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Wednesday, February 20, 2013

Have you seen Greece's current account 2012???

Overall, Greece's current account deficit declined 73% (!) from EUR 20,7 BEUR in 2011 to EUR 5,6 BEUR on 2012. Whichever way one slices the details (and there is quite a bit to slice), the overall performance can only be described as remarkable! If one were to exclude the interest expense from the calculations, Greece would have been very close to a balanced current account in 2012. Below are the details (in BEUR):


2011 2012
2011 2012
Revenue from abroad

Exports 20,2 22,0
1,6 2,0

Services (e. g. tourism) 28,6 27,1
1,8 1,6

Other income 3,3 3,3
0,3 0,3

Current transfers 4,4 5,1
0,4 0,3

---- ----
---- ----

Total revenue from abroad 56,5 57,5
4,1 4,2

Expenses abroad

Imports 47,5 41,6
3,6 3,0

Services (e. g. tourism) 14,0 12,4
1,1 1,1

Other expense (e. g. interest) 11,9 5,4
1,3 0,3

Current transfers 3,8 3,7
0,2 0,3

---- ----
---- ----

Total expenses abroad 77,2 63,1
6,2 4,7

Net foreign deficit (current account) -20,7 -5,6
-2,1 -0,5

The above figures come from the Bank of Greece. I have mentioned before that these figures differ dramatically from those published by ELSTAT and Eurostat (and also quite a bit from those published by the Troika). Be that as it may, I will now focus on the BoG-figures.

* Total revenue from abroad increased by not even 2%. Had exports not increased by 9%, the result would have been worse. Why is 2% overall not an impressive figure and why is 9% for exports not a cause for jubilation? For two reasons. First, Greece must have become significantly 'less expensive' in the last couple of years due to austerity and, secondly, the Euro had declined quite a bit during this time, making Greece even more 'less expensive' relative to third currencies. Against that background, not only should exports have increased more markedly but, above all, services should have increased instead of declined.
* Total expenses abroad declined by 22%. Now that is an impressive figure particularly when considering that the base which is applied to is much larger than the revenue base.
* Imports delined by 14%. Had this been compensated through substitution via new domestic production, it would have been wonderful. Instead, it was the result of the collapse in domestic demand.
* To put the trade balance into perspective, Greece still imported 2.350 Euro for every 1.000 Euro it exported!
* The real relief to the current account came through the PSI and the debt restructuring. This can be seen in 'other expenses' even though it is no clear how much of the decline in this category represents interest.

Overall assessment
If one strictly looks at numbers, we are seeing numbers which only few people would have anticipated only a couple of years ago (certainly I would not have!). From that standpoint, great respect is in order.

Furthermore, if the Greek economy did not have to pay interest abraod, its current account would be more or less in balance. A signal that everything has returned to order and that the Troika-measures worked? Or perhaps not?

The price for bringing the external accounts into balance has been unemployment. Today, when both the primary budget and the primary current account are in (or close to) balance, it is clear that the structure of the Greek economy is such that when internal and external accounts are in balance, there is massive structural unemployment.

No better case can be made for structural reforms than the above figures.


  1. 1) You speak of structural unemployment. Sadly, current unemployment is not structural.

    2) Be that as it may, what structural reforms do you have in mind?

    3) Reforms apart, since the circuits of the banking system remain broken and, most importantly, since the damage has been transferred to the real economy (i.e. there is no demand for loans from solvent entities) how do you see the economy being financed?

    1. I will repeat it ad nauseum: the Greek economy requires 3 things - foreign investment, foreign investment and, again, foreign investment. One, as a source of financing and, two, as a source of know-how transfer.

      What structural reforms do I have in mind? The very same reforms which were approved for Cosco and which allow Cosco to run a booming and profitable business and to invest a new 300 MEUR.

      Of course the unemployment is not exclusively structural but a very, very large part of it is. When you have the kind of deficit spending which Greece had during the 2000s, particularly the explosion after 2006, and you still don't even get close to full employment, then you have a real structural problem.

      A case in point: start producing toothpaste in Greece so that the toothpaste I buy there doesn't have to come from Brazil via an importer in Hamburg. Steal the market from a foreign producer. That will require some investment into machinery & equipment and it will create at least some new jobs. And the investor will make a decent return. The new jobs will pay income taxes and social contributions, the company will pay corporate taxes and the investor will hopefully pay taxes on dividends. And the consumer might even get a better toothpaste than the one from Brazil. Most important of all: the investor will not have to worry about demand because he knows exactly what the demand potential is. All he has to look at is how much toothpaste is presently being imported.

    2. The reason foreign investors would be attracted to Greece is that our wages are now reduced to 50% below the EU-defined poverty level, even though cost of living remains the same.

      580€ a month doesn't support one person adequatel let alone a family.What happens when all but the richest greeks come to the end of their 'cushion' of savings and the Ortodox church hasn't enough money to provide hot meals to at least 70% of the population? More in fact, since except for doctors and a few lawyers the rest of Greece's professional class will have no clients. ie What happens when greeks ask for a pay rise, as in China?
      Will the investors then leave, as they are doing in China? Most probably!

      At the same time how can greek companies compete against foreign investors' goods and services without lowering their wage level to 580€?

      Meanwhile private pensions are being progressively slashed. They are now at 50% of what they were. Clearly the slashing will continue until private pensions reach 580€, since this is a ready source of 'income' to balance the totally unbalanceable books.

      On 580€ a month how are greeks - of whom the majority own their homes and properties outright - going to pay the ever-rising property taxes? (I take for granted they will give up electricity as they have given up heating, as an unaffordable luxury). Since on 580€ / month they can't of course pay these taxes, what next - their properties are seized and auctioned? What happens to a population that is being made progressively homeless?

      As long as we are tied into the euro, our cost of living will remain at EZ level. It is actually higher now re goods and services than the northern creditor countries - we now enter year 5 of our government's refusal to break up cartels and monopolies.

      These are laughed at as "childish" questions, however they are 100% valid from the point of view of the greek population on the receiving end of all the new laws and demands.

    3. Minimum wage 580€ minus 32% income tax/insurance =394.84€ / month. And food more expensive than Germany....

    4. Things are not as clear cut as you present them to be, Mr Kastner.

      While foreign direct investment is useful, it is much less useful when it is aimed at the mortally wounded domestic market.

      The case of OTE is telling. Not only the Germans didn't invest, but they have also sold assets which were bought when OTE was still owned by the state.

      This tells us that investment is primarily driven by the business cycle, and with the business cycle at it's nadir thanks to the central banks' inertia, and now (with the damage transferred to the real economy, i.e. collapsing asset values, no demand for loans, and thus no new economic activity) with the refusal of the powers- that-be to engage in public spending, it seems unlikely that there is going to be much FDI, even if Greece fixed it's chronic problems of bureaucracy and anomie (which it hasn't yet).

      Let's also not forget that FDI profits will largely leave the country. So the real gain is know-how transfer (which I am not belittling).

    5. 'Know thyself' is what we learned about ancient Greeks in school. 'Know thy foreign investor' is what I have to say about foreign investment. If you get the 'right ones', it is wonderful. If you get the 'wrong ones', they will take advantage of a country.

      Foreign investment is ALWAYS useful when a country needs capital imports beccause it doesn have a maturity and does not carry interest. And as regards profit/capital repatriation, that can be governed through a foreign investment law.

      Something must have gone wrong between Deutsche Telekom and OTE because by 2010, Telekom had already written off 1,2 BEUR of its 3,8 BEUR for 30% of OTE. When Greece called its option to receive another 400 MEUR for another 10% of OTE, there was debate on Telekom's board whether this option could be cancelled. Of course, it couldn't be. Again, something must have gone terribly wrong between these 2 companies. Personally, I am much happier with the service of OTE than I had been with Telekom's service in Germany (and I recently bought shares OTE!).

      Browse through the article linked below. Among the many comments there are a couple from me about foreign investment (and there are a couple of responses from Xenos which are very interesting!).

  2. But if by structural reforms we mean pushing wages down to 50% (and less) of what Belgium, NL and Germany define as 'poverty level' - when our cost of living is the same!! - there is also something massively wrong.

    Clearly Greece can only progress through its industries and business sector, but how can that happen in this economic impasse?

    1. Please differentiate between 'cost cutting' and 'structural reforms'. Most of what Greece has done todate is cost cutting. Structural reforms would mean that Greece moves from last EU-place in the World Bank's Doing Business Report to perhaps the top-10. Cutting wages may be part of structural reforms if they are way out of whack but no longer-term investor will go to a country exclusively because of low wages. They always go for the whole package. Put differently, if they only go for low wages, you might as well ignore them because they will leave again as soon as there are even lower wages elsewhere.

  3. According to Eurostat some European countries don't have a minimum wage - Austria, Cyprus, Denmark, Finland, Germany, Iceland, Italy, Norway, Sweden, FYRO_Macedonia

    Maybe Greece doesn't need one either.

    None of the Nordic "socialist states" have a minimum wage, yet arch-capitalist, laissez faire economies like the UK and the US do. Hmmmm, perhaps there's a message in that.

    Eurostat is the only source I can find for European minimum wages that has figures later than 2011, at the beginning of 2013 Greece ranked #10, in mid 2007 it ranked #7.

    Ireland has been able to attract, and retain, foreign investment better than most European countries. At the beginning of 2013 Ireland ranked 4 behind Luxembourg, Belgium & Netherlands, in mid 2007 Ireland was second only to Luxembourg.

    Most (all) of Ireland's IT&T and Pharma foreign investors continue to operate. Some are expanding, e.g I believe Google Ireland added about 500 people in 2012, and they earn a lot more than the minimum wage.

    Google provide visualisation of the Eurostat data at Minimum Wage in Europe

    Like Klaus, I doubt that the statutory minimum wage is the main determinant of a countries ability to attract 'quality' foreign capital.

    Corporate tax rates are probably as or more important, as is skills availability. Then comes all the other 'on costs' such as power, telecommunications, transport, property, fuel, insurance, banking, and the 'invisible' costs of dealing with the bureaucracy. Unions also have to be considered, if they strike at the drop of a hat then any investor with half a brain will seek to keep wages low and have a 'quick exit' strategy.

    Then there's question arises of whether a country is a place where your executives will want to do business - and in some cases reside with their wives and school age children for a few years.


  4. Let's try to dispel this "low-wage brings investment" theory. Let us assume that subsidies are so high that all investment and all running expenses (salaries, raw materials etc)were paid in full-no taxes at all of course. Will you invest in Afganistan under these financial conditions?NO, unless you are a crook of some kind or you are doing somebody a major political favor. Investment returns are produced by the combination of many things, unskilled labor salaries being of minor importance in most cases. Investment in various electronics factories goes on unabated in what is now high wage Korea or Singapore. The minimum wage in Greece is just political theater and most Greeks buy the theater because it works well with their beloved conspiracy theories and the need to blame others in order to escape the structural changes that so annoy them. In Greece there are sectors where even the workers paid their employer,instead of the other way around, investment will not take place. Greeks are not lazy, but their take on the work ethic makes them incapable to operate an industrial environment(on average). Salaries in Greece may go to zero but ,unless we shape up, no investment will come. I will try to give an example: structural reform is being fired without recourse,legal or any other,if you are caught being outside home or hospital during medical leave. There is no other way to stop the tendency in some parts of the country to disappear from the factory floor during certain times of the year to do some agricultural work, which wreaks havoc with production planning. This is so irrespective of salary level. LOGIC AND MY PERSONAL EXPERIENCE INDICATES THAT ARGUMENTS TO THE CONTRARY ARE INTERPRETED BY INVESTORS AS EVASION. INVESTMENT WILL NOT COME UNLESS WE GREEKS START TO UNDERSTAND HOW INVESTORS INTERPRET OUR ACTIONS AND OPINIONS.
    I also agree with Herr Klaus. Investment is the solution. What kind of investment? Foreign for two reasons:
    because the economy needs the extra cash and because it needs the knowhow. Additionally it must be huge: either in money or in number of jobs, say 500 mil euro or 2000 jobs and up. This is because only such investments can crash the various political interests that oppose change. Examples? Egnatia Odos, Athens Metro, Costa Navarino. I think that this is the reason for the concentration of the government in accelerating large projects. If so and if successful, it will be very good.

    1. I had interesting experiences in Zurich these past days which we spent with our younger son here.

      Switzerland is brutally expensive in terms of Euros. For Swiss it's not quite so bad because wages/salaries are so high: median monthly income 5.716 CHF! A sales person in a shop earns 3.500-4.000 CHF!

      Part of it is the exchange rate which used to be around 1.60 to the Euro and which has exploded since the crisis (the Central Bank is capping it at 1.20). So you would think that all the ingredients for collapse in exports and foreign investment are there.

      Get this: in 2012, Switzerland's exports reached a record level and foreign investment is going strong.

      I repeat: foreign investment come if 'the entire package' fits. Wages are part of that package, taxes are, too but there are many other factors.

    2. This mention of Swiss exports brings back bad memories. Years ago I was working in a Greek robotics company. Among other things we were developing a robotic metal polisher using EC funds. Near the end of the project work, in pops Mr. Bula of Bula & Fils boss of the biggest (at the time at least)polishing machines maker in the world. He came with his chief engineer and our boss gave them a detailed technical presentation of our machine, which was in the market by Bula a few months later. We concluded that our boss wasn't interest in making money from robotics, but in using EC funds to support his need for glamor. Morale went down, so did productivity. Exports? What's this?