Time to Say Danke

Thrifty Germans have been more benevolent to Greece than you think

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Oliver Munday for TIME

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Southern Europe has a long way to go on that score. In terms of the ease of doing business, the World Bank ranks Italy and Greece last (30th and 31st) among high-income countries. The World Economic Forum ranks Greece and Italy 125th and 126th in flexibility of hiring and firing and 133rd and 140th (out of 142!) in the burden of government regulation. Tax collection is almost nonexistent in both countries, and corruption is rampant.

Largely thanks to European Union (read: German) subsidies, over the past 10 years, wages have risen dramatically in Southern Europe. Unit labor costs in Greece went up by 35% from 2000 to 2010. They went up 2% in Germany.

German leaders have said again and again that they are willing to bail out weak euro-zone countries. But they have asked for reform as a condition of that aid. German Chancellor Angela Merkel is opposed to a sweeping solution like eurobonds not because of their cost--Germany will end up paying more--but because they would take off pressure to reform. The only leverage Germany has with countries like Greece is that the money gets to them incrementally as they enact reforms.

Greece might yet have to default and quit the euro zone. Its competitiveness problem is simply too great and its political leadership too weak. But if it goes down this path, Greece will find that the markets will refuse to lend it money at reasonable rates unless it does pretty much the same things Germany is asking it to do. Life without Germany will mean a lot more austerity than life with Germany.

TO READ MORE BY FAREED ZAKARIA, GO TO time.com/zakaria

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