Greece, Rio, and Vulnerability

Author: Robert Woods

One story dominates international news this week, with another trailing. The trailer is the 20th anniversary of the Rio Earth Summit, which is being marked by a United Nations Conference on Sustainable Development conference – they are calling it Rio Plus 20 - in the same city. Hilary Clinton is attending, British Prime Minister David Cameron is not but is sending his deputy Nick Clegg instead. The big story, though, remains Greece, Spain, and the troubles of the Eurozone.

The Greek elections brought in the party whose policy is to accept the austerity measures imposed by others - notably by Germany – and to stay in the Eurozone. Markets rallied on the news, then fell back again. Soothing noises were heard about possibly giving Greece longer to pay back her Euro-loans, but everyone believes that Greece is in for many years of austerity – for which read poverty.

Which makes one (and a lot of worried financiers) wonder: what, for example, will Greece be like in the year 2020 – seven years from now? Will it be on the road to paying back its debts? Will it have defaulted, or have had to re-negotiate them, or re-re-negotiate? In short, how vulnerable is Greece?

Demonstrators set buildings ablaze and fireballs lit up the night sky in Athens, Greece shortly before Greek lawmakers passed harsh austerity measures designed to prevent the country from going bankrupt. February 2012. Associated Press.

Vulnerability of course means different things in different contexts. In the context of Rio, it means such things as vulnerability to climate change, water stress, loss of agricultural land through salinity or erosion.

If you want to quantify them there are things called vulnerability indices. They are calculated in different ways depending on what sort of vulnerability you are talking about.

National Credit ratings such as America’s (downgraded by Standard & Poor last year from AAA to AA+) could be considered vulnerability indices. Three big companies are hugely influential in setting international confidence in investment. They have slightly different wordings, but purport to measure roughly the same thing. Thus Standard & Poor’s rating for Greece is at the moment SD (ie it has Selectively Defaulted on some loans); Moody’s is C – which means substantial risks - and the third big company, Fitch, gives Greece a CCC rating. They are different ways of saying much the same thing. They all tend to be based on a nation’s GDP plus a few other economic indicators, and they purport to be a guide to the riskiness or otherwise of investing in the country – though they have been heavily criticised on at least three grounds: they tell us things which we could probably have guessed without the help of the ratings agencies – wise people knew that Greece was lying about its GDP long before the agencies reflected it; they reacted far too late, which makes them pretty useless as guides; and they are self-fulfilling prophecies: if an agency downgrades a nation, investors flee and the nation therefore becomes a riskier investment – partly because the ratings agency said it was.

But there are other ways of looking at a country’s problems, and at its future; and there are other vulnerability indices. The Economic Vulnerability Index was developed by the United Nations Committee for Development Policy (UNCDP). It looks beyond merely the GDP; it uses that as a component of just one of seven criteria or indicators to work out its results. The seven are population size, remoteness, merchandise export concentration, share of agriculture, forestry and fisheries in gross domestic product, homelessness owing to natural disasters, instability of agricultural production, and instability of exports of goods and services. Its purpose is to identify the least developed countries - and perhaps therefore those most vulnerable to disaster – so it doesn’t really apply to a country like Greece; but it does have relevance at, for example, the current Rio summit – where Nick Clegg, was quoted as saying that he will be ‘leading debate globally on new ways of measuring nations’ prosperity.’ He calls it ‘GDP Plus’: ‘So we don’t not just measure growth in a narrow economic sense but also look at the natural resources available to economies. We are moving to measure our own economy in those terms from 2012 onwards and with the World Bank to and others we will be encouraging other countries to do it.’ And he will be announcing that the UK will be the first nation to require that businesses on the London Stock Exchange report on their greenhouse gas emissions.

We can return to our original question: what will Greece be like in the year 2020? You can have vulnerability indices for, among other things, globalization, demographic problems, climate change and energy. Some of them, for European countries, and regions of countries, including Greece, can be found here. For Greece, they do not look particularly wonderful. But then we probably guessed that already.

For a more technical look at vulnerability indices, see Priyantha Wijayatunga’s article in our education section here.