In her book Punjabi Parmesan, Pallavi Aiyar vividly describes a Europe – especially Southern Europe – that has grown fat and complacent, its people possessed by a strong sense of entitlement, coupled with a taste for the good things in life (including shorter working hours and longer holidays). The book takes its title, interestingly, from the industrious Punjabi farm workers who, in an Italy depleted of local labour, appear to be gradually taking over entire sectors of agriculture, such as the production of Parmesan cheese.

And nowhere, of course, is this complacency and sense of entitlement more disturbing than in Greece.

I’ve been talking to banker friends to try and get a clearer understanding of the Greek crisis, and its whys and hows. What is disturbing, one of them told me, is the visible absence of industry and entrepreneurship in the country. For example, Greece has agriculture – mainly olives and fruits. But, shockingly, despite the fact that it produces some of the world’s finest olives, it has virtually no olive industry: instead, it exports its olives to Italy to be bottled and processed into oil (which is why you’ve never heard of a Greek brand of olive oil).

The Greek islands, meanwhile, have their own Disneyworld economy, based on tourism, with rates that are among the most exorbitant in Europe, and where a hotel room can very easily set you back more than 1,000 euros per night.

So, all in all, Greece is an economy that would make an economist seriously want to turn to some other profession.

Strange paradox

And yet there is a strange paradox.

As a senior banker friend explained to me, there is a marked divide in Europe between Germany (and the other industrious, innovative Northern European economies) on the one hand, and Greece (along with, to a lesser extent, other laidback Southern economies, like Portugal, Spain and Italy) on the other. But the inconvenient truth is that the Northerners need the Southerners to stay within the European Union, simply in order to balance the euro for them.

For if they were to leave, the euro would strengthen alarmingly, and tend to revert to the value of the powerful old Deutsche mark. Which, in turn, would over-value their exports and hurt their competitiveness in the global markets. That’s the way the economics of it works.

And so there has been a devil’s compact between Northern and Southern Europe: I’ll support you to keep my currency down, and thereby keep my export-oriented economy buzzing, my companies thriving and my citizens prosperous.

In other words, I’ll scratch your back, you drive my BMW.

So the North has historically supported Greece, by buying the bonds it issued, and lending to its consumers. And thus it has sponsored Greece’s appetite for fiscal deficit.

Initially, those deficits were small – or at least they appeared to be. But over time they turned out to be much bigger than they looked. Each incoming government discovered, on assuming office, that its predecessor had been more profligate than had been revealed.

When the world suddenly woke up

In late 2009 the new government announced that the deficits of the past three years had been understated – but more importantly, that the deficit for the current year was 13.6% of the total economic output of the country. That was when the world suddenly woke up to the possibility of a Greek default.

In 2010 Greece was bailed out. And since then it has basically been a complicated economic dance of one step forward, two steps back.

In the 2012 Euro Cup football quarter-final, Germany met Greece, in a match that was dubbed “The Battle of the Bailout”. The political tension surrounding the match was electric, with the German fans screaming, “Without Angie [Merkel] you wouldn’t be here!” and the Greek fans taunting back, “We’ll never pay you back!”

By late 2014 it seemed as if the worst might finally be over, and that the Greek economy was in position for a recovery. But that was when the government lost the confidence of the people, and the radical left Syriza coalition, headed by Alexis Tsipras was voted into power. That political development was a giant shiver up Europe’s – and the world’s – collective spine.

Since at least the time of Alfred Marshall, economists have held that the success of an economy depends ultimately on the hard work and discipline of its people. While that still holds true, in today’s complex globalised economy, it is merely the entry ticket. As Michael Porter wrote in the introduction to his seminal paper on Competitive Advantages of Nations in the Harvard Business Review in 1990: “National prosperity is created, not inherited. It does not grow out of a country’s natural endowments… A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.”

But, alas, there is no evidence of any of this in Greece today. On the other hand, despite its largely illusory economy, the Greek government has been spending outrageously on building up a ‘vanity’ navy – a hubristic historical flashback, no doubt, to recall the glory days when it was a naval power that “launched a thousand ships” to conquer Troy. This shocking and shameful investment – which includes two submarines that cost it 1 billion euros – is perhaps the most blatant symbol of the Greek crisis.

So now what?

It all comes back to the devil’s compact between Northern and Southern Europe to balance the value of the euro.

Does the North now finally treat Greece as any bank would treat a delinquent borrower: let it fail (like any other borrower) and thereby break the compact?

Or does it continue to take the larger view, and treat the Greece as a compatriot and dependent, in the cause of a mutual European superpower?

It is a delicate calculus, which essentially boils down to the question of what would cost the North more in the long term: An unfavourably strong euro without Greece?

Or a competitive euro, with an irredeemably lame-duck Greece to support forever.

For lame duck it is. With or without the 1 billion euros worth of submarines.