Greeks face a Homeric Dilemma

By Hugo Dixon

Odysseus would recognise the dilemma faced by today’s Greeks as they must choose either the pain of sticking with the euro or the chaos of bringing back the drachma. The Homeric hero had to steer his ship between the six-headed sea monster, Scylla, and the whirlpool, Charybdis. Avoiding both was impossible. Odysseus chose the sea monster, each of whose heads gobbled up a member of his crew. He judged it was not as bad as having the whole ship sucked into the whirlpool.

As Greece heads to the polls on June 17 for the second time in just over a month, none of the options it faces are attractive. The economy has shrunk about 15 percent from its 2008 peak, unemployment stands at 22 percent and further austerity and reform are required as part of the euro zone/IMF bailout. But the lesser of two evils is staying the course.

Some of this misery was inevitable. Greece’s current account and fiscal deficits each reached around 15 percent of GDP in 2008 and 2009, and had to be cut. But successive Greek governments have managed to make the situation worse than it needed to be.

When Odysseus had to pass by the sea monster, he told his crew to row as fast as possible and not stop. That way, each of Scylla’s heads only had time to munch one man.

By contrast, today’s Greeks have dawdled. Confidence in the country and its political class is shot to bits, both at home and abroad. Capital is fleeing, investment has vanished and tax-dodging has become even worse than it was – which is saying a lot. The government isn’t paying its bills, nor are many companies. As a result, Scylla keeps gobbling up more men.

Terrible as things are, the current situation is not hopeless. The budget deficit, before interest payments, declined by 9 percentage points of GDP in 2010-2011. The economy is also getting more competitive: unit labour costs, which shot up vis-a-vis Greece’s euro zone partners in the first decade of the single currency, had by the end of last year recouped half the lost ground. They will have fallen further since the minimum wage was slashed earlier this year. Read more…

Watch the video:Breakingviews: Greeks caught between rock and hard place” 

Hugo Dixon is the founder and editor of Reuters Breakingviews.

As published in www.breakingviews.com on June 11, 2012.


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