AND THEY AREN'T GOING TO GET MORE PRODUCTIVE AS THEY DIE OFF:

How Will Greece Get Off the Dole? (TYLER COWEN, 5/21/10, NY Times)

Greece’s currency, the euro, is stronger than that of its neighbor Turkey, so a holiday in Greece is more expensive. Yet Greece has not built enough luxury hotels, golf clubs and resorts to justify the cost difference. Over all, the greater expense of Greek goods and services, which are paid for in euros, lowers the country’s international competitiveness. Ideally, they should be priced in a weaker currency, which would be appropriate for a poorer country.

Over time this problem will worsen if productivity in Germany and France grows at consistently higher rates and the value of the euro puts Greek exports increasingly out of sync with market realities. One painful way out of this dilemma would be for Greece to engineer a continuing deflation of wages and prices, but Greek voters have already taken to the streets to pressure their government to preserve salaries and benefits, and planned deflation is difficult to sustain in any case.

The Germans and the French have been complicit in treating Greece as a wealthier country than it really is. The strong euro keeps exports from the poorer euro zone nations noncompetitive and also makes it easier for Greece and other lower-income euro zone nations to buy German and French exports; both tendencies benefited German and French commercial interests.

To make matters worse, following its accession to the euro zone, Greece began spending and borrowing as if its future productivity would be high. The European Central Bank treated Greece as a fiscally responsible nation by buying some Greek bonds, which were then highly rated. Many European banks followed suit, and this meant an unjustified credit boom for the Greek state. Greece was able to pursue unsustainable policies; for instance, many Greeks retire before age 60 with benefits at three-quarters salary. Such a luxury is uncommon even in far wealthier countries like the United States.