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European Tribune - Greece as a Case Study
The problem has of course been currency swaps that racked up prices and forced normally non-indebted Greeks to go into debt. And still, the rate of private debt in Greece is at 50% which is much lower than the rate in the UK and Spain.

I don't understand the above sentences and what the 50% is a percentage of (annual income? gross? net? assets?.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 12th, 2010 at 09:29:37 AM EST
This is the anecdotal part of my diary.

When drachmas were traded for euros, you could not buy a souvlaki for the same relative price you used to buy it for. Whatever the conversion rate (and I'm given to understand that the conversion rate was beneficial for countries moving into the zone, a soft landing if you will) the end result was hyperinflation of goods (masked, of course, by the lack of statistics to account for the inflationary impact of conversion. If a souvlaki cost 100 drachmas on Monday, and I traded 100 drachmas for 1 euro on Tuesday, I'd return to the stand on Wednesday to see that the souvlaki now cost 2 euros.

by Upstate NY on Fri Feb 12th, 2010 at 09:59:59 AM EST
[ Parent ]
Are there obvious comparison countries with similar economies (maybe in the Balkans?) who have steered clear of the Greek problems by not being in the Eurozone? I think that kind of example would help clarify some of your explanations of the problem.

(Or maybe I just need more sleep and then more caffeine before I re-read them...)

by Metatone (metatone [a|t] gmail (dot) com) on Fri Feb 12th, 2010 at 10:59:46 AM EST
[ Parent ]
maybe in the Balkans?

Maybe Central/Eastern Europe outside the Euro?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Carrie (migeru at eurotrib dot com) on Fri Feb 12th, 2010 at 11:03:10 AM EST
[ Parent ]
That country would need to have an economy that was dominated by something totally external (shipping) and be a big tourist destination. In other words, that country doesn't exist.

Please don't take this as wishing Greece left the eurozone (I hope beyond hope that it doesn't happen) but Greece with a devalued drachma would do very well because of currency conversion from shipping income and rise in tourism as a cheaper destination.

Greeks in the country would experience less of a ruckus in their lives, but they would once again have a lower standard of living relative to their European peers. But sometimes a lower standard of living isn't so bad when you're eating well, have a stable job, etc. Greece would not be backsliding either since tourism and shipping aren't going anywhere for the near future. This would only mean that Greece is giving up the dream of becoming the next Hong Kong. With EU help, is that in the cards?

by Upstate NY on Fri Feb 12th, 2010 at 11:50:24 AM EST
[ Parent ]
Well not wishing to cast doubt upon your anecdotal evidence, but  this is one of the big pieces of evidence used by the Anti-euro camp in the UK, allied with  a similar anecdotal memory of the change of currency from 1971, when the UK changed from £sd to new pence.  The exampled similar changes where all the shops rounded costs up that "Everyone" knows happened when coinage changed didn't appear in any financial statistics, no leap in Inflation rates happened due to this  change.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Feb 12th, 2010 at 11:21:40 AM EST
[ Parent ]
How could inflation account for the conversion?

On the ground, I can tell you that the change was certainly felt. Overnight. It really was stunning.

In tourism too. No inflationary measure or market oriented growth analysis can account for 400% increases in room rates over 5 years.

Haven't spent so much time there, I have favorite haunts and favorite hotels, and I know for certain that the cost increases were far beyond anything that economic analysis can account for.

Unless of course, there's a way to measure Greek greed, but I really don't think it's that. The smallest item changed price.

by Upstate NY on Fri Feb 12th, 2010 at 11:46:28 AM EST
[ Parent ]
"Having spent" not "haven't spent." Jeez.
by Upstate NY on Fri Feb 12th, 2010 at 11:52:19 AM EST
[ Parent ]
Inflation wouldnt account for it, but the increase in prices would appear in inflation figures, and would be a visible bump in the graphs at the time.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Feb 12th, 2010 at 12:01:21 PM EST
[ Parent ]
This part of the diary was totally anecdotal. I can't account for it.

Unfortunately, I can't be convinced it didn't happen. I was shelling out money out of my own pocket and just shaking my head in amazement.

by Upstate NY on Fri Feb 12th, 2010 at 12:06:09 PM EST
[ Parent ]
Unfortunately, I can't be convinced it didn't happen. I was shelling out money out of my own pocket and just shaking my head in amazement.

This is anecdotal, yes, but a highly significant sort of data. We are all FORTUNATE that you can't be convinced, because it is exactly this sort of anomaly that points toward real insights---sometimes.

Perhaps because my point of view tends to see a strong social component in most of my useful insights (if any) I smell--a strong social component here.
The oft-repeated euroskeptic fear that the adoption of the euro could create massive conversion costs---created massive conversion costs. Partly, larger businesses- hotel chains, etc. seized on the perceived opportunity to raise prices, knowing that they had a convenient scapegoat, and smaller businesses did the same, or felt obligated to raise prices to cover their own added costs. Or both.
Sometimes the most powerful economic forces stem from a social perception- a story, true or false, internalized on a micro level.
Then we get lost in looking for some macro force at work--

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Sat Feb 13th, 2010 at 03:31:23 AM EST
[ Parent ]
I totally buy into what you're saying and it seems the most logical explanation. I sort of accounted for it in one of my posts as "greedy Greeks."
by Upstate NY on Sat Feb 13th, 2010 at 10:38:56 AM EST
[ Parent ]
Just as Blue Cross and Blue Shield of California have just announced 30%+ increased in rates for medical insurance for 2010. Everyone said Health Care Reform would drive up prices.  See!

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Feb 13th, 2010 at 09:30:35 PM EST
[ Parent ]
ie claims that basic goods (like the daily espresso) got a massive bump when priced in euros rather than the earlier currency. It's never been visible in inflation statistics, but it's led to endless bitching and moaning - maybe because it probably did apply to goods like espresso, which are highly visible (you buy some every day) but meaningless in terms of overall spending power.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Feb 12th, 2010 at 12:24:37 PM EST
[ Parent ]
What about in one of the country's income streams, tourism?
by Upstate NY on Fri Feb 12th, 2010 at 12:26:04 PM EST
[ Parent ]
If highly visible goods become more expensive it would not be unreasonable for tourists to take it as a signal that the destination has become more expensive. This could send the tourists to - perceived or actual - cheaper locations.

For that matter the fact that 1 drachma was so much smaller then 1 euro might have created an impression of cheapness. When exchanging money, you used to get lots of drachmas.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sat Feb 13th, 2010 at 05:05:34 AM EST
[ Parent ]
Sorry, 50% of GDP. I'm taking total amount of private debt and relating it to gross domestic product.
by Upstate NY on Fri Feb 12th, 2010 at 10:01:33 AM EST
[ Parent ]
In Ireland the experience of conversion to the Euro led to some temporary griping about shops rounding up prices.  This is not surprising.  Pricing strategies are heavily geared towards "natural" price points like 99c., 1.99, 4.99 etc.  Manufacturers frequently hide price rises by reducing package size or some such.

But overall this led to a small temprary blib in inflation stats which was amplified in popular media with "price gouging" stories of a few high visibility incidents or items.

What really caused inflation over the longer term was a boom caused by very low interest rates, irresponsible fiscal and banking policies, and a shortage of supply to meet the very rapid spike in demand for key items like, development land, commercial buildings, and prestige private housing. For a while everyone - including foreign tourists - went along, because it took a while for popular relaisation that prices had gotten way out of line with the rest of the Eurozone to sink in and lead to concrete action.  And then we had an almighty bust amplified by world economic factors over which we had no control - and now a very painful readjustment.

But there is no rocket science about all this.  Smaller peripheral economies can buck overall eurozone inflation stats only for a while and then prices - and businesses made possible by them - have to revert to something closer to what the economy can bear.  Sheltered (often public) or highly innovative or advanced sectors of the economy can busk this trend for far longer if their productivity or first mover advantage or political position allows.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Feb 15th, 2010 at 07:38:37 AM EST
[ Parent ]


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