ECONOMY

Strong euro not an obstacle to Greek exports

Nikos Karanikolas is a successful fruit exporter with his own packaging unit in Edessa, Macedonia. I am told that his cherries rival the best of California, as they are 2.8 cm in diameter and very tasty. With the euro at historic highs against the dollar, Karanikolas earns less when he exports outside the eurozone. He offsets part of this loss by reducing the import content in his products, which can amount to up to 40 percent of the total cost. The import content refers to part of the packaging material, which comes from Australia. Of course, the import content concerns not just cherries but most exported goods. And because most of the imported materials come from countries outside the eurozone, the impact of the euro’s recent meteoric rise on Greek exports varies and one could say that, overall, is somewhat positive. For a start, a country like Greece, whose imports are about three times its exports, tends to benefit from the appreciating euro, which effectively acts as a bulwark against imported inflation. We are well aware that the euro has been offering substantial protection for some time now from the rising price of oil. To be sure, we owe our falling inflation rate (2.6 percent now) in good measure to the strong euro. For this reason, I think that the Greek government does well not to side with the French attack on the euro. As The Wall Street Journal (WSJ) aptly wrote the other day, the rise of the euro highlights national differences in Europe. It notes that countries such as Germany, which have substantially improved their productivity, are now in a better position to deal with the effects of the strong euro, as they can reduce costs in order to keep their exports competitive. As a result, the noisiest protests are likely to come from France and Southern Europe. Because they delayed reforms in their labor markets and other sectors, they lag Germany’s competitiveness. The productivity of German workers was up 2.2 percent last year compared to 2005, according to OECD data. By contrast, WSJ notes, the competitiveness of Spain, Italy and, to a degree, France, has deteriorated in recent years, according to a Goldman Sachs economist, the former two showing a rise of less than 1 percent and the latter of 1.2 percent. In part, Germany’s better performance is due to its inflation, which is lower than the eurozone average, helping it keep costs lower than France and Italy. Competitiveness, therefore, is the key to promoting exports, not currency differentials. Let us not forget our unpleasant experience with the drachma, when instead of solving our economy’s structural problems and liberalizing our markets, we sought to boost our exports by letting the currency slide, thus fueling inflation.