THE GREEK CRISIS AND
INTERNATIONAL TRADE
University of Ioannina - Department of
Economics
Course: English for Economists IV
Instructor: Theodora Tseligka
Academic year: 2013-2014
Team:
Anastasia Leontiou
Lefkothea- Gewrgia Oikonomou
Elena Ioannou
Kuriaki Kalliaridou
[1]
INTRODUCTION
An opinion that many people are concerned about, is that a solution for an
economic crisis is the improvement of trade balance. This paper presents the
financial crisis in Greece and analyses the features of international trade
(benefits, drawbacks and factors affecting it). Furthermore, it displays
information about the exports and imports of Greece trough the period of
crisis. Several way are introduced in order to accomplish an enhanced
international trade in aid of Greek economy. Emphasizing in benefits of a
better trade balance, the point that government must focus on international
trade in order to get over the crisis, is comprehensible.
WHAT INTERNATIONAL TRADE IS
The study of International Trade and of International Monetary Relations
marked the beginning of Modern Economic Science. The term of international
trade is stated on national exchanges of goods and services among different
economies. These exchanges aim at the improvement of national property.
The operate belief, applied in 19th century, is that the national trade leads to
an enhanced economy. Alfred Marshall (one of the most
influential economists of his time, British, 26 July 1842 – 13 July 1924)
supported that trade has been primary way of economic progress. Also
Dennis Robertson (23 May 1890 – 21 April 1963) named trade as “engine of
growth”.
The main reasons of transaction of international trade are:
 The fact that an economy is enable to produce all goods and services,
is in need, due to lack of resources and productive factors.
 Also the opportunity of utilization of comparative advantage. The
country which has comparative advantage in production of a good or a
service, can expertise the procedure of production and reduce its cost.
On the other hand, some economists claim that in some circumstances,
international trade has several negative consequences. Trade with other
countries changes the distribution of income inside the economy. As a result
the enterprises that can not afford exporting their products are less
competitive. In addition, there are objections about the theory of comparative
advantage of developing countries. These objections are known as
“dependency theory” and apply to the isolation of poorest countries in regard
to rabidly developing countries.
Several factors affect the trade of goods and services among different
economies. The most important of them are the size of the economy, the
distance between exchanging countries, their geographical location, the
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common characteristics in the culture of their populations and the
existence of numerous multinational enterprises. More precisely, the size
of the economy is directly connected with the volume of exports and
imports. That means that the bigger is the size of an economy the better is
its capacity of producing exports goods and carrying them into national
markets. Also the size of an economy denotes the level disposable income
so as to buy more import goods.
The previous views are sustained with the following statistical data. The
first five trade partners of United States of America in 2005 were Canada,
China, Mexico, Japan and Germany. In addition, some of the first ten trade
partners of U.S.A were the biggest economies of Europe: Germany, United
Kingdom and France. These countries have the highest rate of GDP in
Europe.
Except from the size of the economy, the other factors, affecting the
international trade, are related with the external cost of transport, the
facilitation of transport according to the location of the trade partner and
the custom duties. All the previous usually delay and make more difficult
the trade between different economies and their affection is more powerful
in period of crisis.
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THE GREEK CRISIS
The financial crisis in Greece appears in the end 2008. Due to the
worldwide crisis, the Greek economy has to face serious problems as its
budget deficit and dept rise rapidly.
Serious problems as unemployment and high taxation make us to look for
what actually brought the crisis. The causes can be found in the structure of
Greek economy, in policies the government had in years, but also in the
worldwide financial crisis.
The rate of growth denotes the lack of equilibrium as it falls constantly.
After 2008, GDP growth rates were lower than the Greek national statistical
agency had anticipated. Huge fiscal imbalances developed during the six
years from 2004 to 2009, where the government expenditures exceed the tax
revenues. In April of 2010 the government of Greece asks financial assistance
from European Commission, European Central Bank and International
Monetary Fund (IMF). They approve some packages of measures which
Greek government must carry through. These measures are extremely painful
for the lower sections of society and cause social unrest.
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Public dept, unemployment, inflation are no longer out of control. In
particular budget deficit reach to the excessive level of 13% of GDP, while
gross dept rise to 270 billion € in 2009. In addition, government increases
the taxation so as to finance its budget deficit. As a result disposable
income is restricted while unemployment steps up 27% in 2013.
The production capacity of Greece based on tourism, marine, and
construction. These sectors are more affected in periods of crisis. Also,
after 2009 Greece faces crowding out as the foreign investments fall
dramatically. The country is no longer a trustful financial market. This is the
reason why Greek economy and production collapsed within a relatively
short period.
INTERNATIONAL TRADE THROUGH THE FINANCIAL CRISIS
Many are of the opinion that the Greek exports have collapsed since
2009, the year that the Greek crisis began. However, the data show that
crisis has been an opportunity for the international trade. In fact, the Greek
exports have increased by 57% within the last 4 years. This comes in
contrast with the opinion that the expensive euro is an obstacle to exports
and the expansion into new markets.
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Despite the several issues that companies faced such as the economic
crisis, huge liquidity problems and high taxation, the exports managed to grow
grow significantly. Today the contribution of Greek export companies to the
national GDP is 9.8 % and they employ more than 200,000 workers.
The following graph provides the information about the rapid increase of
exports as a percentage of Gross Domestic Product of Greece after 2009.
EXPORTS AS
PERCENTAGE OF GDP
(%)
6,9
5,8
6,5
7,8
8,0
9,8
YEAR
2008
2009
2010
2011
2012
2013
EXPORTS AS PERCENTAGE OF GDP
(%)
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
EXPORTS AS
PERCENTAGE OF
GDP (%)
2013
2012
2011
2010
2009
2008
Τhe data from the Statistical Service of Cyprous confirm the previous
statements. According to the findings below, there was a substantial drop both
in exports and imports in 2009. However, the trend changes after 2010. The
table indicates that the exports had a steady increase for the period between
2010 and 2013. The growth of exports proves that the competitiveness of
Greek enterprises has been improved significantly during last years.
YEAR
2008
2009
IMPORTS
7.366.650
5.691.778
EXPORTS
1.190.369
970.447
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MILLIONS
2010
2011
2012
2013
8
6.517.413
6.310.513
5.742.195
4.810.481
1.136.788
1.403.966
1.422.399
1.611.591
EXPORTS-IMPORTS OF GREECE
6
4
IMPORTS
2
EXPORTS
0
2008
2009
2010
2011
2012
2013
On the other hand, imports show some fluctuations. In 2010, there
seems to be a gradual increase but after 2011 there is a negative growth.
The drop of Greek import trade was caused by an unexpected rise of the
import prices due to the deflation. The positive effect of that situation is that
these goods are substituted by local products enhancing the domestic
production. This should be also the ultimate goal of economic policy which
supports the trade competition of domestic firms.
To conclude, the crisis was a chance for Greece to export less
expensive products, to substitute the import goods with domestic products
and improve its international trade.
HOW INTERNATIONAL TRADE 0F GREECE CAN BE
ENHANCED
According to the opinion of the president of the National Confederation
of Greek Trade, the improvement of exports will be the solution for the
Greek crisis. Mister Korkidis also suggests several ways to enhance
country’s international trade.
Some of suggested strategies that Greece must carry out are:
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 The restructuring of certification units testing the quality of export
goods. In this way foreign markets will prefer Greek products without
concerning of their quality.
 The removal of obstacles that constrain the export activity. As a result
more and more entrepreneurs will make an effort to expand their sales into
other countries.
 A council should be set up, so as to success a better coordination of
the exporting efforts.
 Also the National Council of Improvement and Competitiveness have to
be restructured and modernized.
 The surveillance of a network that everyone can find information about
the markets and the economies of other countries.
The exports should be primary goal for the government of Greece until
2020 or else until exports will be the 45% of GDP. This percentage is average
of GDP in European countries.
Furthermore the Council of Trade of North Greece supports the previous
options and also proposes to enhance the technical equipment, the methods
of Research and Development department and Marketing department in every
enterprise. Government should provide financial help to firms that can not
afford this renewal. Another proposal is the reduction in taxes for exporting
goods.
In any way government plays a crucial role in the effort of enhancing the
international trade of country.
THE BENEFITS IN GREECE FROM AN ENHANCED
INTERNATIONAL TRADE
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What is going to be the result of government’s effort to improve Greek
international trade? What are the benefits of better exports?
It is proved by many researches and studies that a developed trade
balance helps the economic and social welfare. GDP will be increased as
more and more capitals will be entered to the economy of Greece. As a
result national income will rise into a higher level and also is going to have
a bigger purchasing power.
Furthermore the prospect of a better international trade will give the
opportunity to enterprises to be more competitive. They are going to use
new and innovative technologies. Also enterprises as whole will exploit all
the resources which are in surplus in the country. This procedure will offer
new jobs and will reduce the unemployment rate.
The trade with other economies helps to improve the relationships
between the countries in a roundabout way. An achieved cooperation
fosters the reliance for the collaborator countries. Useful information is
provided and foreign populations know each other and create a trustful
environment. Prejudice and stereotypical issues as well as racism are shut
down.
CONCLUSION
To conclude, all the previous arguments make someone to understand
why the international trade is a crucial factor of wellness and rate of growth
in an economy. More precisely, Greek government must pay more
particular attention in international trade. Greece has to try to be more
competitive in international markets by exporting less expensive products
and also make its production more efficient so as to substitute the import
products with domestic goods.
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The advantages of international trade so important and bring Greece one
step closer to recovery.
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REFERENCES
 Statistical Service of Republic of Cyprus. Excel tables retrieved from
http://www.mof.gov.cy/mof/cystat/statistics.nsf/externaltrade_41main_g
r/externaltrade_41main_gr?OpenForm&sub=1&sel=2
 Chamber of Economy of Greece. Article :” The crisis of Greek economy
and how can be faced” retrieved from: http://www.oee.gr/publ/ecocr/ecocr.pdf
 Article in EnetEnglish.gr : “Seven ways to improve the exports”
retrieved from: http://www.enet.gr/?i=news.el.article&id=398891
 Article in Epikaira Online.gr : Improvement of exports up to 57% since
the year that crisis began” retrieved from:
http://www.epikaira.gr/article/auksisi-ton-eksagogon-kata-57-apo-totepoy-ksekinise-i-krisi
 Tsakiris Nikolaos, professor of University of Ioannina, “Gravity model”
and “Introduction” slide:
https://sites.google.com/site/tsaknikolaos/teaching/international-trade-1
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