Tuesday, January 6, 2015

Bruegel - Why Grexit Would Not Help Greece

The question of Greek exports, or rather the unsatisfactory growth of Greek exports since 2008, has been discussed here several times. This article from Bruegel ("Why Grexit would not help Greece") sheds more light on this issue. Some of the highlights:

* Contrary to Ireland, Portugal and Spain whose improvement in the current account has come primarily through increased exports, the Greek improvement came almost exclusively through a contraction of imports.
* hourly wages in Greece declined markedly whereas they inceased in Ireland, Portugal and Spain.
* it can't be the wages (or rather their reduction) which are the main drivers behind exports.

The author concludes that "the reasons for the weak Greek export performance might primarily lie in other factors such as rigid product markets, a political system preventing real change and guaranteeing the benefits of the few, the lack of meritocracy among other factors, as nicely outlined by Brookings scholar Pelagidis. To the extent that the Troika can help reform the country, an exit of Greece from the euro would even be counterproductive".


  1. Some more realistic reasons:

    1) Energy cost (a shut down business exports 0).


    2) Oil tax cost (when Greece has overtaxed the oil to the point of being in the top most expensive oil countries in EU, you can't expect much.

    3) Corporate tax (when 4000 greek businesses leave because of 1,2 and high tax and go to Bulgaria, you gain nothing).

    4) Tourism is a main greek "export". With even lower packages, Greece will attract more tourism yet.

    5) Once debt is cleared out, it will be easier to attract investments.

    Not saying it's easy, but it's not like Bruegel presents things either. Once you break free, you have no troika to force rules that bind the previous points. If anything, Greece isn't new to bankruptcy and has recovered all previous times with less resources than today, by devaluating. It's not like the other times Greece had a better infrastructure or production basis or some secret export apparatus producing greek cars.

  2. Anybody familiar with the Greek economy would tell you that it was always unlikely that Greek export performance would improve.

    I mean, come on, we're talking about a country whose industry collapsed once globalization kicked in. I saw that happening in real time in the 80's. We're talking about a country with a chronic dependence on currency depreciation, and an excessive reliance on shipping and tourism for foreign currency.

    1. During my optimistic phase about Greece's future, I would have answered: "You are correctly describing the status quo but that doesn't mean that it cannot be changed going forward".

      Today I answer: "You are correctly describing the status quo and it doesn't look like it will ever change".

    2. Mr. Kastner,

      The change you intend, you won't see it but there is. Many things have changed to the better in Greece, but from outside, you only see numbers and from the inside most Greeks only look at their wallet. Either that or Heraclitus was wrong, but science has now confirmed that he was right.

      At any case, these are the greek exports to Germany, released today from the hellenic commerce attachee in Berlin's embassy. Absolute numbers and % of german imports in the round circles.

      Now, in my 1st year of university, i had done a statistics class, although i only remember names now (Pearson's chi squared, Gauss distribution, etc). But i do remember our professor, repeating many times "lies, damn lies and statistics".

      How does Bruegel explain this?


      The greek exports to Germany where higher in 2008. Was Greece better in WHAT in 2008 compared to 2014? My explanation, is that greek exports have IN DEED risen. BUT, if you take into account, how many greek companies went out of business and how the rest face much more adverse conditions into operating, due to lack of bank loans and increased taxes/energy costs. Comparison with Portugal and Spain, is misleading, because the hit that they took, was much less (Greece lost 26% of GDP, this must have had some impact on businesses, including those exporting).

    3. And this is another common mistakes. All non Greeks, based on the only fact that they have better economy, think that they already know all the problems of Greeks, better than the Greeks themselves. Why doesn't Bruegel ask the greek exporters what they deem the worst problems?

      Poll from the website of the Association of Greek exporters. "Which are the biggest obstacles you face"?

      - Lack of liquidity (about 70%)
      - Lack of know how (about 10%)
      - Bureaucratic obstacles (abotu 10%)
      - Lack of trust from foreign trade partners (about 20%).


      If you search the problems that greek industrialists face, you will find a similar situation, plus in general, the slow court decisions, which applies for disputes in all companies and energy costs, tax.

      If you ask the farmers, you will see again, production costs, loans and tax.

      Otherwise we will be remaining with mysteries, of "what did Greece do better in 2008, so that we can go back and export more"...

  3. I agree with the status. It will change when the majority mentions honesty, justice, fairness and openness as their most important values, not family, village, nation and the Greek Orthodox Church. It's a petty I'm too old to experience that.

    1. Hahahaha! Thank you for the good laugh Mr. Lennard! I am still trying to imagine George Papandreou as a man of family, nation and church! I keep thinking of how he substituted "country and nation" with "this place" and how he didn't know what to do with the candle in the Easter Mass. Or Alexis Tsipras, whose son, Ernesto is not baptized. Amazing what Hollywood does to people...

  4. Here some more of SYRIZA in english


    1. I had seen this video. I think it is absolutely brilliant! I am beginning to feel sorry that I cannot vote for Alexis Tsipras...

    2. This Mr. Kastner, is the eternal problem in Greece. The left, comes up with wonderful speeches and songs. But can't really do anything good for the economy. They are word manipulators. On the contrary, the right, usually lacks good comunicators, but does better with the economy.

      If you think Tsipras is brilliant, Andreas Papandreou would have enchanted you.

    3. Mr. Kastner,

      To have a laughter with history and how it plays with men sometimes, here is a letter to the editor of NYT, dated 1989, when the NYT was writing about the "charismatic" Andreas Papandreou. Ironically, his son George, initially enchanted many, both inside and outside Greece and now the story goes on with Tsipras...

      I always say, that if silver tongued politicians were enough to generate money just by reading texts, Greece would be Switzerland, because our left produces always very good political texts.



    4. Have you noticed the psychedelic music and how well orchestrated the whole presentation goes to the heart of even our esteemed author Klaus ;)

      No doubt that Tsipras at least was capable to engage a very impressing public relations agency!


    5. Mr. Tricker,

      The music is typical greek "political music" of the left. We have a music genre on that, mainly based on music written by Mikis Theodorakis for the military dictactorship 67-74. On that part, any leftist protest, is guaranteed to have good music, KKE included.

      Of course, Mikis Theodorakis yesterday, released an open letter, explaining how Tsipras used him in 2012 to serve his own political purposes, to gain votes and his "blessing".


  5. Now this is a good thing that Tsipras should look at:

    How to reduce the Greek debt burden?

    Which of course, like you have proposed Mr. Kastner, follows a more "politically feasible" way, rather than SYRIZA's "write off at least 50% of debt".

    I hope Tsipras isn't carried away by the more radicals in his party in other, more maximalistic demands.

    1. Here is a shorter version of the Bruegel paper. I had posted both link to the article "No reallistic way that Greece can ever pay back its debt?"


  6. Good afternoon all, the question of Greece and the exports it may or may not have or rather the unsatisfactory growth of Greece exports since 2008 as bruegel says its quite an upleasant conversation for myself and my Country. We Greeks are suffering as a Nation. i truly believe though that exports is one of Greece's strongest cards.