Greek Gov’t is 40% of GDP


QUESTION:  Hello, I do not understand what Martin say about the fact that the Greek debt doubled when it changed into euro. Indeed, if the currency is twice the value of the old one then all your debt will double as Martin said. However all your assets will double in value too. So it is the same situation as before. I may miss something, could you please explain me what I am missing?

Germany benefited from the Euro because they were manufacturing products and selling them into Europe and did not have to worry about currency fluctuations. I helped the Japanese to sell their products globally by showing them that they had to price their products in the local currency and then take the FX risk home. They beat the Germans who were pricing their cars always in Deutsche-marks so a Porsche doubled in value in dollar terms between 1970 and 1980 just due to currency. The movement of creating a euro was to eliminate currency risk so they could sell their products throughout Europe.

Greece’s top three main industries are tourism, shipping, and industrial products. By joining the Euro, Greece lost the attraction of a cheap holiday. Europeans began to move outside the Eurozone for vacations. Greece has an economy with a public sector accounting for about 40% of GDP and with per capita GDP about two-thirds that of the leading Eurozone economies. Tourism provides 18% of GDP. So joining the Euro was a complete disaster when the government is 40% of GDP and produces nothing to export.

Full article: Greek Gov’t is 40% of GDP (Armstrong Economics)

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