Analysis: Greek economy pays high price for its high prices

Thu Nov 22, 2012 12:03pm EST
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By Alan Wheatley and Karolina Tagaris

ATHENS (Reuters) - Signs across Athens advertise property for rent or sale. One in three shops has closed. At those still open for business, turnover has slumped.

So it is one of the mysteries of Greece's economic depression that prices of some things - milk and the new iPhone, for example - are among the highest in Europe.

The riddle matters hugely. If costs and prices were lower, exporters would be more competitive and people's shrinking pay packets and pensions would stretch farther, cushioning a sharp drop in consumption.

Increases in value added tax and other indirect levies are part of the answer. Greece is also hostage to the cost of imported oil and food.

But another set of reasons goes to the heart of Greece's political and economic malaise: collusion among producers, the state's complicity in shielding protected professions and businesses, and a thorough lack of competition that allows a favored few to extract economically unjustified profits from a long-suffering populace.

Much of the economy, in a word, is diseased. And until the disease is cured, sustainable growth cannot resume even if euro zone finance ministers finally agree - after two failed meetings in successive weeks - how to lighten Greece's unsustainable debt burden.

The good news is that Athens is implementing some deep-seated administrative reforms and its trade deficit is receding.

But the clock is ticking: the burden of austerity and reform has fallen disproportionately on the man in the street, and his patience is all but exhausted. Protests over inequality and austerity are proliferating, fomenting political radicalism.   Continued...