TOUGH TIMES AHEAD

 AS winter looms, there are more and more signs that the Greek economy still has a very long way to go. All around the major towns and cities there are for sale and to let signs up as desperate people make every effort to make ends meet, but they are finding it very tough. Here in our village, which has virtually closed down for the winter, every lamp-post is full of yellow signs which have telephone nunber on them with apartments vacant.

LOW WAGES, HIGH PRICES

  One button that a country living beyond its means has to press is marked ‘cost cutting'. Greece has done that. Wages are plunging at the behest of international creditors who are keeping the country alive on a drip-feed of aid.

  By the end of this year, the entire surge in the average cost of labour per unit of output from 2001 to 2009 will have been unwound, according to a draft European Commission paper.

  The drop in nominal unit labour costs this year alone is projected to be 8.7 percent - not surprising given that the unemployment rate is 25 percent.

But wages are only one input among many that determine prices. The most comprehensive gauge of a country's cost competitiveness is its real, or inflation-adjusted, effective exchange rate (REER) relative to its main trading partners.

  And in 2011, Greece's REER was still 18-20 percent above its 2000 level, according to Eurostat, the EU statistics agency."Of course the issue of prices concerns us. There's a problem, and we're aware of it," Athanasios Skordas, deputy minister for economic development and competitiveness, told Reuters.

Inflation is falling - it was 0.9 percent in the year to September - and economists expect it to come down further.

  But to thoroughly convert wage to price competitiveness will entail a daunting array of reforms, such as making it easier to start a business and removing barriers to competition in key markets such as energy.

Platon Monokroussos, head of financial markets research at Eurobank in Athens, said these market rigidities were one reason why falling wages had not translated into a quicker drop in inflation.