From Argentina to Greece
Keeping books on social aid is capitalistic nonsense. I just use the money for the poor. I can’t stop to count it.
Eva Peron
As the euro zone crisis reached a critical phase in late 2009 and early 2010, one of the accusations most certain to provoke the fury of representatives of the European Union was the comment that ‘Greece is like Argentina’.
Why the comparison, and why the anger? There are many parallels. Argentina and Greece appear to have followed a similar trajectory in their recent histories, not just in the past two decades, but in the entire period since the Second World War. Both suffered under military juntas who justified their actions by anti-Communism. Both have a socialist, clienteles’ ethos in which interest groups have sought, and often received, direct assistance from the state. Elections and parliamentary decision-making returned in 1974 after seven years of dictatorship in the case of Greece, and in 1983 in the case of Argentina. In both cases, military humiliation at the hands of a foreign power was a major factor in the collapse of the regimes.
Both countries have a history of being the most advanced economy in their region, and are conscious of this status. Overseas visitors to Athens and Buenos Aires have the experience of visiting an advanced economy: both have a grand, modern airport, impressive boulevards and shopping malls. Athens in particular, since the infrastructure improvements for the 2004 Olympics, boasts a modern metro and freeways.
The contrast with some of the poorer neighboring countries in, respectively, the Balkans and South America is sharp – though some of these unfashionable nations may be catching up with, or even overtaking, their illustrious neighbors. More recently, both countries have relinquished monetary flexibility by respectively pegging their currency to the US dollar and joining the euro. Both enjoyed a honeymoon in the early years of the currency regime, with a superficial appearance of economic success, but in both cases there was a progressive underlying loss of competitiveness. Both experiments featured a lack of the sort of structured reforms needed to adapt to life in a strong currency area, with clienteles practices continuing and being facilitated by easy credit arrangements and high levels of government borrowing.
The two economies experienced international economic crises, the Asian and credit crisis respectively, followed by governmental debt crises and International Monetary Fund (IMF) intervention. In the case of Argentina, it ended in default and crisis in December 2001. This is most probably the reason the comparison causes such fury in Brussels. But the Argentine economic crisis predated Greece’s crash by ten years: so were no lessons learned? In economics, we are often tempted to envisage what the long-term scenario may look like.
In Argentina’s experiment with the peg to the dollar, the long term is now. While every national context is unique, the parallels do seem sufficient here to merit further inquiry as a means of understanding some of the dangerous economic dynamics at play in Greece and the rest of the euro zone, and how they might play out in the next few years.
