Greece bailout: The shadow of US economic supremacy looms over negotiations

There will probably be a deal, but if there isn't, there will be a strong effort to keep the country in the euro

Click to follow
The Independent Online

This is not really about Greece, or even about the euro. It is really about Europe – what it wants to be, or rather what its people want it to be, and how it might reform to meet those aspirations.

The Greek negotiations are unfolding exactly as one might have predicted: high drama, threat of breakdown, and draft agreements that deliberately obscure what is being agreed. Eventually, the balance of probability points to some sort of deal, done in the middle of the night, that pushes the problem further down the track.

This is the way things work. There is even the expression “stopping the clock”. This means that if agreement is not reached by the formal time it has to be reached – say midnight – the negotiators pretend that midnight has not been reached and go on until exhaustion forces a messy compromise.

And so it will probably be. The main reason to think otherwise is that the Greek negotiating team is charismatic but inexperienced: both the Prime Minister and the Finance Minister are highly intelligent, but have they ever had to do anything like this before in their lives? They may misjudge the situation and achieve an outcome they did not expect.

However, this is unlikely. There is a strong common narrative in Europe that you have to stay in the pack: that countries would be more successful in economic terms if they agreed to EU rules. This applies particularly to members of the eurozone, and it is a message that has resonance even in Greece. Despite everything, despite losing one quarter of the country’s GDP, and with unemployment at 25 per cent, the euro remains popular. Some 75 per cent of  Greeks want to keep it.

Put this way, the drama seems overplayed. There will probably be a deal, but even if there isn’t, there will be a strong effort to keep Greece in the euro. And even were the country forced out, or capital controls brought in to stop Greek euros being switched into non-Greek ones, there is no question at all of Greece leaving the EU.

If you think that Greece will be all right, whatever the outcome, and the euro will survive for a while, whatever the outcome, then what is really at stake?

Try this. It is about Europe’s economic future. You could argue that what happens to a country that accounts for only 2 per cent of the EU’s GDP does not matter, but the events of the past few weeks suggest otherwise. The EU has to be seen as working for all its members, or to put the point more generally, Europe has to become an economic success story again. Of course, some parts are and, of course, there are many European companies that are world-class. European products are much admired in the US, despite negative headlines about Europe in the US media: viewers of the film of the moment may note that Christian Grey’s cars are Audis, his helicopter is a Eurocopter, his glider by DG Flugzeugbau, his cufflinks by Dunhill – entertaining research from Bloomberg.

Yet European regulation is seen in the US as a barrier to economic progress. As President Barack Obama said at the weekend: “We have owned the internet. Our companies have created it, expanded it, perfected it in ways that they can’t compete. And oftentimes what is portrayed as high-minded positions on issues sometimes is just designed to carve out some of their commercial interests.”

You don’t need to buy the full message to acknowledge that the companies that have changed our lives most in the past decade – Apple, Google, Facebook, etc – are all American. It is one thing to have US presidents complaining about EU regulation, but a lot of European and British companies do too. There is nothing wrong with European brains, and indeed the World Wide Web was the brainchild of a Briton working at Cern in Switzerland. But maybe there is something about the European economic system that makes it harder to grow companies that change the world.

As one can see with the resistance in Europe to Uber’s taxi app, there is certainly a culture of regulation rather than innovation. You need regulation, of course, and the US has heavy regulation of industry too. But it is hard truth that the US not only creates all these transformative companies; it has recovered much faster from the great recession than continental Europe.

Seen from this perspective, the Greek negotiations matter because they may, or may not, end up with a deal that allows the Greek economy to grow again. The country needs debt relief, but the faster it can grow, the less relief it will need. It is a small part of Europe but it is symbolic. It ought to be much more successful than it has been or, you might say, has been allowed to be. The same goes for the eurozone as a whole.

Quite how Europe should reform itself to improve its growth performance is a story we will hear a lot more about in the next couple of years.

Germany works better than France, Chuka

As Chuka Umunna, shadow Business Secretary, notes, French workers are more productive than British ones. He is absolutely right. French workers, per hour, are the most productive in the developed world. Should we become more like them?

We differ in three main ways. One is that unemployment is much higher in France, 10.4 per cent against 5.8 per cent, so much more of our labour force is in work. This has been a consistent difference for a generation.

The second is that the French work shorter hours, on average: the latest figures, for 2013, show French workers putting in 1,489 hours a year, whereas we  do 1,669 hours. (Workers  in the US do 1,788 hours  and in Ireland 1,815 hours.)

And third, France has a smaller proportion of its workforce in part-time work: 14 per cent versus 24.5 per cent. Britain is unusually high here, but before you conclude that Britons are less secure in their jobs, temporary employment in France is much higher at 16.5 per cent of employees, whereas we are very low at 6.2 per cent. So what should we make of all this?

I suggest France’s high productivity is the flip side of its high unemployment and short working hours. If you exclude the lower-skilled from the workforce, the average productivity in work is inevitably higher. And if you restrict people’s hours, employers make them work harder, as anyone who goes to a restaurant in France will observe.

It does seem, despite our longer hours, that British workers are happier than French or Italian ones, but less happy than the Germans. Maybe it is Germany we should benchmark against, not France.

h.mcrae@independent.co.uk

Comments