Friday November 28, 2014 Search
Weather | Athens
16o C
10o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Argentina, Asia rebounds offer false hope for Greece

By Philip Blenkinsop

Greece should not be lulled into believing an exit from the euro would lead to the sort of short shock and sharp rebound that Argentina and Asian nations experienced when they devalued their currencies more than a decade ago.

The experience of other countries suggests that Greece too could benefit after the turmoil from eurozone expulsion subsides. But the hard data suggests, and economists believe, it would be too weak alone to lift itself out of trouble.

"It's one thing to leave a currency peg, quite something else to leave a currency. It's not a magic wand that you can wave to solve all of Greece's problems, said Nick Kounis, head of macro research at ABN AMRO.

Argentina's experience after defaulting and abandoning its currency peg in 2001-2002 is the most encouraging. Its economy shrank for four successive years from 1999 to 2002, including a 10.9 percent contraction in the final year, but then grew by on average 9 percent in the subsequent five.

The Asian financial crisis of 1997 saw a domino effect across the regions as markets attacked what they saw as overvalued currencies, forcing the IMF to bail out several countries. Within a few years, they were prospering again, largely on the back of exports made more competitive by their lower exchange rates.

Could that be a model for Greece, set for a fifth year of recession in 2012?

Optimists point to the strongly price-sensitive nature of the products Greece exports.

According to Thomson Reuters Datastream, there is a tight negative correlation between the balance of payments of periphery nations such as Greece and the dollar/euro exchange rate.

In simple terms, a stronger euro tends to depress trade of these countries and a weaker currency boosts it.

In the past year, the euro has declined by 6 percent on a trade-weighted basis, according to ECB data, while austerity in Greece had led to an internal devaluation of some 15 percent there via factors such as falling wages, economists say.

Greece's export sector has taken advantage, with sales of its goods abroad rising 37 percent in 2011 and by 19 percent in the first two months of this year. Tourist arrivals grew by 14 percent in the first eight months of 2011, perhaps helped by unrest in North Africa.

However, while imports dropped 10 percent last year, Greece still incurred a trade deficit of 20.8 billion euros, the fifth highest in the 27-member European Union.

EXPORTS DWARFED BY IMPORTS

The key problem is that exports are continually dwarfed by imports and represent only just over 20 percent of gross domestic product (GDP).

And for a country with that level of reliance on goods brought in from abroad, a heavily devalued currency means one thing -- rampant inflation.

Greece, for example, imports nearly all its energy needs.

And its export surge so far has done little to boost economic growth, given the lower wages that led to it have destroyed domestic consumption.

The problem can be fixed. Argentina's exports/GDP ratio shot up to 28 percent in 2002 from 12 percent in 2001, a sharp surge even accounting for the fall of GDP, and it swung into a current account surplus after 11 straight years of deficit.

After the Asia currency crisis, South Korea's export/GDP ratio hit 46 percent from 32 percent before. For Indonesia, it leapt to 53 percent from 28 percent. Both also turned from current account deficits to surpluses.

Economists doubt Greece could recreate their successes.

Argentina and the Asian nations could rely on an otherwise relatively robust global economy, a luxury not afforded to Greece. Argentina benefited from a commodity boom in 2003-2004.

"Greece's exit could itself do such damage that its export markets would suffer, said ABN AMRO's Kounis, referring to other eurozone nations which could be hit by a contagion effect from a Greek euro departure.

TOURISM PROBLEMS

Greece's chief exports are agriculture, shipping and the main one, tourism, which accounts for some 18 percent of GDP.

But could it really squeeze in more than the 15 to 16 million people it typically hosts per year and can it really expect them on average to be spending more, particularly if they are drawn to the country on the basis of cheaper holidays?

Tourism is also a unique form of export -- people have to visit the country, in the case of Greece a country in crisis.

"I think social unrest will be significant. Tourists, you can imagine, would wait for the situation to stabilize ... It could take much longer for Greece to benefit than for countries just exporting goods, said Peter Vanden Houte, chief economist at ING Belgium.

Economists say the palliative of devaluation could also slow necessary progress on issues such as tax compliance, a bloated public sector and inefficient public spending.

"The underlying structure of the economy needs to be changed, said Marco Valli, chief eurozone economist at UniCredit, adding a Greek exit might help a few sectors, but would import inflation and drive energy prices through the roof.

"Greece does not have the conditions to benefit from a strong devaluation, said ING's Vanden Houte. It's not like South Korea, a strong industrial country, and the comparisons with Argentina are far-fetched. [Reuters]

ekathimerini.com , Tuesday May 22, 2012 (12:24)  
Athens water supply 9-month profit falls 45 pct on lower charges
PPC profits power up in Jan-Sept
Papastratos banking on exports
Saudi group Olayan to enter Costa Navarino
Samaras meets Venizelos ahead of Turkey visit
Prime Minister Antonis Samaras will meet Foreign Minister Evangelos Venizelos at 12.30 p.m. on Friday. The two are expected to discuss Venizelos's visit to Turkey where he will hold talks wi...
Child molester suspect photo released by police
Police have released images of a man suspected of molesting a 12-year-old girl. Dimitris Margaritis, 77, was arrested in Omonia, in central Athens, late on Tuesday as he was leaving a hotel ...
Inside News
SOCCER
PAOK is one win from Europa Leagues last 32
A late brace by Stefanos Athanasiadis gifted PAOK a precious win at Dynamo Minsk on Thursday, meaning that the Thessaloniki team is one win away from graduating from the group stage of the E...
BASKETBALL
First defeat for Olympiakos in Euroleague
Olympiakos suffered its first Euroleague loss of the season going down 89-70 at Laboral Kutxa on Thursday, although the Greek team remains the favorite to clinch the top spot in its pool. Th...
Inside Sports
COMMENTARY
Change of US president wont mean change of foreign policy
Americans have again voted for change in Washington as opposition Republicans take control of both houses of the US Congress. As attention now turns to the 2016 presidential race, it's time ...
COMMENTARY
The presidential election paradox
A few days ago, speaking with a visiting colleague who neither works in Europe nor covers events here, I suddenly felt how much we Greeks take for granted some things that should have worrie...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
RECENT NEWS
1. Samaras meets Venizelos ahead of Turkey visit
2. Child molester suspect photo released by police
3. Armed man arrested on Thessaloniki campus
4. Athens water supply 9-month profit falls 45 pct on lower charges
5. Lebanese FM: Cyprus may be jihadi transit point
6. PAOK is one win from Europa Leagues last 32
more news
Today
This Week
1. Athens water supply 9-month profit falls 45 pct on lower charges
2. Lebanese FM: Cyprus may be jihadi transit point
3. Armed man arrested on Thessaloniki campus
4. Child molester suspect photo released by police
5. Change of US president won't mean change of foreign policy
6. Samaras meets Venizelos ahead of Turkey visit
Today
This Week
1. Give Greece a chance
2. Scientists expand excavation of ancient Amphipolis
3. Extremism from a bygone era
4. Greece paralyzed by major strike, flights cancelled
5. Piraeus nightclub shooting leaves 3 seriously injured
6. Coscos Greek unit adds multinational rail-freight client
Find us ...
... on
Twitter
... on Facebook
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright 2014, H KAΘHMEPINH All Rights Reserved.