The table below shows the development of Greece's current account in the
period January-May 2012 relative to the same period the year before
(in BEUR):
The improvement continues: the current account deficit declined 40% (!) during this period! Imports declined 9% whereas exports increased 12%!
The discouraging fact is that - as before - after 3 or 4 years of crisis and so-called austerity measures, Greece as a country is still spending 1.320 Euros abroad for every 1.000 Euros earned abroad. That is a 32% excess of spending over income. This is much worse when only considering the trade account where Greece is importing 2.090 Euros for every 1.000 Euros which it is exporting!
The improvement came despite the fact that revenues from tourism, the very important revenue category, declined 14% over the previous year. On the other hand, one could have expected exports to increase by more than 9% given that the export base is low and that the Euro has devalued significantly over the previous year.
The repetitive question is, of course: have structural reforms been made to make sure that imports will not explode again if and when the economy picks up again? The Bank of Greece's answer to this question is "no".
| 2011 | 2012 | |||
| Revenue from abroad | ||||
| Exports | 7,7 | 8,6 | ||
| Services (e. g. tourism) | 8,8 | 8,7 | ||
| Other income | 1,3 | 1,3 | ||
| Current transfers | 2,9 | 3,0 | ||
| ---- | ---- | |||
| Total revenue from abroad | 20,7 | 21,6 | ||
| Expenses abroad | ||||
| Imports | 19,8 | 18,0 | ||
| Services (e. g. tourism) | 6,0 | 5,4 | ||
| Other expense (e. g. interest) | 4,4 | 3,3 | ||
| Current transfers | 1,8 | 1,8 | ||
| ---- | ---- | |||
| Total expenses abroad | 32,0 | 28,5 | ||
| Net foreign deficit (current account) | -11,3 | -6,9 | ||
The improvement continues: the current account deficit declined 40% (!) during this period! Imports declined 9% whereas exports increased 12%!
The discouraging fact is that - as before - after 3 or 4 years of crisis and so-called austerity measures, Greece as a country is still spending 1.320 Euros abroad for every 1.000 Euros earned abroad. That is a 32% excess of spending over income. This is much worse when only considering the trade account where Greece is importing 2.090 Euros for every 1.000 Euros which it is exporting!
The improvement came despite the fact that revenues from tourism, the very important revenue category, declined 14% over the previous year. On the other hand, one could have expected exports to increase by more than 9% given that the export base is low and that the Euro has devalued significantly over the previous year.
The repetitive question is, of course: have structural reforms been made to make sure that imports will not explode again if and when the economy picks up again? The Bank of Greece's answer to this question is "no".
"The repetitive question is, of course: have structural reforms been made to make sure that imports will not explode again if and when the economy picks up again? The Bank of Greece's answer to this question is "no"."
ReplyDeleteMr. Kastner, in order to make reforms, you need a goverment. Greece is practically without proper goverment since Mr. Papadimos took power. Mr. Papadimos was explicitely handed the job to conduct the PSI. The rest were to wait for the new goverment, which after 2 electoral campaings, comes now...
But, to compensate, the labour market is still adjusting. 50% of new contracts are part-time jobs and also the salaries in general in the private sector are still falling since last spring. That should keep their purchase power from raising! When on doubt, cut their salary (classic recipy).
BTW, Mr. Draghi just announced that won't accept greek bonds as collateral in exchange for liquidity to the greek banks until the troika evaluation is presented... Just a reminder of how can one oust Greece...
I also have the feeling, that we are again about to see the usual drama: greek goverment promiced not to cut incomes, but knows that must, calls Europeans "make a tough show", then greek politicians come out and say "look, they are about to pull the plug, we don't have choice, we must cut" and so on. I have lost count of how many times this scene has been played...
Bandolero
I have seen the Draghi accouncement but details are lacking. If he had said "we will no longer make new loans to Greek banks and we will no longer allow increases in Target-2", well, then Greece would have to announce a bank holiday over the weekend.
DeleteThere are collateral instruments other than Greek bonds. Banks could sign over their loans or whatever. I am certain the ECB left itself a door open that it can still finance the Greek banking sector despite Draghi's statement.
If not, then all hell would break loose, but that won't happen now.
No, no, this is the not the dramatic finale. It has happened once more again. It happens before a drammatic negotiation with the troika to give a more serious note to the situation and maybe facilitate greek politicians for the usual story of "we didn't want, but they are really ready to oust us".
DeleteI just mentioned that the ECB can in fact cut lines. The current quality of the greek banks portfolio is very dubbious. Loans that the banks have made are bursting every day. It is a chaos.