Emerging Hope in Greece

by Chidem Kurdas

ThinkMarkets
December 13, 2011

The Greek economy continues to shrink. With the wider European debt crisis and slump hampering Greek recovery, the recession may persist through 2013. Amid the grim news, however, there is a small sign that austerity measures are starting to work.

This evidence is not widely known or reported. I heard about it from Nick Kounis, head of macro research at ABN Amro.

He pointed out, at a Capital Link Forum in New York last week, that Greek exports are growing, albeit from a low level. In the past couple of quarters Greek export growth rates outpaced German export growth. The reason, Mr. Kounis said, is that Greek wages declined while German wages increased. This improved Greek competitiveness.

If strong export growth continues, international trade will make up for the fall in domestic consumption as the industrial structure shifts to selling more to the rest of the world. By 2013 greater exports could bring back growth, Mr. Kounis says.

Of course if Greece still had its own currency, lower exchange rates for the drachma could have achieved the same result. That would have been less painful and certainly less politically disruptive. Given the fact that the country remains in the euro zone, wages and prices are the forces restoring competitiveness. Export growth indicates that the market process is working despite ongoing domestic turmoil and wider European crisis.

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