Does Greece Spell Trouble for the EU?

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Photo: Macleans

Concerns over Greece’s debt troubles have left a wake of losses in emerging market funds and currencies like the Euro and British Pound; however, it looks like most of the worries may have been overblown.

Measuring Greece’s Influence

The magnitude of Greece’s mounting government debt cannot be understood until we understand Greece’s economic impact on the rest of the world.  Greece has a gross domestic product of about $340 billion per year, ranking it as the 33 largest economy.  While $340 billion is no laughing matter, when compared to the GDP of the greater European Union, the nation produces very, very little.  The entirety of the European Union has a GDP of roughly $15.2 trillion, with Greece accounting for little over 2.5% of the entire productive capacity backing the EU and the Euro.

Why Greece is Overblown

Even if Greece were to plunge into bankruptcy, the impact on the European Union and the Euro would be small.  Greece’s economy is service driven, with the services sector accounting for more than 75% of its GDP and 40% of the total coming from the public sector.  So much of Greece’s gross domestic product comes from government that the country ranks second to last in economic freedom.  The remaining 25% of GDP comes from agriculture and industry.

Bankruptcy is the Best Option

When it comes to Greece, the best option for future economic growth is in bankruptcy, not in bailouts.  The country brings in billions of dollars in tourism, has a reasonably strong industrial sector, but is simply too burdened by government.  For every 6 people in the private sector, 4 people work in government, creating a hefty burden on businesses and regular workers whose wages are taxed to pay for government affairs.

In the end, the best solution for Greece, the EU and the Euro is simple bankruptcy.  Government contracts would have to be settled, the EU would lose a very small amount of productivity temporarily, and the Euro would escape inflation.  Should Greece be allowed to go bankrupt, investors will get an excellent opportunity for investment in a country that can flourish, provided it isn’t again too burdened by bureaucrats.

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