Essay 3: Greece and the Eurozone

Group 4: Cameron Fereshtehkhou, Quoran Knights, Nathan Powers, Daniel Rowe

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The largest trade agreement in the world, the Eurozone, is primarily made of countries that

are individualistic. The shared ideals of these individualistic countries are a major factor in

making the Eurozone work as they invest in other countries with the goal of creating more

markets for their goods and services to flow through, ultimately leading to greater economic

prosperity for them. This idea of how to run the Eurozone is not shared by the collectivistic

countries, they have their own idea of how to run the system. Collectivistic countries, such as

Greece, generally aren’t willing to partake in a trade deal that wouldn’t benefit them but would

benefit somebody outside of their “group”, which makes negotiating trade deals with them

difficult. The contrast between individualistic and collectivistic cultures reduces benefits of

potential trade deals because of the differing governance styles and particularly for collectivistic

cultures, inefficient governing bodies that hinder economic integration.

Regional trade agreements play a vital role in providing a net gain for all countries involved.

World leaders have been attempting to negotiate with one another to reduce trade barriers

through various trade agreements, such as NAFTA, the Transpacific Partnership, or the EU and

Eurozone. Economic theory continues to support the lowering of trade barriers through regional

trade agreements, but the benefits from a sociocultural viewpoint are vital to analyze the

importance on the integration of cross–border markets and the equitability of the economics of

such integration, and the degree of net economic benefits and gain from engaging in cross border

trade agreements and mergers. Social culture, specifically individualism vs collectivism, defines

an outlook for the people in a country and how they are motivated, interact with others, and see

potential benefits in trade. In countries where individualism is dominant, individual

accomplishments are prioritized and goals are independent from the overall group. Economically

in individualistic societies, people attempt to maximize their own self–interest without

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considering the welfare and interests of their society. Contrary to individualism, collectivist

dominated societies sacrifice personal interest and gain for the benefit of the group. Since

collectivist society values overall benefits, mergers and agreements can produce greater

economic gains as friction in integration and negotiation will be less evident (Ahern). While in

individualistic societies, agreements may have higher costs as countries try to establish their own

interest over the group’s; however, these societies are more likely to join mergers because trade

barriers create high delay costs and constant renegotiation (Ahern).

In cross border market integration, countries that differ in social culture are less likely to

merge, but the overall economic gains will be positive, if smaller. In addition, firms from

individualistic dominated countries may capture a larger portion of the economic gains when

developing agreements with collectivistic societies. Collectivism is group specific, so if a

collectivist dominated nation does not view their potential trade agreement partner as a beneficial

member of the group, they may withhold from entering an agreement and reduce overall gains,

but all involved still benefit from entering a trade agreement (Ahern). Furthermore,

individualism can affect the structure of mergers and trade agreements. Collectivist nations may

use stock payment in order to allocate the inherent risk and are more likely to undergo

negotiations rather than tender offers, which can be more hostile. Overall, higher levels of

economic gain and cross border merger interest will occur with less cultural distance along the

dimension of individualism versus collectivism. It is apparent that cultural distance impedes

mergers by introducing costly frictions; however, the net gain and benefit cannot be ignored as

all parties involved do receive benefits, but the extent of the benefits are heavily influenced and

determined by the dominant social culture in the negotiating societies.

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When focusing on the northern flank of the Eurozone vs. the southern flank, the trend moves

from individualistic to collectivistic from north to south. Countries like Germany and the UK

tend to focus on their own success over the success of the rest of the Eurozone, whereas

countries in the southern flank, such as Greece, Spain, and Italy, try to help other countries if all

parties benefit. Southern countries are more hesitant with Germany because in many situations

they feel the German government will adhere to the bylaws or rules that do not benefit the

southern countries, even if the situation is unique enough to be considered an exception. The

northern flank consists of competitive export industries, while the south, particularly Spain and

Italy, has struggled with uncompetitive exports and deficit spending in recent years. However,

cross border regional trade agreements provide all members with protections in times of crisis.

As Europe, particularly the southern flank, struggles with financial crisis, the wealthier and

competitive northern countries rescue the south from financial crisis while imposing drastic

spending cuts in those countries (Erlanger). Despite the uneven relationship, countries involved

in regional trade agreements benefit from the reduction of trade barriers and the relative ease to

trade with another. Despite these benefits, individualistic and collectivistic cultures can impede

the overall direction of trade agreements. Individualistic countries like Germany prioritize their

own self-interests, and as Germany sees the struggling economies of the south, it seeks to change

their economic culture by imposing its own economic model (Hewitt). Germany’s plan will

result in sovereign disputes, because of its actions in its own self-interest in helping other

countries in the Eurozone, which seemingly threatens the collectivistic nations. However, the

economic success of Germany cannot be ignored, and the southern collectivistic nations will

push back, but there will be a net gain for all parties involved if the south is able to improve.

Countries such as Spain and Italy have struggled this decade with deficit spending and extreme
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debt, with government debt totaling 100% and 135% of GDP in 2014, but both countries have

improved their economy since Germany’s aid at the beginning of the decade (Government).

Greece is uniquely collectivistic amongst all Eurozone countries because of its history.

However, Greeks consider “their” group as their extended–family or close friends, so nepotism is

a systemic problem in the economy and politics. There has been a desire since the 1980s for

Greece to turn inwards in its attempts to fix the national economy, but the movement is now

picking up steam due to the general political–economic climate (Lekakis). This movement,

which is known as economic nationalism or ethnocentric consumerism, plays into the

collectivistic nature of Greece because there is an individual sacrifice in order to create good for

society. However, the campaign has an anti–Eurozone tint in its rejection of any other good,

which is creating tensions with Eurozone members, adding difficulty to an already complicated

trade agreement. The benefit of the trade agreement is that Greeks have the opportunity to

choose between Greek–made and imported, without the Eurozone, Greeks would have to rely on

their own industriousness, which is not optimal for a non–individualistic culture. An effective

rationale behind the movement is that more good will be provided to society than each person

gives up, which appeals to the Greek need to be especially rewarded for their contributions. It is

also a movement that exists outside of the government tax and welfare system, so there is less

interaction with the notoriously corrupt and inefficient Greek bureaucracy.

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Figure 1. Map of Individualism vs. Collectivism in Europe. Ahern, Kenneth.

The incompetent Greek government is, as shown by researcher Andreas Kyricacou, directly

correlated to the collectivism of Greek culture. The relative individualism of the rest of the

Eurozone – see Figure 1 – leads to better functioning governance, which has the strongest

positive correlation to economic development of any other economic indicator (Kyricacou). The

tradition of Greek inefficient bureaucracy blocks Greeks from seeing the benefits of more

government, especially from outsiders who are not included in Greek collectivism. For example,

as Germany attempts to use its economic clout to coalesce the fiscal union of the Eurozone,

Greeks only see the consequence of reduced national sovereignty but miss the economic gains

that would follow from alignment of policy. The ethnocentric consumerism some Greeks are

pushing towards is an inherently collectivist, segregational act because it places Greek goods and

worth above any other country, reducing the viability of trade integration.

The benefits of trade agreements are evident, the cultural differences between the more

southern and northern nations of the Eurozone vastly increases the difficulty of negotiating trade

deals across the trade agreement. When collectivist countries feel like the individualistic

countries will carry out the proposed trade deal in a way that will harm the tradition of their

nations, they are more likely to decline to enter in that specific agreement – in turn slowing down

the economic growth of the Eurozone. On top of this, the collectivist countries have mutualistic

policies, and if they don’t believe that the countries that want to enter a deal with them will

benefit them in return – they won’t enter that deal. The nature of collectivist countries causes

them to shy away from helping other countries that are struggling economically because then

they are not in the same “group” and therefore wouldn’t benefit from helping them.
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Works Cited

Ahern, Kenneth, et al. “Lost in Translation? The Effect of Cultural Values on Mergers Around

the World.” University of Oregon. 17 July 2010.

Erlanger, Steven. “Euro Zone is Imperiled by North–South Divide.” The New York Times. 2

December 2010.

“Government deficit/surplus, debt and associated data” European Commission. Eurostat. 22

October 2019.

Hewitt, Gavin. “Eurozone crisis: North versus South.” The BBC. BBC News Services. 11 July

2012.

Kyriacou, Andreas “Individualism–Collectivism, Governance and Economic Development.”

Munich Personal ReREc Archive. 20 June 2015.

Lekakis, Eleftheria J (2015) Economic nationalism and the cultural politics of consumption

under austerity: the rise of ethnocentric consumption in Greece. Journal of Consumer

Culture, 17 (2). pp. 286–302.