Saturday, September 13, 2014

Why Greece's Non-Oil Exports Don't Grow!

I have raised this question several times in this blog: given the significant internal devaluation since the beginning of the crisis and given that the Euro itself has also declined against third currencies, it is hard to understand why Greece's non-oil exports do not show any significant growth.

The below article from Brookings gives the best explanations I have heard so far. Its bottom line is that "the failure of the internal devaluation to improve Greece’s export performance resulted from increasing costs and placing new risks and burdens on the productive economy that cancelled out any competitiveness gained from the fall in labor costs".

Why Internal Devaluation is Not Leading to Export-Led Growth in Greece


  1. I have posted about 10 times in this blog, the problem with the cost of industrial electricity... Including articles titled "greek industrialists send SOS".

  2. This i had posted also in the past. The EU commission threatens the goverment with fine, if tries to reduct cost of electricity for the industries, because it would go against EU competition laws. The article is reproduced from Kathimerini.

    And why this tremendous increase in the electricity cost? Because the troika wants to absolutely privatize half of DEI. The troikans demand to split DEI in half. Half will remain to the state, half will go to private investors. The raise in cost, would help DEI to come to positive balance (and it did), so that it would become more appetizing to investors. SHAME, that this had huge repercussions to the rest of the economy and to the attempts to export in a country that badly needs to do so. Another great troikan success story.

  3. So, essentially fiscal consolidation along with the broken monetary transmission of the ECB are negating any positive effects reduced wages might have.

    The question is, where do we go from here?

  4. The answer is, down, unless you can change the political system to be business friendly.

    1. Correct me if I'm wrong but the political system in, say, Germany is business friendly. Why is then that Germany relapsed in recession?

      Maybe it's time to recognize that supply doesn't create demand, but rather demand creates supply.

    2. "Supply doesn't create demand, but rather demand creates supply" - this has become a slogan in many quarters and you and I have exchanged views on it before. It certainly is a great slogan because it sounds so plausible. Please beware of great slogans which sound plausible.

      No less than the late Keynesian Prof. John Kenneth Galbraith argued a few decades ago in his book "The New Industrial State" that it was actually supply which created demand. He wasn't thinking so much in terms of economic theory but, instead, of day-to-day reality. He argued that it was the suppliers which would determine the products they would make and then they would roll out marketing campaigns to create the respective demand among consumers. Steve Jobs argued similarly when he rejected doing market surveys about demand for his products. His reasoning was something like "how can I test demand for a product which consumers don't even know yet?"

      All I am saying is that economic life is not as simple as one great slogan. I resent the notion that one only has to push one button and everything will fall into place. Supply and demand reinforce one another. It's not an either/or proposition. Instead, it is an as-well-as proposition.

    3. Klaus, at some point you'll have to accept that people aren't buying much stuff because debt is too high, wages are too low (for those lucky to still have a job), and taxes are too high. You can wait all you want for private investors to invest and employ, and thus create demand. It won't happen in a downturn. It won't happen because there's not enough demand for whatever it is that they plan to produce, so they'll keep their cash instead.

      So we'll be slouching in the mire until something changes and debt stops being too high, wages stop being too low, and taxes stop being too high. Until then we can blame the lack of structural reforms that stops investors from investing. I think that deep down you know that's not the case.

  5. Lagarde, a woman that pays no taxes for her job, should know better than to repeat populist clichès, that seem taken out of SYRIZA's convention. The shipping industry, pays the same taxes that they would pay if they were to use Maltese, Panamese, Liberian flag on their ships. There is a reason, why half the greek-owned ships fly non greek flag and that is, that other countries provide even more benefits to ship owners. To change the flag of a ship, is something a ship owner can do in brief time, just by calling his lawyer. SYRIZA also loves to mention shipping as a goldmine from which to raise taxes, but it's easier said than done. 2 days ago, i read that the french, have exported to belgium's banks 17 billion euros of deposits. Probably the "Depardieu's syndrome", as reply to Holland's grand plan of putting 75% tax on the rich.

  6. The fact is that Greeks, whilst being natural risk takers [ in the main, because they don't want to work for anyone else but themselves] are most effective entrepreneurs in running very small businesses but, beyond that - with exceptions, of course - are not professionally organized enough to build large exporting industries - and never have been historically - probably due to spending 400 years under a stultifying Ottoman Empire [ the bureaucratic remnants of which remain today in the guise of the bloated public sector]. Of course, they get no help from the Banks - either in terms of finance - or any form of supportive business training. In effect, business is generally dead in this country and thus, whilst one sees lots of coffee shops starting up, there is precious little else happening. As the Brookings article points out, any advantage from the internal devaluation in Greece is also negated by the continuing bureaucratic weight on top of the emasculated private sector ....and this isn't going to change any time soon.