Yves Mersch, who is a member of the executive board at the European Central Bank, praised Greece's efforts at deflating wages and prices by imposing necessary, but painful, austerity. He correctly argued that since Greece is in a monetary union, exports cannot be increased by currency devaluation; exports can only be increased by wage and price deflation. This article raises questions about the effectiveness of wage and price deflation on export led economic growth in Greece.
Nominal wages have decreased by 23%, and real wages have fallen by 27.8% since their peak in the first quarter of 2010. Imports have declined as a result of the decline in wages, but non-oil exports have been flat over this period. Greece has improved its current account, but it has not been able to export its way out of recession. Growth in exports have been well below the wage induced decline in domestic demand.