Tuesday, May 24, 2011

A Marshall Plan for Greece?

Yes, you heard that right. The idea for a Marshall Plan for Greece comes from Michael Diekmann, head of the Allianz Insurance Group. It would differ from the original Marshall Plan that financed the re-industrialisation of Western Europe in that Greece isn't an industrialised country.

And therefore, Diekmann is not only calling for a Greek Marshall Plan, but for the massive transfer of manufacturing from Western Europe to Greece. That way, he argues, the Greeks would have an economy into which the money could be productively invested.

There is a point in what he's saying from an economic standpoint, but does anyone think that this is going to happen? It could, if protectionism in the EU's more established economies wasn't running rampant. It's better to spend loads of cash to keep Opel German than allow production to close and shift to places like Greece. Then there is also the point that shifting production can also be counterproductive. Volkswagen shifted production outside of Germany during the 1990s and 2000s, drawn by low wage rates, but poor productivity ate up the expected savings.

One part of what made the Marshall Plan so successful in West Germany was the iron determination of the population to work, the sometimes overlooked fact that despite the devastation of World War II that Germany emerged with 50% of its industry (including heavy industry) still intact, that German companies were incredibly well-connected with one another, and that banks had their hands in many of these companies as shareholders or major lenders or both. The result was that the portion of the Marshall Plan funds that were invested in West Germany were invested in a country that had an above-average chances of putting it to good use. The French had the planning capacity of the state, the links between the Ministry of Finance and the country's banks, which then organised what would be produced and what would not. The Brits had a high degree of planning and public ownership well after the war that wasn't really relaxed for quite a while, and which functioned.

But Greece doesn't function, precisely because of the Greeks. Unless it becomes an effective colony of Germany, to the point of changing who the Greeks are, Diekman's Marshall Plan, as noble as it is, won't work.

Character is everything.  Diekmann's suggestion does serve a purpose, for it points to what stands in the way of making it effective: old-style protectionism in the EU's established economies, and a lack of willpower in Greece.

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