Greece Downgraded To 'Emerging Market;' Will It Ever Emerge?

Most of us would agree that Greece is not a “developed market” on par with the United States, Canada, or Western Europe. Its instability, pitiful economic governance, corruption and cronyism—all of which contributed to its spectacular sovereign debt crisis—prove that the country is not quite ready for the big leagues.

Morgan Stanley Capital International (“MSCI”), the provider of the indexes that comprise the popular iShares MSCI Emerging Markets (EEM) and iShares MSCI EAFE (EFA) ETFs, among many, many others, acknowledged as much last week. The MSCI Greece Index will no longer be classified as a “developed market” and has officially been demoted to “emerging market.”

I’m on board with Greece being declassified as “developed.” But I do take issue with it being reclassified as “emerging.”

“Emerging” implies that the country will eventually emerge. It implies that the country is going somewhere. It implies a young population of upwardly mobile labor and rising living standards. More than anything, it implies a country with a future.

By even the most generous interpretation, does Greece fit this (admittedly subjective) description? Let us consider:

1. The median age of Greek citizens is 43 years old. To put that in perspective, the median American is 37 years old and the median Frenchman is 40. Greece has a median age only three years younger than that of Japan (at 46)—which, with its massive population of elderly citizens, is fast becoming the world’s first nursing home nation. Greece also has one of the lowest birth rates in the world. (Source: CIA World Factbook)
2. Living standards are falling. By some estimates, the standard of living in Greece will fall by fully 50% before the crisis and the assorted reform programs run their course. By any objective measure, living conditions have deteriorated in Greece and won’t be improving any time soon.
3. Even after more than three years of severe economic depression, Greece has a large trade deficit of nearly $17 billion. And unlike most emerging markets, which have large manufacturing and agricultural sectors, services make up 80% of the economy.