What Makes Greece Special?

Mar 6, 2014 Daniel Gros

The news from Greece these days has been dominated by the announcement that the government achieved a primary budget surplus in 2013. But another, much more important news item has received much less attention: Greece exported less in 2013 than in 2012.

BRUSSELS – The euro crisis seems to be largely over. Risk premiums continue to fall across the board, and two countries – Ireland and Portugal – have already exited their adjustment programs. They can now finance themselves in the market, and their economies seem to have started growing again.

By contrast, Greece is still having problems fulfilling the goals of its adjustment program and is engaged in seemingly endless negotiations over yet another multilateral financing package. The problem can be summed up in one word: exports (or, rather, lack of export growth).

The news from Greece these days has been dominated by the announcement that the government achieved a primary budget surplus (the fiscal balance minus debt service) in 2013. For the first time in decades, the Greek government has been able to pay for its expenditure with its own revenues.

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0 Comments on this paragraph, 10 Comments on this article

Jamel Saadaoui Mar 27, 2014

Since 2008, we observe an INCREASE (not a decrease) of export prices measured relatively to the euro area partners. The real effective exchange rate based on export price deflator moves from 115 to 125 (calculations based on European Commission data, basis 100 in 2000).

In these conditions, it is quite difficult to argue that the Greek economy has regain competitiveness against its main trade partners…
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Eleni Tsigante Mar 13, 2014

Too bad Daniel, you tried it on, but it didn't work and no one is buying it.
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Stamatis Kavvadias Mar 9, 2014

This is amazing nonsense for an economist.

Comparison of Greek reduced labor cost effects with those of German depresed wages, is at least naive, if not prejudiced. Greece is not and has never been an industrial country (actually, by explicit political choice). When the financial crisis has set in doubt the productive capacity of Greece, pointing to need for retargeting the economy, there were only so few things the Greek economy could achieve with investment pumenting *all years* in the data the author sites himself!

Comparison of Greek and Portuguese exports on the basis of GDP %, not taking account of GDP decline in the two countries! 2009-2013 GDP decline in Portugal was ~16%, while for Greece the decline was ~27%. This means not absolute change in relative exports value. Portugal has *always* been ahead of Greece in absolute exports (e.g., see here http://www.tradingeconomics.com/greece/exports
http://www.tradingeconomics.com/portugal/exports). The reported approximation of 20bn euro, has *always* been the case. This is *clearly* prejudiced and blind reading of the numbers!!!

Exports have increased in exactly the same pace as in Portugal in absolute numbers and the fact that this is not so as GDP percentage should be easily comprehensible for a country suffering a cumulative GDP decline of little less than 27%, equal current unemployment rate, continuous investment reduction, and an impaired financial domestic sector that has not been capitalized yet! Furthermore, who says that this export-led growth model is attainable for all countries?

Can the author read statistics at all? Greek current account *is not* balanced. Greece has a deficit of about 2%. There is only a primary surplus.

Conclusions:
a) Greece needs more investment, hopefully based on the recovery of the domestic financial sector;
b) Daniel Gros is biased, possibly both because he is ignorant and a fanatic.
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Anthis Zogopoulos Mar 8, 2014

Wage cuts is a doubtful measure to boost competitiveness in capital and energy intensive industries. Labour intensive industries are gone long time ago. When direct and indirect labour costs contribute just a. say, 20% of a product's total cost structure, then halving wages you just decrease total cost by a mere 10%. ceteris paribus. If at the same time you have energy costs increase more than twice, financing cost at usurious rates, if the firm has any access to capital at all, add some increased taxation, then it shouldnt surprise anyone that the any savings from the wage cuts can be swept away and the overall product cost having been increased actually.

Add some weak marketing, and you have a full explanation for the poor export performance.
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Jason Gower Mar 7, 2014

"The Euro crisis seems to be largely over" ?! Apologies but I got all hung up on the first sentence here. Can you please explain how the crisis was resolved? Also helpful would be if you explained to me structure of the Eurozone.
- Jason Gower Mar 8, 2014
  
  Marc, I have always found hope to be the absolute worst strategy...with more than 325mn citizens in the EZ is it responsible for politicians to cross their fingers and hope that things work out without taking the needed steps to fix the structural flaws or move on to another system? Unfortunately markets will decide when it unravels and then it will once again be full crisis mode again...
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- Marc Sargen Mar 7, 2014
  
  Jason,
  You asked why the Euro crisis seem to be largely over. The simple answer is that few are calling it a crisis that needs an immediate solution.
  There are plenty of issues & unresolved problems. But people were able to kick the can, & hope that things will be better later. Still no one is saying, we need to fix this or everything will unravel. Without panic there is no crisis.
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Catarina Gusmão Mar 7, 2014

Well, Portugal has not yet exited its adjustment programme (scheduled May 2014) and only by then we can assess its "capacity" to finance itself in the market.
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Carol Maczinsky Mar 7, 2014

"Unfortunately, there is very little the outside world can to do to ensure that the Greece exports more."

True.
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Zsolt Hermann Mar 6, 2014

I don't fully understand the question in the title, indeed why would Greece be special?
Are there no dozens or more other countries struggling right now?
Actually are there any countries who are showing true signs of recovery, not cosmetic ones, are there any countries (apart from China as we saw this week) who even dare to make long term plans at east for a year ahead?
Instead we see reactions, joy or despair week by week as conflicting numbers, statistics come alive, basically everybody is living, more precisely surviving day to day.
And the most important sign is that despite more and more people coming to understand that constant quantitative growth is simply unsustainable in our global, integral human network locked inside a closed and finite natural system, still experts "prescribe more growth" as cure, as if drinking even more would be the medicine to a terminally sick alcoholic.
We still try to pick details and philosophize on them instead of trying to see the big picture.
We cannot pull ourselves out of the global crisis unless understand and accept the root cause.
And the root cause is the excessive and artificial economic structure and its false supporting governing system, and it is all driven by our self-centered and egoistic human nature.
So as long as we do not change our nature and instead of competing with each other, instead of making any calculation only based on self-interest we start mutually complementing each other and make the primary calculations towards the benefit and well-being of the whole, we will simply continue sinking deeper into crisis and very soon even the superficial, cosmetic measures will not yield results, not even for a short term.
Paradoxically this "negative" state, this "crisis" actually gives us the opportunity for a restart, to create a completely new human system that is much wiser, fully conscious instead of being solely instinctive, a system that adapts to evolutionary conditions and provides unprecedented quality of life by the fact that humanity performs, operates a single, united, mutually supportive and complementing organism, opening up possibilities that were impossible to touch before.
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