Someday the euro debt crisis that started in Greece and spread to engulf Europe will be over.
Politicians in the nations that use the euro will figure out the right mix of carrot and stick to get Greece, Portugal, Spain and other member states to adhere to European Monetary Union limits on debt. They'll figure out how to balance national pride with the clear need for more-integrated fiscal systems among the members. They'll gradually earn back the trust of financial markets, and someday we'll all be back talking about the euro as a rival to the U.S. dollar as a global reserve currency.
Hard to believe right now, when the euro's troubles are driving plunges in the world's stock markets and rampant fears that the world is about to fall back into economic and financial crisis.
Hard to believe but true.
Here's something, however, that may be even harder to believe: The euro debt crisis, for all its power to shake financial markets and the global economy, is just Chapter 1 in a story that will run for the next two decades. This crisis is only our introduction to the kinds of wrenching changes that virtually every nation's economy will face over the next 20 years.
Let's hope. But the lesson from the euro debt crisis is that it's not going to be easy. It may not even be possible.
You probably don't think of the euro debt crisis as part of some larger global story that is going to pull in you and your family as starring characters. But it is. This isn't just a story about some feckless Greeks who went on wild shopping sprees with money lent to them by hardworking Germans who didn't check the books carefully. (But it is that story, too.)
Soon-to-be-ancient Greece
Some basic economics make the Greek crisis universal.From the first quarter of 2001 to the third quarter of 2009, unit labor costs in Greece -- that's how much a worker earned for producing one unit of something -- rose 33%. That's a 33% increase in the cost of producing one gimcrack in Greece after you've deducted all the benefits of any increase in the productivity of Greek workers. In other words, if a Greek worker went from making one gizmo an hour to making two an hour and got paid twice as much for that hour, the unit-labor-cost increase would be 0%.
Greek productivity did climb, at an average annual rate of about 2% from 2000 to 2010. Greece showed the same productivity growth as Germany, but wages climbed faster. According to Greece's national collective labor agreement, wages rose 6.2% in 2006, 5.4% in 2007, 6.2% in 2008 and 5.7% in 2009.
The result was that Greece priced itself out of global export markets. If your unit labor costs climb 33% while those of Italy go up just 30% and those of Spain 28% -- and while Germany's costs increase just 6% and U.S. costs plummet 27% (as they did from 2001 to 2009) -- you can be sure that selling your exports will get harder.
And as Greece was becoming less competitive, it was growing older. In 1971, 11.1% of Greeks were 65 or older, according to the Organisation for Economic Co-operation and Development. By 2001, that was up to 17%. By the end of 2009, 18.7%. The OECD takes its estimates out all the way to 2050. By 2031, 25% of Greeks will be 65 or older. By 2050, the figure is likely to close in on a third, at 32.5%.
The combination of falling competitiveness and an aging population would be lethal enough -- fewer workers making less-competitive products to support an increasing number of retired workers -- but the Greek government has made it worse. To win voters' support, governments of all parties not only promised those hefty wage increases, but they also promised generous pensions at earlier ages.
Continued: Promises that can't be made
