May 19, 2012
A front page Washington Post article discussed the choice that people in Greece must consider, of either staying in the euro and facing perhaps a decade or more of double-digit unemployment, or leaving the euro and facing the uncertainty of going back to its own currency. The Post misrepresented the tradeoffs involved when it presented the views of Nikas Niakaros, an exporter of feta cheese:
“But instead, Niakaros is sweating bullets. Like many Greek exporters, he depends on a supply chain of imported goods — from specially enriched feed for his sheep to the natural gas used to power his factory — that would spike in price if Greece left the euro. Business loans, meanwhile, would be far more expensive and harder to get. Add unpredictable jumps in inflation as happened during the era of the drachma, and, Niakaros said, the cost benefits of a cheaper currency would disappear.”
While this may accurately present Mr. Niakaros’ assessment, he happens to be wrong. If the Greek currency falls by 20 percent relative to the euro, this could mean that the price that Mr. Niakaros pays for his imported inputs will rise by 20 percent. It should also mean that the price he can sell his feta will rise by roughly 20 percent measured in the new Greek currency. However, the amount that he pays in wages to Greek workers and rent for his property will almost certainly not rise by 20 percent. This should mean that he will hugely increase his profits on the portion of his output that he exports.
While it is interesting to get the views of the people of Greece on how they would be affected by an exit from the euro, the Post should be careful not to present inaccurate information unchallenged. Most of its readers probably will not know that Mr. Niakoros’s assessment of the situation is wrong.
Comments