ECONOMY

The real cost of living

Is Greece «quite cheap» or «rather expensive?» The answer is not easy. Comparing prices with those in the other 11 countries that have adopted the euro may be easier now but it is, obviously, not enough by itself. We need to examine consumers’ habits and find those consumer goods that we prefer. Our needs are different from those of people in other countries and the «basket of goods» acquired differs accordingly. On the other hand, consumer standards keep converging at a fast pace and a cross-country comparison has become easier, especially concerning the inhabitants of big urban agglomerations. There are, indeed, some sectors in which a perfect uniformity of prices, and pricing procedures, exists. This is not only true among EU members but globally. The best such examples are PCs and the accessories and software that accompany them. After the abolitions of special tariffs and levies that raised prices, these are now more or less uniform. The proper yardstick is how many working hours are required to accumulate the money that corresponds to the price of an internationally available product. The answer is easy; Greek households spend more time earning the necessary money than almost all their counterparts in the EU. This is a main reason why we feel that many of the goods we consume are expensive. Other spending items where comparisons are crucial are education, health and other public goods. A cursory comparison shows that Greece is, in this sector as well, the most expensive of EU countries. The average UK citizen, for example, spends a very small percentage of his or her income on education and health, even though he may have legitimate complaints about the relevant public services. Supposedly, services are cheaper in Greece. Despite the lack of adequate comparative data at our disposal, we are nevertheless certain that some of the current services which are essential to our daily lives are cheaper in Greece. However, a more careful analysis would reveal that the price is not the only factor that counts. Quality does, too. An empirical approach shows us that essential daily services in Greece are not cheap, either. Moreover, Greek households tend to spend a disproportionately high amount of money on such services without getting the requisite quality. We are thus left with foods and beverages. It is possible to say with some confidence that Greece is the cheapest country in relation to these products. However, a recent study by Eurostat, the EU’s statistics service, shows that we are far closer than we imagine. In several cases, indeed, the Greek foods and beverages market is not at all competitive. According to Eurostat, prices of food, beverages and tobacco, calculated under purchasing power parity conditions, and not just in terms of raw prices, are indeed quite low in Greece. Among the 15 EU members, we are as cheap as Portugal and slightly more expensive than Spain. If we define the average EU price in the above categories as equal to 100, Greece’s prices stand at 83, while the prices in Denmark, the most expensive country, are equal to 131. This means that there is a difference of 48 units in the prices of foods, beverages and tobacco between Greece and Denmark: a very significant difference indeed. The picture becomes more nuanced, however, when we look at specific sub-categories. Thus, Greece’s price index for milk, cheese and eggs is at 102, slightly higher than the EU average. In Germany, it is 82, which means that it is 20 percent cheaper than Greece in this particular category. In another category, that of mineral water, bottled juices and non-alcoholic beverages, Greece’s index stands at 97, while Spain’s is 65 and France’s and Italy’s is at 86. Where, then, are we cheaper? According to Eurostat, we are cheapest, by a large margin, in tobacco products, fruits and vegetables. It is easy to understand, then, that when the prices of these goods rise, as has been the case this year, the pressure on our finances increases disproportionately. There is no doubt we need to add to our purchasing power Greeks’ income from the gray economy. Adding it will help explain why this fast convergence in the cost of living has not had a crushing effect on Greek households. There is, however, a simpler explanation. The Greek household may appear profligate but, actually, the living standards of other European households are higher since their total consumption includes goods that are prepaid, thanks to a better management of tax revenues and to goods that Greek families do not buy as much, such as cultural products and services.