Home > Uncategorized > Deflation in Greece: a hideous lose-lose situation

Deflation in Greece: a hideous lose-lose situation

Deflation in Greece is serious. In the fourth quarter of 2014 the price level was 8% lower than in the third quarter of 2009 (seasonally adjusted data) – which means that total income (wages, profits, mixed income of the self-employed) is 8% lower than it would have been if the price level had not changed. As this, predictably, leads to a decline of tax income of the government of about the same size this makes it quite difficult for the government to balance the budget. One of the goals of austerity is a decline of the relative price level of countries. Greece did accomplish this. Compared with the Eurozone average the price level of Greece has deteriorated with about 12% (2010-I – 2014-IV). The decline of the Greek price level is, in the medium run, much larger than the decline of the Spanish and Portuguese price level, which makes one wonder why other, less ‘succesful’ austerity countries like Spain and Portugal are so critical of Greece. As austerity was imposed upon Greece by the creditors it seems less than fair that these same creditors do not take responsibility for their actions and write down the debts. It was not Greece which shot the creditors in the foot. Source: Eurostat.

Greek deflation

In this post I messed up the deflation data a little, by first stating that deflation was 10%. Based upon yearly data it is 5% but based upon quarterly data (domestic demand) it is 8%. To prevent misunderstandings: as long as total wages are increasing i’m not against inflation. When total wages start to decline (or, like in Greece, fall of a cliff) deflation is extremely dangerous.

  1. Stella
    May 18, 2015 at 5:08 pm

    OK but deflation or inflation – the continuity of breathing in Greece is built with TRUST. And this is now lost.

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