Deflation continues in Greece
Greece has slipped further into deflation last month, with the latest inflation measure show that prices fell again for the fifth month in a row.
The consumer prices index fell by 0.7% on an annual basis in July, following a 0.4% decline in June. Greece’s CPI has now been falling since April, when it entered deflation for the first time in 45 years.
Greek unemployment is at record levels, wages are being squeezed hard and bank deposits are falling, With citizens struggling to spend, shops must be slashing prices in response.
But Steve Collins tweets:
Greek (EU Harmonized) CPi -0.5% y/y … sounds bad … but it does mean that the price level gap / competitiveness gap is closing
And the question is, what is the difference between a collapsed economy and an economy about to rebound because it has regained “competitiveness”?
Well the first thing to clear up is what does “competitiveness” mean? No it does not mean the ability to produce cheaper goods through enhanced productivity and hence a lowering of overall costs. Because if that were the definition no one in their right mind would be claiming that Greece is regaining “competitiveness”.
Costs in time and money of starting up a business are worse than before the crisis, borrowing costs are not only far worse but have reached loan shark levels for those even able to access financing. Transportation costs, energy costs have all soared up owing to the ridiculously high taxation imposed through VAT hikes and special consumption taxes. The only, and absolutely the only, cost of production that has been slashed is the cost of labour.
All labour rights have just about been rescinded and salaries and wages have fallen through the floor. Quite regardless of the fact that those in work do not get paid on time if at all.
So when all these wild eyed neoliberal fanatics proclaim that Greece is regaining her competitiveness, ALL the mean is wages have been slashed and unemployment is at a very healthy high of over 27% meaning there is a very good sized “reserve army” of labour sure to keep wages this way.
Now, what all this brilliance has done to consumption and the economy as a whole is another matter. Nevertheless, one might wonder where they see the light (Stournaras above all) in that this miraculous return to competitiveness has achieved absolutely nothing by way of attracting new investors, enhancing exports or anything else. The current account has not been reduced through a growth in exports but through an exponential drop in imports owing to the decimation of consumption.
So the question comes up again: What is the difference between a collapsed economy and one on the brink of growth?
Revolution? Mutiny? Anarchy? A sea change in accepted truths? Or maybe even the collapse of the idiotic Euro straight jacaket? All of the above? Or simply a Deus ex machina?
Perhaps the wise Stournaras may let us know in the Fall. (And I uses the American term for Autumn advisedly.)