Greece: Current Account and Foreign Debt (2001-10)

in EUR billions

		2001	2008	2010	2001-10
Revenue from abroad
	Exports	12	20	17	146
	Services (e. g. tourism)	22	34	28	268
	Other income	2	6	4	34
	Current transfers	6	7	5	62
		----	----	----	----------
	Total revenue from abroad	42	66	54	510
Expenses abroad
	Imports	33	64	45	446
	Services (e. g. tourism)	13	17	15	131
	Other expense (e. g. interest)	4	16	12	96
	Current transfers	2	4	4	35
		----	----	----	----------
	Total expenses abroad	53	101	77	707
Net foreign deficit (current account)		-11	-35	-23	-197
Foreign debt
	Central Government	?	192	182
	Financial Sector	?	147	204
	Others	?	24	18
		----	----	----
	Total foreign debt	121	363	404

Some conclusions from these trend statistics 2001-10

1)      Total expenses abroad exceeded total revenues from abroad by 39%, leading to a net foreign deficit (current account) of 197 BN€.

2)      Put differently, Greece as a country spent 197 BN€ more abroad than it earned abroad.

3)      Had Greece financed this deficit with equity capital from abroad (e. g. foreign investments; remittances from Greeks living abroad; EU-grants; etc.), then Greece would not have a foreign debt problem today.

4)      Greece financed this deficit exclusively with foreign debt. In fact, foreign debt increased by 283 BN€ which means that foreign debt was also used to finance domestic activity (and some of that “domestic activity” consisted of transferring private money to foreign bank accounts).

5)      Unless Greece can sustain her ability to attract foreign debt, something else must happen in order for the books to balance: reduction of imports; increase of exports; increase of revenues from tourism; increase of foreign investment or EU-grants; or a combination of these factors.

6)      It must be noted that a reduction of imports translates into a reduction of the standard of living. So much more is it important to primarily operate with the other variables in the above combination.

7)      A return to the Drachme would quickly correct these imbalances: imports would become more expensive for Greeks and decline; exports would become cheaper for foreigners to buy and increase; vacations in Greece should become less expensive for foreigners and revenues from tourism should increase; foreign investment might increase if Greece becomes competitive from a financial cost standpoint (however, Greece would also have to become competitive from the standpoint of the ease of doing business in the country).

PS: a return to the Drachma would also wipe out a good portion of the value of the roughly 200 BN€ savings in Greek bank accounts and it would have an unpredictable impact on Greek banks and pension funds.