Tuesday September 2, 2014 Search
Weather | Athens
29o C
23o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Cheaper cost of living in Athens shows peril of falling prices

By John O'Donnell

The falling price of living in Athens presented the unmistakable specter of deflation to European Central Bank President Mario Draghi during his visit to the Greek capital this week yet there is little he will do to heal this pain.

Whatever course of action the ECB opts for to bolster the eurozone’s economy, it will take a long time before it trickles down in to Greece, where the prices of everyday purchases from traditional souvlaki meals to frappe coffees have dived.

The long lines of empty yellow cabs scouting the dusty streets of Athens for custom, offering fares at a fraction of peers in Frankfurt or Brussels, bear testament to the country’s sudden adjustment.

All this set the backdrop this week for a meeting of European finance ministers and central bankers including Draghi.

They gathered a short distance from Syntagma Square, the scene of earlier violent clashes over austerity imposed under the country’s bailout.

But despite its desire to buoy prices across the 18 countries using the euro, the ECB will do little to halt Athens’s tumbling prices.

Policymakers in Frankfurt draw a distinction between ‘bad’ deflation - spurred by a general downward economic spiral - and ‘good’ deflation, as in the case of Athens, where falling prices are part of a painful course of medicine to reform the economy.

"The deflation that we see in Greece is, in the eyes of the

ECB, the price it has to pay for adjustment," said Carsten Brzeski, an economist with ING. "It’s part of the formula - a necessary evil to get the peripheral countries back to growth."

During Greece’s debt-fuelled economic boom after adoption of the euro, prices were rising faster than in the euro area. In 2001-2011, they rose by a cumulative 46 percent, compared with 29 percent in the euro area.

But the average annual inflation rate in Greece hit -0.9

percent in 2013, negative for the first time since 1962, and the fall in prices in Greece reached a new depth last November, when they were almost -3.0 percent from a year earlier.

While the International Monetary Fund predicts slower deflation of -0.4 percent in 2014, the OECD, a think tank, is forecasting a decline roughly four times as steep this year and next.

Low prices are not unique to Athens. Eurozone inflation slowed to 0.5 percent in March, its lowest since the economy was deep in recession in 2009, and its sixth month in what Draghi has called "the danger zone" below 1 percent.

Although the ECB is not expected to announce any new steps to bolster the economy when policymakers meet on Thursday, the sharper-than-expected fall in prices will fire up the debate as to whether Frankfurt should be doing more.

Falling prices, however popular they are with Greeks struggling to make ends meet, pose a threat.

Olli Rehn, the European Union’s top economic official, pointed to one of the risks, warning that a long period of low inflation could hinder the ‘rebalancing’ of the economy, echoing similar concerns at the Bank of Greece.

In other words, shrinking prices make it more difficult for a country to shrug off heavy debts.

And debts in Greece, as in many other countries in Europe, are rising. Having drawn down almost 220 billion euros of emergency loans from its eurozone neighbors and the IMF, the country may now be forced to ask for more such aid.

Germany’s finance minister, Wolfgang Schaeuble, said on Wednesday that Germany would be willing to help.

Taking on further debts as Greece grapples with the first price fall in some 45 years could squeeze the country.

"Greece, Italy, Spain and Ireland lost competitiveness in the boom years and need to restore it," said Alan Ahearne, an economist who advised the Irish government when it was sunk by its banking collapse.

"The problem is that ... you are forced to have deflation.

For heavily indebted businesses and households, that is increasing the burden of debt. And if the burden is getting bigger, you will see more rhetoric on default." [Reuters]

ekathimerini.com , Wednesday April 2, 2014 (17:34)  
Bank concerns lead to fresh losses on bourse
Greece needs private debt overhaul, Piraeus Bank CEO says
Cheap energy pulls down eurozone producer prices in July
Greece sells 1.14 bln euros of 6-month T-bills, yield eases
Navy´s Prometheus brings doctors to remote Aegean islands
Naval support ship Prometheus will be touring the Dodecannese in the eastern Aegean from September 3-11 in order to provide residents of remote islands with primary healthcare, the Hellenic ...
Police seeks identity of woman injured in Thessaloniki hit-and-run
Police on Tuesday appealed to the public for help in identifying a woman who was hit by a motorcycle and left suffering serious injuries in Thessaloniki in August. The accident occurred on t...
Inside News
Grateful Saviola thanks Olympiakos, joins Verona
Former Argentina international Javier Saviola has thanked Greek champions Olympiakos for the "beautiful moments" during his season-long stint in Greece as he left the club to join Serie A ou...
SOCCER
Greece defender Papadopoulos fires parting shot at Michel
International defender Avraam Papadopoulos suddenly quit Olympiakos on Monday to join Turkish club Trabzonspor, and fired a parting shot at Olympiakos manager Michel putting the blame on the...
Inside Sports
COMMENTARY
Politicized archaeology
Let us suppose that archaeologists discover that the tomb uncovered in Amphipolis was not the resting place of Roxana or Nearchos, but of Alexander the Great. Let us assume, that is, that ar...
EDITORIAL
Moderating expectations
Politics is, to a great extent, all about managing expectations, and anyone who raises that bar too high or too fast is at serious risk of disappointing and losing the people’s favor. In a c...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Bank concerns lead to fresh losses on bourse
2. Navy´s Prometheus brings doctors to remote Aegean islands
3. Grateful Saviola thanks Olympiakos, joins Verona
4. Police seeks identity of woman injured in Thessaloniki hit-and-run
5. Armed robbers hold up post office in Thessaloniki
6. Greece needs private debt overhaul, Piraeus Bank CEO says
more news
Today
This Week
1. Politicized archaeology
2. Rain and storms with hail expected in many parts of Greece
3. Reforms to dominate Greek talks in Paris, debt relief talks later, says source
4. New committee formed to assess progress of deregulation in closed-shop professions
5. Moderating expectations
6. Trial over 2013 murder of pawn merchant starts in Athens
Today
This Week
1. Thessaloniki mayor Boutaris sworn in wearing yellow star amid Golden Dawn protests
2. The battle against progress
3. Attack on gay couple in Athens leaves one man needing surgery
4. Strong undersea quake occurs off island of Milos, felt in Athens
5. Greek quest for debt relief faces hurdles in Paris
6. Hardouvelis, ECB executive discuss bank program, stress tests
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.