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The Greek economy is losing a lot because of the crisis in Syria

29 August 2013 / 16:08:11  GRReporter
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The Greek economy would suffer significant losses from a possible military intervention in Syria, and the greatest impact will be on the price of oil. Yesterday, the price of crude oil reached 117 dollars per barrel on international markets and analysts are expecting it to jump to 150 dollars in the case of an attack on Damascus. The direct consequence of this will be increasing energy costs, which production circles in Greece have already determined as too high and negatively affecting the reduction of domestic prices.

Depending on the severity and especially the duration of the crisis, consequences may extend to all goods and services, and in this way make the reduction of inflation impossible, since in terms of energy Greece is dependent on oil. Negative effects on agriculture and transport will be more severe, and anxiety is observed as regards cruise travel too. Greek exports to third countries are expected to report accompanying losses.

The Ministry of Finance

Rising oil prices and the movement of the euro are the two possible initial "blows" that are worrying the Greek Ministry of Finance. The upward trend in oil prices is a natural consequence of all kinds of interference or threat of interference by member states of NATO in an Arab country. Increases in oil prices are more the result of speculation than a major problem in the provision of oil and its production.

However, all previous cases of military intervention in Iraq, Libya, even in Afghanistan, have had many negative effects on an oil-dependent economy like Greece. According to an unofficial index, every 10 dollars increase in crude oil prices causes a 0.5% inflation rate for the Greek economy. And this is because all industries, as well as the functioning of all retail chains, are still very dependent on oil.

Thus, difficulties which manufacturers and retailers will face because of increased oil prices will affect retail prices. This, however, would break the fall in prices that started at the beginning of the year and formed a negative inflation rate of 0.3% in January-July for the first time in decades.

In addition to the direct negative effect on household incomes, this fact would affect the basic assumptions in the preparation of the 2014 budget, which will begin in the coming days.

The second reason for concern in the Ministry of Finance is the movement of the dollar against the euro. If this crisis develops like the previous ones, the dollar will weaken and the euro will appreciate, which will affect Greek exports outside the Eurozone.

The importance of this can be understood if we look at Greek exports depending on the host country. Based on the latest data of the Greek Statistical Office (ELSTAT), the value of exports for the first half of the year was distributed as follows: 6.3 billion euro to member countries of the Eurozone and 7.3 billion euro to third parties.

Reduction in exports will not only be a sign of a new closure of the economy. It will also be a worrying sign for active Greek companies which, after seeing the sharp decline in domestic consumption, have increased their export activity. In this situation, given the lack of liquidity in Greece, a problem in exports may turn companies which are viable today into problematic ones.

The agricultural sector

A possible sharp increase in oil prices is causing great concern in the agricultural sector.

As Director General of the Hellenic Federation of Agricultural Cooperatives Ioannis Tsiforos noted for Naftemporiki, energy is a major expenditure for farmers. For 2008-2012, energy accounted for 20% of their total production costs, ranking second only to fodder, which accounted for 35%.

"The likelihood of increases in oil prices in international markets, due to tensions in Syria will be another serious problem for the local agricultural industry, which has already been pressed up against the wall. It is significant that in the period 2009-2012 the increase in energy costs in farm incomes was estimated at 64%, and at 1.5 billion euro absolute value," said Tsiforos.

In the case of rapid increases in oil prices, attempts which the agricultural sector is making in order to maintain prices of its products will inevitably be abandoned.

The food industry

The food industry is also closely monitoring the development of events and its representatives stressed the need for cold-blooded reactions. Grigoris Andoniadis, a board member of the Hellenic Association of Food Industries, stated that "the branch will continue to try to compensate for the movement in oil prices, and, in terms of production costs in general, this will happen if they are moving within reasonable limits."

Given the vigorous competition that has been developing especially in recent years, and the decline in domestic consumption of food products, companies tend to first exhaust all possibilities for a compensation of production costs, before moving to an increase in prices, since this would probably lead to a loss of market share. In any case, higher oil prices predict changes in prices on the shelves of supermarkets.

According to representatives of the market, "given the situation which the domestic economy is in, and the continuing recession, limited liquidity and flexibility of companies, it is not excluded that some companies may not be able to compensate for the entire burden. Each company, based on its own plans, will calculate the effects of rising oil prices on the prices of its goods".

The market for oil and petroleum products

Tags: crisis Syria military intervention the Greek economy losses
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