Landfall logo


Global macro & geopolitics from a small economy perspective

What can we learn from the Greeks?

David Skilling
2 July 2017

Two Greeks have been in the news again recently. The first, Yanis Varoufakis, was the Finance Minister during the depths of the Greek crisis. He has just published another book, attracting celebrity endorsements, apportioning blame to many for the continuing agonies in Greece. FT columnist Martin Wolf commented charitably on his book, and fellow columnist Wolfgang Munchau remarkably suggested that the Brexiters could learn from Greece.

Few emerge from the Greek crisis looking good, including senior Ministers in the Syriza government. Playing chicken, and railing against austerity and Germany, may be good fun, but it did little to address Greece’s underlying challenges. Greece has a debt problem, but the core issue is that Greece is deeply uncompetitive. Even debt relief and a lower cost structure (or in extremis, a depreciated currency outside the Eurozone), is unlikely to be sufficient for the Greek economy to perform better on a sustained basis.

Greece needs a new economic strategy that is informed by the experience of successful small economies, as well as debt relief. On this score, Mr Varoufakis has little to teach us (apart from what not to do). One lesson, perhaps, is to beware Greeks bearing game theory.

The second celebrity Greek is Thucydides, who lived about 2500 years ago. Thucydides wrote a contemporary account of the Peloponnesian Wars in the 5th century BC. Over the years, many have drawn on his account of the conflict between Athens and Sparta. In particular, there is now much talk of the ‘Thucydides Trap’ in the context of US/China relations. The genesis of this ‘Trap’ is a line by Thucydides: “What made war inevitable was the growth of Athenian power and the fear which this caused in Sparta”. In this perspective, the dominant power will be threatened by the emergence of a rival power, will try to contain the rise of this challenger, and this will lead to conflict.

Harvard historian Graham Allison has argued that conflict is frequently associated with transfers of power. In a new book (bracingly called ‘Destined for War?: Can America and China Escape Thucydides’ Trap?), Allison argues that this dynamic is at work again and that there is a real chance of conflict between the US and China. He sees a contest for supremacy in Asia, as the US responds to a more assertive China. It was reported this week that Allison had recently briefed White House officials on his analysis. It is not necessary to buy the full argument to agree that big power transitions are often fraught periods, and particularly so when the countries are as different as the US and China. The dense economic interactions between the US and China do not eliminate the odds of conflict, and to an extent may complicate the relationship.

But, as with Mr Varoufakis, it is important not to over-interpret or over-simplify this experience. Despite the unfortunate book title, Allison notes that conflict is not inevitable – and that tensions and pressures can be managed. But his framing of Thucydides puts the onus on the incumbent not to over-react with respect to the challenger. However, the Peloponnesian Wars are not this straightforward: Athens (the challenger) was at least as keen (and possibly more so) to be rid of Spartan influence, as Sparta was to contain Athens. It is difficult to see a Thucydides Trap.

This experience confirms that things can get out of hand when big power relations are not managed well. But this is a matter of choice for both the incumbent and the challenging power. And often it is the challenger that misjudges their strength, and acts aggressively to capture an advantage. And looking around the region, tensions seem at least as much due to Chinese assertiveness as US attempts at containment. Indeed, just this week, there was new evidence of rapid Chinese militarisation on islands in the South China Sea.

My current assessment is that economic measures (trade, currency, firm-level sanctions) are more likely than big power military conflict in Asia. But the combination of an increasingly assertive China and an unpredictable US could change this calculus quickly. These economic measures – and certainly hard conflict – would have material effects on economies and markets, and are not currently priced in.

Another aspect of Thucydides’ commentary that is of interest to me, as a small economy watcher, is the Melian Dialogue. Melos was a small state that was attempting to remain neutral, but was invaded and destroyed by the Athenians after it refused to align. In this dialogue, the Athenians said to the Melians, “the strong do what they can and the weak suffer what they must”. The implication is that in a world governed by power rather than rules and institutions, small states are deeply exposed to the actions of larger powers. This is clearly true to a point – small countries do have more limited options – but small states should not over-interpret this to the point of fatalism.

If small economies respond appropriately, they can do well – and I believe that many will continue to do so – but there is limited room for error. To survive and prosper, small economies need to be serious and creative in engaging with emerging challenges and opportunities – and to have friends. This is a lesson that Mr Varoufakis and his colleagues should have heeded (and, as an aside, contrasts with a recent call from New Zealand’s Prime Minister for ‘naïve Kiwi optimism’ in order to respond to international developments). Naïve optimism is more reminiscent of recent Greek economic history than of a successful, serious small economy.

Much can be learned from both ancient and modern Greek history, but care needs to be taken in interpreting it: Greek history seems to lend itself to one-dimensional accounts. My reading is that choices matter, that options are often constrained, and that interactions between countries are consequential. Sounds a bit like Greek game theory.

Previous notes are available at
To subscribe/unsubscribe to this note, please email