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Friday, June 21, 2013

Can the Greek Economy Ever Take Off?

Would the Greek economy take off if only Germany were to increase aggregate demand? Would it take off if Greece returned to the Drachma and made its exports cheaper?

A Chinese proverb says 'You cannot draw water from a dried-out well'. Let's take a look at Greece's productive capacity to get a feeling for the export explosion if one of the above events were to occur (*).


Foodstuffs 5,9
BEUR
Metals 3,1
BEUR
Minerals 2,4
BEUR
Cement 1,1
BEUR
Dinks 1,5
BEUR
Metalworking 1,3
BEUR
Chemicals 1,0
BEUR
Plastics 1,0
BEUR
Pharma 0,9
BEUR
Concrete 0,7
BEUR
Printing 0,7
BEUR
Electronics 0,6
BEUR
Clothing 0,5
BEUR
Machinery 0,3
BEUR
Optics 0,1
BEUR
Vehicles 0,1
BEUR

By all standards, these are minute numbers. Greece's entire machinery industry would represent a medium-size company in Germany, at best. So where are all those productive capacities which would explode if only foreigners bought more from Greece?

They aren't there. Which is why it is somewhat moot to philosophize about all the things which might happen if only there were new demand for Greek products. Not much would happen because Greece does not produce much.

Which brings me to my eternal, often-repeated point: a long-term economic development plan is necessary to build up a productive sector in Greece. Not multinational giants. Instead, hundreds and hundreds of small to medium-size productive companies.

Which brings me to my next eternal, often-repeated point: only through foreign investment can Greece manage to bring this about. Greece wouldn't have the know-how to accomplish this on its own (at least not within the timeframe required). Thus, Greece simply MUST focus on attracting foreign investment in the above industrial categories. There is no other way about it.

Greece's domestic economic value creation, never large to begin with, has tumbled during the Euro-party. If economic value creation is not brought back to Greece, there will not be the necessary employment, neither the necessary income taxes and social contributions and neither the revenues for the state. Just as simple as that!

(*) figures provided by Jens Berger from the Spiegelfechter blog.

5 comments:

  1. Herr Kastner,

    you say "only through foreign investment can Greece manage to bring this about".

    There is another side to this too. It needs Greeks to demand foreign investment - and make those demands reasonable and sensible. It needs Greeks to develop their own ideas into a form that international lenders will recognize as having investment potential.

    Plus of course, Greeks have another problem: they are viewed as being lazy and corrupt. That this is true of their government alone does not stop them being tarred with the same brush. For the Greek entrepreneur, entrepreneuring outside of Greece is often the easiest way around this problem.

    Would it be true to say that Greeks in Germany produce as much GDP as Greeks in Greece??? Or Greeks in Australia or Chicago?

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  2. I think it was the book 'Eleni' where I read the following sentence: "As soon as Greek emigrants set foot on American soil, they embraced the American work ethic in full and left behind the siestas and much time in cafenions". Yes, Greeks are very successful regarding where one finds them in the world.

    I have experienced something similar with Austrians. Wherever one finds Austrians in the world, they tend to be very entrepreneurial, positively minded and successful. Back in Austria, the same people can be very negative about everything, complaining all the time and demanding more welfare state.

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  3. The Observatoty for economic complexity

    http://atlas.media.mit.edu/country/grc/

    The necessity, radical changes to improve quality of educational system-practices and increase-improve the R&D and many related ratings.
    Political personel does not understand the need.A new government will be formed this week but the possibilities to put people capable with expertise to do the job are very limited.
    They would choose from their own.
    However if they excess theirselves, many can change.

    MS

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  4. http://www.globalinnovationindex.org/gii/main/2012rankings.html

    MS

    ReplyDelete
    Replies
    1. Klaus
      You keep emphasising that investments should be in small to medium size business, I disagree, it should be in medium to large business for 2 reasons.
      -Large businesses are much more productive in terms of produce per working hour.
      -Large businesses are much faster and easier to check for the tax authorities (why do you think there are so many one man companies in Greece?).
      Lennard Schorlemmer.

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