By Klaus Kastner / Observing Grece
Internal devaluation was supposed to make Greece cheaper (sorry: more competitive) so that exports would increase. Now a Grexit is no longer being ruled out which would really make Greek exports explode. Is there substance to these claims?
Despite significant interenal devaluation, Greek exports have only increased moderately since the record year 2008. Part of the explanation may be that the reduction in wages was offset by increases in other costs, but that can only be part of it. Exports can only increase significantly when there is an export-oriented infrastructure which is underutilized due to high wages and other costs and which explodes as soon as the costs/prices have become competitive: I would suspect that Italy, with its huge industrial sector, would quickly become a fierce competitor for Germany if Italy could devalue by 20-30%. A country which does not have a car industry cannot increase car production by subsidizing wages.
Jens Berger runs the German blog Spiegelfechter and is a major contributor to the blog NachDenkSeiten. Both blogs focus on 'progressive economic thinking'. Critics would call both of them leftist blogs. In this Videopodcast (in German), Berger explains the export perspectives of Greece. The podcast was made in June 2013, so the data presented may no longer be actual.
Berger's major point is that the Greek economy has a very low productive capacity. The largest productive sectors are foodstuffs, metals and mineral products (cement, etc.) which Berger says are not the classic export sectors for a developed economy (personally, I cannot quite follow this argument because certainly foodsstuffs should be a major export sector for an agricultural country). Even though large by Greek standards, these sectors are quite small by international standards.
Greece's major exports are in raw materials and refined raw materials, again not typical examples of a developed economy. The classic export sectors of a developed economy (refined metals, beverages, chemicals, plastics, pharma, electronics, machinery, optics, semiconductors, clothing, etc.) are extremely small in Greece. A case in point: among the largest Greek companies, one does not find classic production companies.
In shipping and tourism, Greece is an international giant. But still, Berger claims that these two sector are not very sensitive to domestic wages.
In essence, Berger's presentation supports what I have been arguing in this blog all along: Greece urgently needs to build up more of a productive capacity, a greater capacity to generate economic value, in order to make its economy (and above all its exports!) grow. And if Greece cannot accomplish that alone, then this is the area where the EU should help Greece.
This post was first published by Klaus Kastner in his blog Observing Greece and is republished here with his permission.