Wednesday, May 2, 2012

Can Greece exist purely as a service economy?

Approximately 80% of Greece's economy is in services. The point has been made over and over again that Greeks are not nearly so akin to manufacturing as they are to services (a nation of shop keepers, taverna and bar owners, traders, etc.).

Can Greece exist purely as a service economy?

Theoretically yes; practically only with great difficulty. The more Greece becomes a service economy, the less products will be manufactured in Greece. However, Greeks will not consume manufactured products to any lesser degree than other people. Thus, the manufactured products which Greeks will want to have are going to be manufactured elsewhere and imported to Greece.

Obviously, if Greece's services were offered abroad and generated income from abroad, things would be different. But to accomplish that, Greece would not only have to significantly increase exports (without manufactured products?) but also to approximately double the revenue from tourism (or generate other sources of foreign income).

Bottom-line: it is very unlikely that Greece will be able to manage without at least some focus on new domestic manufacturing.


  1. Its very hard to sustain a manufacturing sector for consumer goods in country of 11 million, the economies of scale aren't available. Its not only China you have to compete against - its high wage countries such as South Korea, Japan & Germany as well as countries like Brazil, India and Turkey.

    The UK economy is heavily weighted in services - its in recession.

    EU countries could demonstrate solidarity by contracting out some of the maintenance and refits of their naval vessels to Greek shipyards, assuming Greece still has the skills.


  2. Your point about Greece's small market is well taken and I have often heard that from German exporters when asked why they wouldn't produce locally. On the other hand, when I drive through Southern Germany and Austria, what stands out is the multitude of small companies (perhaps 5-50 employees) that one sees left and right. I don't see a lot of companies when I drive around the countryside in Greece.

    My lasting impression is a retired CEO who ran a sugar company. He told me that, until the Euro, they were a recognized name in Europe and exported all over it. Now they don't export any more and even their production for domestic sale has declined (not to mention the number of employees...). I don't know how to correct such problems but they definitely require correction!

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