is to stimulate exports. And for that they need to learn to compete in business. I think they are totally hopeless and should just leave the Euro. The other weak business countries in Europe will also eventually be forced out. It's a matter of time. And just like Greece, before being forced out, their economies will also be utterly and totally destroyed.
Politically, this means that Europe will be descending into chaos. After chaos of course comes military / strong-man rule such as we see now in Russia. So I expect that military rule will become common in countries that haven't seen it for decades. (And by the way, if you look at lists of countries by "friendliness to business" you may notice that the countries at the top of the list, places like Ireland, UK, US, Switzerland, etc., are also countries that have only very rarely been under military rule or strong-man rule.)
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@volpunter: taxes is a economical cost, just like cheap labor or cheap location. Companies have to maximize their profits, so cut ALL costs. Not only for the shareholders but also to protect them against competitors in pricing their goods.
@TooOldForThis: the weapon of a own currency cannot be use anymore due to the Euro. That is a big problem for some countries. Therefor I think it is necesarry for Greece to use another currency (at least temporarily) to neutralize more or less their disadvantage.
Unfortunatelly socialists think that economy is spending others people money. And when they run out of this free money they don't know anymore what to do, except of finding fresh free money. Socialists think that life is shopping at Walmart without having to pay.
@TooOldForThis: the weapon of a own currency cannot be use anymore due to the Euro. That is a big problem for some countries. Therefor I think it is necesarry for Greece to use another currency (at least temporarily) to neutralize more or less their disadvantage.
Unfortunatelly socialists think that economy is spending others people money. And when they run out of this free money they don't know anymore what to do, except of finding fresh free money. Socialists think that life is shopping at Walmart without having to pay.
What? One has absolutely nothing to do with the other. I did, indeed, say that if the Greeks defaulted and left the EU, there would be short run pain and suffering, but then things could get better for them. They're used to high inflation (or were, before the EU). A cheap Drachma would be just what the doctor ordered. All of the problems the EU has with Greek behavior was just fine under the Drachma, and would be again under it. That's not reforms.
Greece can be Greece again under a Drachma. Under the Euro, it has to reform.
@volpunter - apologies if the answer wasn't as prompt as you would have liked it. I took the afternoon off and wasn't about to return to the forum just to answer your posts.
You mean Greece lived with high inflation, uncountable coups, shabby houses (or shall we call them dwellings?), rampant corruption, and a farming economy that hardly exported anything and a few tourist drachmas earned in between. Not sure you call this a "better living". The big change came when they joined the EU (2 decades before joining EMU, 1981), not a single coup, and vast improvement in living standards for the broad society).
Well Greece will be Greece with a drachma but certainly without a single additional Euro of subsidies. Greece will be entirely on its own when defaulting on its debt.
Well Greece will be Greece with a drachma but certainly without a single additional Euro of subsidies. Greece will be entirely on its own when defaulting on its debt.
The Greeks were just fine before the EU, they'll be fine after it (once the transition is over). More importantly, the EU will be better off without Greece.
This is like an abusive relationship where everyone is telling the woman she'll be better off on her own, and both the woman and man know it, but are so used to being miserable together that they are afraid to just let go.
Meanwhile she stays as long as he keeps giving her money. But in her heart has been long gone.
I think we can summarise the differences between Germany and Greece by looking at the numbers of patents coming from the two countries, which is a good measure of how inventive and productive they are.
For this we can look at the website of the World Intellectual Property Organisation.
First up Germany, which has 80 million people.
Just look at the first column, the number of patents broken down by year.
http://www.wipo.int/ipstats/en/statistics/country_profile/profile.jsp?code=DE
Now for Greece with 10 million people.
http://www.wipo.int/ipstats/en/statistics/country_profile/profile.jsp?code=GR
Oh dear....
For this we can look at the website of the World Intellectual Property Organisation.
First up Germany, which has 80 million people.
Just look at the first column, the number of patents broken down by year.
http://www.wipo.int/ipstats/en/statistics/country_profile/profile.jsp?code=DE
Now for Greece with 10 million people.
http://www.wipo.int/ipstats/en/statistics/country_profile/profile.jsp?code=GR
Oh dear....
If you lived on a Greek island, would you be busy trying to invent something or drinking wine?
