Lehigh University
Lehigh University

News

"Greece Is Doomed. Italy Is Next."

As the European Union struggles to keep Greece on the euro, promising a Greek stimulus package, Lehigh University economist Frank Gunter says it is already too late. Despite signing on to a $165 billion bailout and attempting to forge a new government, new elections promise a fresh round of uncertainty about the Greek economy. Here is Gunter’s dark take on the situation, and his prediction for the next failing European economy.

“Much is made of Greece's overhang of debt - currently 166 percent of its Gross Domestic Product. Among the world's high-income countries, Greece is the second worst after Japan (233 percent) and just ahead of Italy (121 percent).

“But Greece has two other problems that sharply reduce the likelihood that it can stop its ongoing economic collapse.

“First, it has a very hostile regulatory environment for private businesses. The World Bank produces a survey: The "Ease of Doing Business" survey, which places Greece in 100th place. This makes it extremely unlikely that Greece's private sector will be able to produce the growth and jobs that the country will desperately need when the public sector can no longer borrow.

“Second, Greece is in a process of demographic collapse. The average Greek woman has a fertility rate of only 1.4 children, according to the World Bank’s 2012 World Development Indicators data, compared to the 2.1 children needed to maintain a stable population size. In a nation so traditionally family oriented as Greece, this drop in the fertility rate can be interpreted as a sign of despair. The average Greek thinks that life will be much worse for the next generation. And if Greeks despair of their own future, then why should foreigners lend to them or invest there?

“Which country is next? Like Greece, Italy has a high debt-to-GDP ratio (121 percent), a hostile regulatory environment (87th), and is also experiencing demographic collapse with a fertility rate similar to Greece. Sell your Italian bonds.”

Frank Gunter is an associate professor in the Department of Economics. His published research is on capital flight and corruption in Colombia, Latvia, and Peoples Republic of China. Based on his 25 months in Iraq as an economic advisor, he is currently writing a book on the political-economy of Iraq to be published in 2013 by Edward Elgar Press. Frank has won multiple teaching awards for his courses on Principles of Economics, Economic Development, and the Political-Economy of Iraq. Prior to joining the Lehigh Faculty in 1983, he spent two years as a country risk analyst for the First National Bank of Chicago.

Story by Frank Gunter

Posted on Wednesday, May 16, 2012

share this story: