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News : EU Economy Last Updated: Jun 9, 2010 - 7:56:57 AM

Greece, Portugal and Spain export little beyond the Eurozone
By Finfacts Team
Jun 8, 2010 - 3:07:49 AM

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The Greek island of Santorini

Greece, Portugal and Spain export little beyond the Eurozone and other European countries with currencies pegged to the single currency.

Danish economist Jacob Funk Kirkegaard, who is a research fellow at the Peterson Institute for International Economics think-tank in Washington DC, says the view that a currency devaluation would offer a way out for Greece or other countries is based on a simple fallacy. Just because Eurozone members share their currency, the euro, with their Eurozone neighbours does not prevent them from benefiting from the increased external demand for their goods driven by a decline in the euro itself.

Kirkegaard says Table 1 illustrates how much the decline in the euro matters to individual members of the euro. It shows the share of each country’s goods that are exported outside the Eurozone. For the sake of comprehensive coverage, table 1 also includes 1) the other members of the EU-27, 2) the export shares outside the euro area, plus the four EU members - - Denmark, Estonia, Latvia, and Lithuania - - currently inside the narrow band of the European Exchange Rate Mechanism (ERM2), which are essentially pegged to the euro;and 3) the share of exports outside the “Greater Euro Area,” which include the euro area itself, the four ERM2 countries, and all other territories that use the euro (or are pegged to it) and for which detailed trade data are available.

On average about half of Eurozone exports go to countries outside the “Greater Euro Area.” This means that broadly speaking Eurozone countries can count on a boost to half their exports from a decline in the euro, relative to countries that have their own currencies. Membership in the euro does have costs resulting from “foregone external demand” within the Eurozone.  But that loss is far from total and indeed leaves plenty of room for exports to boost Eurozone growth through a weaker euro.

The economist says that within the Eurozone the range of “extra–euro export intensities” goes from 4 per cent of GDP in Greece to fully 38 per cent of GDP in Slovakia.

He says this is very bad news for Greece. It cannot benefit from a decline in the euro simply because it just does not export enough outside the “Greater Euro Area” (4 per cent of GDP). Consequently, with such a low export share, Greece will find it extremely difficult to export itself out of its current economic malaise. In 2008 Greece exported for more than $500 million worth in just four categories: light petroleum distillates, medicines, fresh fish, and “other,” and shipped more than $1 billion worth of goods to just seven trading partners (ranked): Italy, Germany, Bulgaria, Cyprus, the United States, the United Kingdom, and Romania. Other troubled low extra–Greater Eurozone exporters, such as Spain and Portugal, face similar if less acute troubles.

Kirkegaard says the Eurozone as a whole is likely to get a far bigger external demand boost from a decline in the euro than America would realize from a decline in the US dollar. Besides, the US dollar remains the global anchor currency in which many commodities and other parts of global trade are transacted.

Table 1 EU share of goods exports outside the eurozone, ERM2, and all euro-using territories, 2008  
  Country Extra–eurozone export share (percent) Extra ERM2 export share
Extra–"Greater Euro Area" export share1
Extra–"Greater Euro Area" exports/GDP
  16 Eurozone Members  
  Luxembourg 28 26 26 11  
  Belgium 37 35 35 33  
  Netherlands 38 36 36 26  
  Portugal 39 38 38 9  
  Spain 44 43 42 7  
  Austria 46 45 45 20  
  Slovenia 49 48 47 29  
  France 51 50 49 10  
  Slovak Republic 52 50 50 38  
  Italy 56 55 54 13  
  Greece 57 56 55 4  
  Germany 57 55 55 22  
  Ireland 59 59 59 27  
  Cyprus 62 61 61 4  
  Malta 65 64 64 23  
  Finland 70 64 64 23  
  4 ERM2 Members  
  Denmark 59 58 57 19  
  Estonia 69 50 50 26  
  Lithuania 77 55 55 28  
  Latvia 78 45 45 13  
  7 EU Members Outside Euro and ERM2  
  Czech Republic 34 33 33 22  
  Hungary 43 42 42 29  
  Poland 46 42 42 14  
  Romania 47 46 46 11  
  United Kingdom 49 48 48 8  
  Bulgaria 54 54 53 24  
  Sweden 60 51 51 20  
  Continental–Size Economies  
  Eurozone 50 48 48 16  
  China n.a. n.a. n.a. 32  
  USA n.a. n.a. n.a. 9  
  1Includes the Faroe Islands, French Polynesia, Gibraltar, Kosovo, Greenland, St. Pierre-Miquelon, Montenegro, the Netherlands Antilles, and New Caledonia.  
  Source: IMF Direction of Trade Statistics, April 2010.

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