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Sunday, June 16, 2013

Is Greece comparable to Mecklenburg-Vorpommern?

This videopodcast (in German) explains brilliantly Greece's export situation and the (small) impact which a lowering of Greek unit production costs will have on export growth. Bottom-line: if there is only a very small industrial base (like in Greece), even the lowest unit production costs will not have much of an impact.

Then, a daring comparison with the German state of Mecklenburg-Vorpommern is made. M.-V. does not have an industrial base either; in fact, very little manufacturing. And they are not strong in services either.

Thus, M.-V. has a large current account deficit with the rest of Germany. The author asks the following key questions: if Germany still had the DM as its local currency, (a) would one consider expelling M.-V. from the DM-zone? (b) would a lowering of wages in M.-V. serve any purpose?

His answer is: of course, not! Even though M.-V. would be the 'Greece of Germany' in that context, no one would have a problem with that. So, he carries on, why does the Eurozone have a problem with Greece's not being able to produce enough?

Admittedly, that logic seemed so convincing that it required some thought on my part. Having collected my mind, I asked the author the following 2 questions:

1) if M.-V. does not create enough economic value (products, services) on its own, what impact does that have on employment there? And
2) how high is the exodus of people from M.-V. to other states of Germany?

The author hasn't responded but the answers are clear: M.-V. has one of the highest unemployment rates in Germany (about 14%) and the exodus to the rest of Germany has been enormous (particularly among the young).

Is that the future which is in store for Greece? Yes, it is. Unless Greece manages to increase its economic value generation (products, services). One aspect could be to bring economic value generation back to the country by substituting imports. Another one would be to follow the recommendations of McKinsey's report Greece Ten Years Ahead. There are many others. But something needs to be done if Greece is not to have the future of M.-V.

To me, foreign investment is the key. How can one expect Greece to build up a light industrial sector when it never had one? The only way to deal with this situation is to bring those investors to Greece who know how to do it and who can develop the Greek economy accordingly.

And they will bring money, too...

3 comments:

  1. This is a very interesting comparison.

    The Bundesrepublik - as it was until the late 80s - was an economic powerhouse that had few brakes. Absorbing the DDR and its weaker economy added a little braking - had Germany remained united after the war, it would have had this economic counterbalance. With the further provinces - Preussen, Schlesien and Pomern, many* of which are more comparable to Mecklenburg than Westfalen - the counterbalance would have been the stronger. (*Perhaps not Oberschlesien with its coal mines)

    The bigger problem is that nobody is tackling the problems that Mecklenburg has. People deal with their problems individually and move to Berlin or Cologne. The Greeks do this too.



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    1. There are parallels between the German unification and what happened in Greece.

      A people starved of consumption goods felt that if they only got the DM, they could buy everything their heart desired. They got an overvalued DM. Even the better parts of their economy could not live up to the new competition with the West. Their economy more or less evaporated and instead of a long-term investment plan to build up aI new economy, the West sent money to the East. And the West is still sending money to the East... (I guess over 2.000 BEUR by now!)

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  2. Ill keep in brief. If it is not explained why you think MV has the problems it does,the article does not serve any purpose -OpEd Daily

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