Competitiveness, External Deficit and External Debt of the Greek Economy

This study shows that the loss of competitiveness of the Greek Economy from 2000 to 2009 is not only due to an increase in the wage cost and the relative prices of the country’s exports. To a larger extent, it reflects an increase in wages and relative prices in sectors of non-tradable goods and services (i.e. the public sector, services for domestic consumption, constructions, etc), which led in a relocation of productive resources away from tradables' sectors. We estimate the real appreciation that is necessary in order to restore price competitiveness and stabilize external debt as a percentage of GDP. In the long term, external balance can be achieved only by improving the quality competitiveness of the Greek economy.