"The idea originated with the School of Salamanca in the 16th century and was developed, in its modern form, by Gustav Cassel in 1918. The concept is based on the law of one price, where in the absence of transaction costs and official trade barriers, identical goods will have the same price in different markets when the prices are expressed in the same currency." — Purchasing power parity, Wikipedia
One day Greece will be normal. What is normal? Bulgaria? Portugal? Perhaps, it's something more aspirational; Ireland?
In September, Athens is a balmy 76 degrees Fahrenheit compared with 56 degrees in Dublin. Fancy income comparisons show a great gap in, as loosely defined, purchasing power parity.
Depending on your perspective, Ireland is 83 percent more prosperous than Greece; or, Greece is a 45 percent shadow of a calculated equal inflation-adjusted income in Ireland.
Forget, for a minute, what is normal. With Greek depression and crisis and deeper depression, we should focus on the "when" of it all. Greece's best "when" is out 20 years; in other words, a whole generation.
Here is one, most likely too optimistic, outcome of how Greece can aspire to be an Irish Tiger.
The gap between Eurostat real per-capita GDP in purchasing power parity has been and continues to be daunting. The disparity was well-behaved until the financial crisis. As is well understood, Ireland was initially crushed (the red box above) and acted to clear the crisis and move on. I extrapolate a continued "moving on" that does not favor Irish prosperity or gloom. As is too well understood, Greece, a bit delayed, was crushed, then further crushed. These series do not show 2015 with Ireland advancing the distance with Greece. But if there is to be optimism about Greece stabilizing and then moving forward, we must ask; how long will it be to get to normal or even aspire to "be like Ireland?"
The answer is 20 years.
That is on a semi-log basis and on lame guesses as to the "best outcome" for Greece. As I said above, I take a guess at how Ireland will advance with an ever-so-slight gain (full disclosure, I am more optimistic). Above, I have "guessed optimistically" about Greece's future. The white arrow parallels the Greece miracle of 2000-04 shown starting with the green circle (full disclosure, I am less optimistic). Even worse, under the above constructive assumptions, Greece doesn't get back to precrisis normal until 2023. The "guess" is challenged by culture, politics, economics, and luck. By far the greatest challenge to guessing an aspirational outcome for a nation is time. In this case, much can happen over one, two, and three decades.
What to make of this? The first-order condition is to stabilize the economy and politics of Greece. All agree on that even if there is bitter disagreement on how to do it.
What is less known is the timeline for Athens to "get to" Sofia or Lisbon, or perhaps even to Dublin, prosperity.
Discuss, ATH to DUB.