The “north vs. south” mentality of the Eurozone is not helping anyone, least of all the European Union as a whole. Berating the southern European countries for not having ‘stronger’ economies is harmful to everyone. Instead, it’s time for a new way of thinking – we need to change our perceptions.
How not to run a family
Imagine the following situation. You are in the midst of trying to get your teenager to be independent and make his own living. Yet, you’ve only gone as far as threatening to cut off his weekly allowance, and send him to bed early with a meagre supper because you are unhappy he’s not pulling the grades you expect. You constantly tell him how little he contributes at home, and that he will never succeed. At the same time, you persist in setting your hopes high that he will be on his feet soon – maybe tomorrow. What kind of a parent are you? Are you doing anything right? Does this sound like a terrible parenthood story, with all the mixed emotions that come with the territory?
Perhaps for some of you, this story is hard to believe, while for others it rings uncomfortably true. In any case, it’s an analogy we favour to explain how many northern European countries currently view – and treat – their southern neighbours. In fact, these southern countries are often lumped together in one inconsequential term: “the periphery.” It implies their dependence on “core” countries – as well as the seeming superiority of the north (this sounds like nothing less than hegemony).
This view of “core” versus “periphery” is part of the aftermath of historical development in Europe. Workers from the more agrarian southern countries emigrated to their northern counterparts to take jobs in industries that were growing quickly, mainly because economic development in the south was (and continues to be) much slower than in the north. The end result of this asynchronous economic advancement is that the south’s production capacity and productivity always lagged behind the north. The gap between these two distinct geographic areas within Europe has continued to widen since the 1950s.
And now, the situation is ugly. Particularly, when the group of weak countries, like Portugal, Ireland, Italy, Greece, and Spain were slapped with the label “PIIGS” (it’s kind of hard not to be considered the “red-headed step-child” with a term of endearment like that), after their economies were severely weakened by the financial crisis of 2008. Such labelling qualifies as bullying. We condemn this acronym and refrain from using it. But it’s ubiquitous usage highlights a tragic situation, one in which countries that do not like each other show their distaste by throwing their economic clout around (hence political) to make their point.
Perception is deception
Labels like “peripherals” and “PIIGS” give the general public a popular, yet flawed perception: with an economically strong Germany leading the way, the richer northern countries “carry” the poorer ones by pumping them with money to save their weak economies from collapse, all the while bleating at them to live within their means. Granted, the economies in the north – more productive, more structurally sound, and more willing to make the investments necessary to improve themselves – have been doing much better throughout the financial crisis than their southern counterparts. But differences in performance are a normal consequence of the free markets. And the existence of winners and losers is inevitable. But if we are serious about solving the Eurozone crisis, we cannot perpetuate a political agenda that hinges on such a patently incorrect perception.
To look at a case in which the negative image of a country is based on economic facts, we need only look at Greece. But to understand what’s really going on, one must look beyond the oft-touted facts, and peer below the surface. The country accounts for
only 2% of the EU’s GDP, yet it has received a great deal of television coverage from abroad. The problem with this is that very little of that coverage has involved any positive reporting of the country, according to Media Tenor, despite some pockets of excellence that can be found in the country, but did not engage the media outlets.
North – 10; South – 0 (But that does not mean the north has won)
The north’s constant verbal beating of the south is akin to trying to improve your employees’ productivity by telling them that they are a bunch of under-performing losers – non-stop. Anyone with a smidgen of common sense about managing people would know that this strategy will fail to raise the morale and output of workers – every time. This means that if we want the southern countries to get back on their economic feet, focusing solely on bad news will not help solve the crisis. Indeed, it will only deepen the already entrenched negative perceptions.
Pessimistic impressions have already led to a solution for the Eurozone crisis that is completely wrong. We have been advocating for the wrong solutions from the wrong advocates for too long. Surely, funnelling money and imposing austerity measures has helped to resolve some of the south’s financial problems. These two fixes have actually been vital to the southern countries’ survival during times of crisis. But these economic band-aids should not be applied in excess; doing so is ineffective, counter-productive and damaging. Austerity has been particularly demoralising for Greece. Southern Europeans have taken to the streets to repeal austerity programmes, as massive cutbacks have made even the basic standard of living untenable. But more importantly, it has spread a pernicious epidemic of social discontent across different parts of the EU. This, in turn, is threatening the union’s own existence because southern countries have an increasing resentment towards the EU.
Many people argue that the Eurozone would be better off without its southern neighbours. Their reasoning is usually this: a Eurozone (or even an EU) without its weaker members would allow the core group to become stronger. This argument sounds logical, but advocates are missing the whole picture – the European project would effectively end in this scenario. What would be left of the EU would not fare as well as some optimistic advocates believe, given the potentially large-scale economic and social turmoil its neighbouring countries in the south would face.
The disintegration of the EU/Eurozone would represent not just a significant loss of prosperity to Europe (as well as its social cohesion), but also the loss of one vital advantage: it’s the largest economy in the world. Yes, you read that right. The EU is the largest economy on the planet, from both the nominal GDP and the purchasing power parity perspectives. If you consider GDP as a country’s income, then the EU is the highest earner among all countries.1
And let’s not lose sight of this key point: the advantage of a union means that all its members share the instinctive desire to shield against the threats against any member for thesurvival of the whole. This is why it’s paramount for Europeans to view Europe as one entity, and not along a north-south divide. This is why we need to stop treating southern countries as second-class citizens.
Germany’s problems and Greece’s achievements
We need to move away from reinforcing the perception that the southern part of the Eurozone – especially Greece – is nothing but a burden to the north. We should hold the exact opposite view, which focuses on the positive attributes of the south. In fact, it would be to Europe’s great benefit to play down the perception that the northern countries are much stronger, particularly Germany.
Please don’t mistake our position: this is not a call for compassion or philanthropy, but one that advocates for leveraging economic benefits where they already exist. We also do not doubt that the north has more economic muscle than the south, but this is only because it’s viewed in comparison to the weakness of the southern economies. Few people bring up the fact that Germany has benefited from an artificially weak currency. As the second largest exporter in the world – not to mention the huge trade surplus it expected in 2013 (for the second year in the row) – Germany stands to gain a great deal. The reverse is also true: if a southern neighbour were to leave the Eurozone, the northern economies would face a much stronger Euro, though it would mean going through a storm of economic turmoil due to the contraction of the Eurozone itself.
At the risk of sounding like a self-help guru, we believe that celebrating successes – as opposed to repeatedly miring ourselves in failures – can provide a much-needed boost in morale (a benefit we should not underestimate), which in turn would increase momentum for the reform that is so badly needed. While media reports repeatedly remind us that Greece is not meeting the Troika’s loan requirements, we rarely hear about any of the country’s achievements. Here are a few we feel compelled to provide:
The country [Greece] has managed to make the largest fiscal adjustment of any country in history, with more than 12% of GDP in the past three years.2 This is no small feat.
The country is ranked number one in terms of responsiveness in the Going for Growth report, due to recommendations offered by the Organisation for Economic Co-operation and Development. Portugal and Spain also ranked high on the list, as fifth and sixth, respectively.
We do not make the claim that the Eurozone’s southern neighbours are done with all the reform they need to revamp their economies – far from it. But there is a prevailingly lopsided perception of the south that is just not accurate.
This dominant view has it that the north has taken on the burden of subsidising the south, when the truth is that they have only been helping each other. After all, isn’t this the ultimate goal of the EU? Because if we keep this goal in mind we are less likely to go down the rabbit hole of unproductive debates that pitch one side, “weaken the strong to help the weak,” against the other: ”strengthen the weak at the expense of the strong.” Such thinking implies a zero-sum game that only serves to polarise the north and the south. Rebuilding the economy of the Eurozone will benefit every resident – not just one side. This can only happen, however, if Europeans become better informed and apply that knowledge where it counts: the voting booth.
The importance of being confident
The weak economies of the south, on the other hand, need to jettison their tarnished public images and begin stressing the positive aspects of their economies. There are great benefits to doing so because they will become:
• Better at garnering much-needed support. Southern countries need to play up positive economic developments, which will make their northern counterparts less reluctant to continue extending support.
• Better at attracting foreign investors. We have heard time and again that American and Asian investors want to put their money in Europe. Yet, the negative images coming out of the region have deterred foreign investors at every turn because they view Europe as a whole, and not as individual regions. This is why continued negative emphasis on the south translates into a loss for everyone in the EU.
• Better at competing for foreign capital. Put yourself in the shoes of overseas investors seeking a decent retur Now, if you are given a choice between investing in the north, populated by multinationals that face stiff competition in global markets, versus the south, which is dotted with scores of unknown local firms, which one would appeal to you more? Before you plot your decision, consider this: what if you receive the names of a number of “rising stars” in the south – would you want to know more about them? Our point here is hop fully simple and clear: showcasing successful businesses in an economically weaker south (our latest research shows there is no shortage of “fast-expanding markets”) – would crucially alter the view of southern countries for better.
It’s time for a new way of thinking
The erroneous perceptions of the southern economies of Italy, Greece, Portugal and Spain have wasted a lot of our money and time. More worryingly, they have harmed the identity and image of Europe as a whole. Just as the best way to encourage people to do well is by encouragement – and not by control, discipline and punishment – we need to change the deeply entrenched perception that these countries can and should only be viewed in a negative context. Because what we know is this: austerity is gradually showing itself to be a failed attempt to restart economic growth for the Eurozone. We believe that growth and prosperity is within the south’s reach, and that these countries can help the Eurozone migrate to a new model of sustained subsistence. But instead of reaching for the (northern) sky, we should be looking southward – “down under,” as the Ozzies would say. They may be down, but they most certainly are not out.
About the Authors
Dr. Mark Esposito is an Associate Professor of Business & Economics at Grenoble Graduate School of Business in France & Instructor at the Harvard Extension School in the USA. He serves as Senior Associate for the University of Cambridge Institute for Sustainability Leadership in the UK. He is the founder of the Lab-Center for Competitiveness and has advised governments, the UN, and the NATO over the past 10 years on development and sustainability issues. He holds a PhD from the International School of Management in Paris/New York.
Dr. Terence Tse is an Associate Professor in Finance at the London campus of ESCP Europe Business School. He is also the Head of Competitive Studies at i7 Institute for Innovation and Competitiveness academic think-tank at ESCP Europe. He began his career in investment banking at Schroders and Lazard Brothers, and later as an independent consultant to a University of Cambridge-based biotech start-up and various major corporations. He worked as a consultant at Ernst & Young in London. He holds a PhD from the Judge Business School, University of Cambridge, UK.
1. We do not dispute that, on a per capita basis, GDP is larger in the US. But absolute size does matter both politically and economically on the world stage.
2. Chrysoloras, Nikos (2013) “Give Greece a break: what politicians need to tell German voters,” TheGuardian.com, 5th September, http://wwwtheguardian.com/world/german-elections-blog-2013/2013/sep/05/greece-germany-election-future-eurozone