Heavy bill on the economy from the slide of the euro

By Tasos Dasopoulos

Another pressure on the one already exerted by high inflation for more than a year is added by the slide of the euro, since it indirectly fuels the increase in the prices of fuel and some of the raw materials, which are imported from third countries, since they are priced 65% in dollars.

Yesterday, the euro-dollar exchange rate was at historic lows since the introduction of the European common currency, which for some hours moved at a rate lower than 1:1 against the dollar, as it is today. There are two reasons why markets sell euros and buy dollars.

The first is that the US has already started raising interest rates to contain historically high inflation that reached 9.1% in June, while the ECB is preparing to make its first rate hike of 25 basis points on the 21st of the month.

A second determinant is the fact that the EU is heading steadily into a winter where fuel is likely to be rationed across the eurozone’s biggest economies. This has increased the voices that want the Eurozone economy to now face the specter of recession.

These two factors cause the Euro to keep losing ground which makes dollar imports more expensive, but helps the big exporting industries (Germany, France, Italy, Netherlands) to be more price competitive than their competitors.

The bill for Greece is big

In Greece, the twin pressures of a weak euro and continued price increases are reducing GDP as the value of exports increases and at the same time reducing the competitiveness of the economy, increasing the current account deficit.

Despite double-digit increases in exports since 2019, the import-export ratio in net value terms is 1.75:1. In the first five months of the year, our total exports reached 20.5 billion euros, while our imports were 35.2 billion euros. Of our imports, 19.5 billion are from third countries, which, among other things, supply us with fuel, which is priced in dollars. Accordingly, exports to third countries do not exceed 9.3 billion euros.

Especially for Greece, the relative advantage for more competitive exports due to a weak euro is almost completely balanced by the fact that our country is still an importing economy (it imports more than it exports), as well as by the fact that machinery and the first materials for the production of exportable products are imported.

A second damage is the reduction of the competitiveness of the economy. The fact that 65% of imports from third countries (the highest percentage among EU member states) are priced in dollars is swelling the trade deficit, and by extension the current account deficit, faster. This gives the picture of an economy which, in order to meet its needs, will have to pay ever greater amounts.

Only “counterweight” is tourism

The only counterweight to the increase in the current account deficit, which this year is expected to exceed 7.6% of GDP, is the increased export of services, mainly through the tourism and transport sectors. The fact that the turnover of tourism can even reach 19 billion euros this year gives a hope that it will partially offset the double negative effect from the slide of the euro and the ever-increasing inflation.