Table 1 shows how the share of exports that go outside the euro zone varies greatly from just 28 percent in Luxembourg to fully 70 percent in Finland. Among the euro-zone countries, those with the largest share of exports going outside the euro zone are perhaps not surprising. The three largest economies in the euro-zone send more than half of their exports outside the euro-zone, with Germany at 57 percent, making it the most global exporter. Table 1 also illustrates that adding the ERM2 countries and other territories that use the euro makes relatively little difference. The “Greater Euro Area” is largely equal to the euro-area itself.
On average about half of euro-zone exports go to countries outside the “Greater Euro Area.” This means that broadly speaking euro-zone countries can count on a boost to half their exports from a decline in the euro, relative to countries that have their own currencies. Membership in the euro does have costs resulting from “foregone external demand” within the euro zone. But that loss is far from total and indeed leaves plenty of room for exports to boost euro-zone growth through a weaker euro.
The conclusion is inescapable: Membership in a regional currency union clearly narrows the scope of external demand in boosting economic growth, but not as much for countries that export outside their own currency area. Or put in another way, if a country makes something that countries all around the world really want to buy, membership of a regional currency union is far less of a constraint on its ability to overcome its barriers to growth.
This is illustrated in column 5 far to the right in table 1, which shows euro-zone members’ exports outside the “Greater Euro Area” as a share of their GDP in 2008. In other words, column 5 shows the importance of exports in euro-zone members, controlling for their membership of the euro. The results are striking.
Within the euro-zone the range of “extra-euro export intensities” goes from 4 percent of GDP in Greece to fully 38 percent of GDP in Slovakia.
Note that this is very bad news for Greece. It cannot benefit from a decline in the euro simply because it just does not export enough outside the “Greater Euro Area” (4 percent of GDP). Consequently, with such a low export share, Greece will find it extremely difficult to export itself out of its current economic malaise. In 2008 Greece exported for more than $500 million worth in just four categories: light petroleum distillates, medicines, fresh fish and “other,” and shipped more than $1 billion worth of goods to just seven trading partners (ranked); Italy, Germany, Bulgaria, Cyprus, U.S., U.K. and Romania. Other troubled low-extra-Greater Euro-zone exporters, such as Spain and Portugal, face similar if less acute troubles.
The same dismal facts dispel any notion that Greece in the longer-term would be better off outside the euro-zone. Simply but harshly put, Greece does not export many goods that the world wants, so the gains a country like Greece will ever realize from even a large real devaluation through the introduction of a “New Drachma” would be minuscule. Moreover, with large services exports only in tourism (vulnerable to the social unrest which is guaranteed to follow an abandonment of the euro) and shipping (transacted mostly in US$), Greece could furthermore also not expect much of a boost to its services sector exports from leaving the euro-zone.
On the other hand, for the Northern and Eastern euro-zone members with large extra-Greater euro-zone export shares of GDP – such as Germany on 23 percent, Slovakia at 38 percent or the Netherlands on 26 percent of GDP, the potential external demand gains from a large depreciation of the euro will be large. External demand, in other words, is a factor that is widening already serious intra-euro-zone differences in economic growth.
Finally, it is worth comparing the world’s three continental-size economies — the euro-zone, China and the United States — in terms of their export intensity. This is done at the bottom of table 1. Here it can be seen how the euro-zone “extra-Greater euro-zone export intensity” in 2008 was 16 percent of GDP, just half of China’s 32 percent, but almost double the level of only 9 percent for the United States.
In other words, the euro-zone as a whole is likely to get a far bigger external demand boost from a decline in the euro than America would realize from a decline in the US dollar. Or put in different terms, even if in the unlikely event that President Obama were to succeed with his new National Export Initiative and double U.S. exports in 5 years, the boost would probably not even make the U.S. economy as export intensive as the euro-zone as a whole is right now.