IPE Views: Greece and the Hotel Euro-zone

Joseph Mariathasan explains how the euro-zone is not unlike the Hotel California – you can check out any time you like, but you just can never leave

For Greece, having checked into the euro-zone, the issue of what the edifice is really like has become an existential issue. Is it akin to the Burj al Arab, the self-styled seven-star hotel in Dubai that purports to offer the height of luxury?

Staying there, however, can only ever be a short-term holiday for rest and relaxation before stepping back into the hard grind of reality. Greece certainly saw a huge rise in living standards when it joined the European Union. But the drachma was a stable currency for at least two years before Greece joined the euro, and inflation was in check as well.

The benefit to Greece on then joining the euro-zone was macroeconomic stability and the psychological assurance that participation in the euro would bring Greece closer to the Western European countries within the EU and thus enhance its security against what it perceived as aggressive and unstable neighbours surrounding it. The stabilisation of buying power through checking into the euro-zone made debt more easily available – many people borrowed to purchase properties and saw their lifestyles improve.

But was this always destined to be just a temporary respite from the more hum-drum and harsher lifestyle Greece had before – in other words, is the so-called Grexit inevitable, either through Greece’s own volition or because it is pushed? Or is the euro-zone like the famed Hotel California in the 1977 hit by the US rock band The Eagles? 

The lyrics are an apt description of at least the intention of the euro-zone: “We are only programmed to receive. You can check out any time you like, but you just can never leave!” As the Eagles’ intrepid traveller was thinking in the song, “This could be Heaven or this could be Hell”.

Unfortunately for Greece, the euro-zone turned out to be the latter. Checking into Hotel Euro-zone has meant prices of food items are comparable to those in Paris or London, whilst average wages in Greece are at least half those of France, Germany and the UK. A half-Greek friend of mine owns a trendy wine bar in the poorer East End of London just off the wealthy financial district. It’s a great place for us to discuss Greek politics, but, despite being an ardent Hellenophile, he serves only South African wine – no wine from Greece. Even for him, the price is too high. His customers would never buy it. Needless to say, he is keen on Grexit.

“Last thing I remember, I was running for the door – I had to find the passage back to the place I was before” runs the Eagles’ lyrics, and that’s a good reflection of my friend’s hopes. What the average and honest Greek family is faced with in the Hotel Euro-zone is that what they hoped would be heaven has now turned into hell. The Hotel Euro-zone may have improved lifestyles but not to the point of luxury. Instead, the middle classes are now facing long-term unemployment and an imminent danger of losing their properties.

The main consequence of the crisis has not been the loss of a Burj al Arab-level of comfort but the loss of a normal lifestyle, which existed even before checking into Hotel Euro-zone. One Greek ex-professor, dispelling the myth of Greeks scrounging off the taxes paid by Northern Europeans, pointed out to me that he must know 300 or more average middle-class individuals in his social circle, and none of them has a Porsche. For this particular professor, his personal solution was to leave Greece and work in the UK as an engineer. Unfortunately for Greece, that ‘brain drain’ has not stopped.

Perhaps the real answer is that, for Greece, the Hotel Euro-zone was neither akin to the Burj al Arab nor the Hotel California, but actually more akin to Caesars Palace, the casino hotel in Las Vegas. Joining the euro-zone was a gamble for Greece that the Greek politicians and business elite were prepared to bet their children’s future on – or perhaps more accurately the children of the masses, since their own wealth meant their own children did not have to rely on the roulette wheel or the poker cards landing in their favour for their future prosperity. But they should have realised the odds were stacked against them from the beginning.  

Going back to a new drachma may well be the wish for some, although perhaps not the majority of the Greek population. For them, the hope still exists that the Hotel Euro-zone is a real community and not just a trade federation. But as my Greek friends complain, Greece’s politicians did not warn the electorate of the dangers, even if they knew them themselves when the country’s economic statistics were being manipulated to allow Greek entry.

But a wider issue for the EU as a whole is whether Hotel Euro-zone itself can survive a country leaving when it really has been only programmed to receive. For the country itself, “the Greek metanoia will be fast and furious when it comes”, says my half-Greek friend. The management at Hotel Euro-zone will be hoping he is wrong.

Joseph Mariathasan is a contributing editor at IPE 

Readers' comments (4)

  • Excellent analogy. And to extend it briefly, one of the issues with the Hotel Euro-zone is that it has not provided the support Greece needs to strengthen it's real economy. Instead, the Hotel management has simply demanded more fiscal (tax) and monetary (borrowing/spending) reforms. Recent "promises to reform" say very little about the real economy, and how real people are going to be helped to try to built a better future.

    Historically, troubled countries have been given international support - through free-trade zones with wealthier importing/exporting countries, for example. The problem is that helping the Greeks will lead to demands for similar help from Italy, Spain, Portugal etc. etc.

    So real economics is largely off the agenda, and the attention is focused on supporting the non-Greek holders of Greek debt, and protecting the Euro-project.

    If Greece had checked into a hospital rather than a hotel, the management would have been more motivated to treat the patient and encourage the patient leave (or at least have more freedom) to live a healthy life. Hotels prefer long occupancy, and as you say, their cure is excess.

    Right now, such is the mess on all sides (economically, morally and philosophically - if one believes in free-market economics), then a hospice seems more appropriate. A place where terminally ill people go to die. However, Greece shouldn't be treated as a terminally ill patient. It's a proud nation....The whole situation is a disgrace to many of those responsible/yet not accountable, as is the lack of a open-minded, informed debate about the pros and cons of a Grexit.

    Unsuitable or offensive? Report this comment

  • Agreed. It is high time there were an informed debate about the merits or otherwise of Grexit. Instead of just shouting that it will be terrible for Greece, maybe informed debate would inform the majority of Germans who now want Greece out what a terrible thing that would be for Germany and the egos of other political eurodoules, and what a wasteful and uncompetitive currency the euro has been for Greece. As for demanding all these reforms, the eurodoules may have identified ludicrous practices within the Greek public sector, but these practices were there writ large when the loans were originally made.

    If the creditors were prepared to lend euro to Greeks so that the Greeks would repatriate euro in exchange for BMWs, Bosches and Mercedes, they should have insisted on the structural changes before entering into a national mega-hire-purchase contract.

    Unsuitable or offensive? Report this comment

  • It is clear that the Greek economy cannot revive under the present program.

    The remaining possibilities are:

    - Greece stays in the Euro. The lenders and the Greek government reach a deal which includes a generous write-off of the debt.
    - Greece leaves the Euro.

    The best solution is the one that creates more hopes for the future of Greece and also affirms that the EU is, above all, a community and not a trade organization structured to stimulate demand in favor of the stronger economies.

    The present program creates no hopes for Greece.

    Unsuitable or offensive? Report this comment

  • Greece certainly needs to have hope, but is Philip correct in assuming only Grexit can give it that?

    For Greece to stay in the Euro, debt has to be written off. But that raises two issues: what will the impact of that be on other countries e.g. Ireland, Spain etc that have managed to get through the crisis without writing off debt and are reluctant to allow Greece that luxury; Secondly, can Greece reform its structures to enable effective tax gathering, retirement and pensions for public sector workers that are not seen as excessive relative to other EU countries?

    The current set of negotiations, if they can even be called that, do not seem to be leading anywhere. The danger may be an accidental Grexit that benefits no one.

    Unsuitable or offensive? Report this comment

Have your say

You must sign in to make a comment


Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2570

    Asset class: Direct Real Estate.
    Asset region: Europe excluding Switzerland.
    Size: 150m.
    Closing date: 2019-10-30.

Begin Your Search Here