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Sorry if this is too pedantic, but that's the whole point of devaluing the currency. In this case, there's no domestic kitchen industry because it's cheaper to

Sorry if this is too pedantic, but that's the whole point of devaluing the currency. In this case, there's no domestic kitchen industry because it's cheaper to import them. But if the currency devalues, then it becomes more expensive to import them and so domestic companies jump into the marketplace. Greeks start buying Greek-made kitchens, creating jobs in the kitchen factories. Then the factories start exporting them because it's cheaper for foreigners to buy the Greek kitchens then their own country's, because of the devaluation.

michaelt 11y ago
Right, but it's more complicated than that because different types of goods have different supply behaviours. Imagine if the Greek car industry relies on importing steel, and there isn't enough spare capacity in Greek steelworks to satisfy national demand, and due to currency devaluation Greek car manufacturers can no longer afford to import steel. You can build more steelworks capacity (if you can get investors) but the new plants aren't going to start producing for two-three years at least. By the time supply catches up with demand, the car manufacturers will already have gone out of business. And if that car maker makes electric cars and needs lithium for the batteries, and greece doesn't have any lithium reserves, local production isn't an option. And if the best you can do without lithium is lead acid batteries, that's not much of an option either :) Of course, at the moment Greece gets the worst of both worlds - who'd want to invest in a Greek steelworks today when they'll probably be out of the euro in a few years? - but people shouldn't imagine devaluing a currency is a painless cure-all for economic problems :)
restalis 11y ago
"Greeks start buying Greek-made kitchens, creating jobs in the kitchen factories." That's not how things roll in the real life, I'm afraid. After currency devolution, people just demand salaries comparable with what they see outside and if they won't obtain them, then given the open borders and all they just (gradually) leave for greener pastures. There are real problems to be solved and you can't doge that with currency tricks. It's better to avoid playing with currency, otherwise be ready to get comfortable in Zimbabwe's shoes (the worst case scenario).

michaelt 11y ago

Right, but it's more complicated than that because different types of goods have different supply behaviours. Imagine if the Greek car industry relies on importing steel, and there isn't enough spare capacity in Greek steelworks to satisfy national demand, and due to currency devaluation Greek car manufacturers can no longer afford to import steel. You can build more steelworks capacity (if you can get investors) but the new plants aren't going to start producing for two-three years at least. By the time supply catches up with demand, the car manufacturers will already have gone out of business. And if that car maker makes electric cars and needs lithium for the batteries, and greece doesn't have any lithium reserves, local production isn't an option. And if the best you can do without lithium is lead acid batteries, that's not much of an option either :) Of course, at the moment Greece gets the worst of both worlds - who'd want to invest in a Greek steelworks today when they'll probably be out of the euro in a few years? - but people shouldn't imagine devaluing a currency is a painless cure-all for economic problems :)

restalis 11y ago

"Greeks start buying Greek-made kitchens, creating jobs in the kitchen factories." That's not how things roll in the real life, I'm afraid. After currency devolution, people just demand salaries comparable with what they see outside and if they won't obtain them, then given the open borders and all they just (gradually) leave for greener pastures. There are real problems to be solved and you can't doge that with currency tricks. It's better to avoid playing with currency, otherwise be ready to get comfortable in Zimbabwe's shoes (the worst case scenario).