Politics and investment

In a way, it's a pity because it's a pertinent question - especially if the Greek in question is a pensioner. Greek pension funds receive transfers from the state equal to about 10 per cent of national output (GDP). That compares with an average for the eurozone of about 2.5 per cent of GDP. As a result, the average Greek pensioner receives about the same income as the average German pensioner, although there is one big difference - the Greek will retire about six years earlier than the German. And let's not forget that per-capita GDP in Greece is about half the level of Germany.

So, if you wanted to explain in just a few figures why the euro crisis became a tragedy in Greece, as opposed to another of the 19 countries in the eurozone, you would be hard put to better the stats about Greece's unaffordable pension arrangements.

Sure, the Greek crisis is also about the amount of public sector debt - about 180 per cent of GDP - crushing the country; or about how - in one way or another - more of that debt must be written off. But it's more important to know why the debt reached such proportions in the first place. It has everything to do with the flaws in the Greek political system that allowed state handouts to become so high while tax collections were so low. In a nutshell, the eurozone crisis made its deepest impact on Greece because that nation was - and is - the least functional of all those using the euro.

This matters to investors in several ways. For example, there is the obvious - although still vital - concern about the contagion that would spread from a Grexit. Would there be a domino effect of falling banks? Which countries would be perceived as next to leave this no-longer inviolable currency union?

But there is a generic issue, too - the relationship between the functionality of a nation and the investment returns that its stock market offers. Take the details in the table. The right-hand column shows the percentage change in each country's main market index from 1 January 2001, the day that Greece joined the euro, to the present. So that 14-year period contains lots of highs as well as lows. Yet the table's message is that poor investment returns are likely when corruption is rife - Greece and Italy share 69th place in the latest Corruption Perceptions Index from Transparency International, a lobby organisation; when democracy is flawed, as is the case in Greece and Italy, according to The Economist Intelligence Unit's latest Democracy Index; and where economic freedom is curtailed, which is especially the case in Greece, where its position of 130th out of 178 in the 2015 Index of Economic Freedom puts it below such nations as Pakistan, Mozambique and Malawi.

The good, the bad and the corrupt

Yet the reality is more complex. The best returns of the five come from Germany. Yet it is only within living memory - just about - that Germany was transformed into a democracy. Meanwhile, for decades in the Land of the Free, the political system ran on the clientelistic, pork-barrel politics of the sort that afflicts Greece. But that didn't stop US companies and stock markets from prospering.

Then there is the anomalous presence of Singapore and the brooding presence of China in the table. How did Singapore become so rich - per capital GDP about £52,000 compared with the UK's £25,000 - while eschewing democracy? How could China have grown so fast despite its endemic corruption and constraints on economic freedom (especially its poor property rights and the absence of the rule of law)?

Superficially, the answers are because - as with China - a nation can grow fast from a low base so long as its political system is sufficiently stable. But for it to cross the threshold into affluence it must have features that China lacks but Singapore has in abundance. Not for nothing does the city state score so highly in the league tables for lack of corruption and economic freedom.

The implication is that, for a nation to be wealthy, fairness is more important than democracy. Usually, however, democracy provides the best protection for the fairness on which wealth will be built. In turn, this implies that the likes of Greece and Italy will never be good homes for investment capital until they sort out their clientelistic politics (don't hold your breath). More ominously, it also hints that US economic performance may struggle the more that its political system reverts to a patronage-based model.