ECONOMY

Greece’s competitive achievement

The German, Greek and Austrian economies were the only three in the eurozone to improve their competitiveness in terms of the cost of their products in 2001, according to the European Commission’s latest report on prices and competitiveness. The development is seen as the result of a limited rise in salaries. For Greece in particular, the reduction in the cost of labor per product unit is mainly attributed to a restrictive wages policy in the public sector and a moderate incomes policy in the private sector. In 2001, the report stresses, increases in real wages are estimated to be smaller than the rise in productivity, which explains the cost reduction in 2001. The report also notes a deterioration in competitiveness in Spain and Portugal, attributed to sizable wage increases fueled by inflationary expectations. Particularly in the case of Portugal, the widening of the balance of payments deficit is considered an indication of a loss in competitiveness. All this shows that in the year before the transition to the euro, the Greek economy endured foreign competition thanks to the realistic incomes policy applied. It is an achievement rarely mentioned, to which the government, employers and unions all contributed. In the negotiations for the new collective bargaining agreement that will begin soon, this achievement is likely to be tested; but so far nothing shows that any of the three sides intends to go against the positive record. Besides, a more important factor in collective labor agreements is not so much the percentage of wage rises; the repercussions of a difference between, for example, a 3-percent and 5-percent rise is small. The exact percentage is of greater import on small enterprises, for which the extra cost may not be easily absorbed. Of greater importance is the potential for boosting productivity. This cannot only arise from the initiatives of enterprises but also depends on the creation of a favorable environment. Government initiatives promoting productivity are also required. Cost improvement Improving costs and competitiveness among eurozone countries is obviously an important issue. But it is also important that one follows the development of competitiveness in the eurozone as a whole, as this emerges from euro parity against the dollar. Throughout last year the dollar remained strong against the euro and this, irrespective of the repercussions on money markets, was a net benefit for Europe in terms of the real economy. Even though intra-European trade covers a large part of exporting activity, exports to countries outside the eurozone gave more breathing space to companies. The strong dollar was a disadvantage to US exports. The authors of the International Monetary Fund’s report on the US economy last year expressed the view that «the dollar remains at least 20 percent stronger than the level of its medium-term equilibrium.» According to a study by the OECD (2001), «the devaluation of the real parity of the euro was about 10 percent in the second half of 2000.» The feeling that the markets will meet this vacuum in the euro’s parity against the dollar may be welcomed by money market investors, but causes concern regarding the competitiveness of European products, incomes and jobs. Of course, as regards the Greek economy, a possible rise in the value of the dollar may increase costs by way of imported fuels, which are paid in dollars, but is not certain to be of particular help to exports as the penetration of Greek products outside Europe is limited.