Saturday, December 21, 2013

Greece's Current Account --- Cause for Jubiliation Among Foreign Creditors!

Below are the figures of Greece's current account for January-October periods (10 months). I have compared this year's results to the previous year's and, to put things into perspective, I have compared both periods to the same period of 2008 (Greece's worst current account year). The numbers and their trend are remarkable, to say the least!

(in BEUR)

January - August

2012 2013
Revenue from abroad

Exports 16,9
18,0 18,8

Services (e. g. tourism) 30,4
24,4 24,7

Other income 4,6
3,2 3,0

Current transfers 5,9
4,7 6,5

---- ----

Total revenue from abroad 57,8
50,3 53,0

Expenses abroad

Imports 54,8
35,3 33,4

Services (e. g. tourism) 14,3
10,3 9,2

Other expense (e. g. interest) 13,5
4,8 5,4

Current transfers 3,3
3,2 2,8

---- ----

Total expenses abroad 85,9
53,6 50,8

Net foreign deficit (current account) -28,1
-3,3 2,2

Trade balance -37,9
-17,3 -14,6
Services balance 16,1
14,1 15,5
Other balance -8,9
-1,6 -2,4
Current transfer balance 2,6
1,5 3,7

---- ----
Net foreign deficit (current account) -28,1
-3,3 2,2

Below are some observations:

1) Where Greece had a deficit of 28,1 BEUR in 2008, it now shows a surplus of 2,2 BEUR in 2013. That's an improvement of 30,3 BEUR (or about 15% of GDP)!
2) No one, only a few years ago, would have considered such an improvement possible, in my opinion. Certainly I wouldn't have.
3) One caveat about the 2008/2013 development: the 'nice' improvements are those where revenues go up and expenses go down. The 'not-so-nice' improvements are those where expenses go down but revenues as well. The large revenue decline came in 'services' and here it is the line item 'transportation'. Regrettably, I cannot tell what is behind 'transportation'.
4) The 2012/2013 development is 'nice' in the sense that revenues went up and expenses went down. The improvement in the current account balance versus 2012 is primarily attributable to a significant decline in the trade deficit and secondarily to increases in the current transfers and services surpluses. By contrast, the income account deficit increased.
5) Oil exports accounted for the bulk of the improvement in exports but foods, beverages, minerals and non-metallic mineral products were also significant. The declince in imports resulted mainly from lower oil imports.
6) The significant increase in current transfers was mainly due to higher general government net transfer receipts (mainly from the EU).

What can be said about all this?

This is certainly cause for jubilation among Greece's foreign creditors. A current account surplus means that the national economy cannot only cover all of its foreign operating expenses but, and this is the cause for jubilation among foreign creditors, it can also pay all of its foreign interest expense. Admittedly, Greece's interest rates are well below-market but who would have thought only a couple of years ago that Greece would be able to pay any of its interest expense without having to borrow the necessary money from foreign creditors?

The 2013 results are also cause for jubilation among Greece's economic leadership. They have promised to deliver results and they have delivered them.

The 2013 results would be cause for jubilation for the entire economy if only the price hadn't come so high. The price is essentially domestic economic contraction. Expenses have been driven down with a sledge hammer but there are no clear signals that revenues and economic activity will go up. If nothing happens soon, it could become the classic story of the operation having been successful even though the patient died.

The export growth since 2008 is dismal for a country which has gone through domestic devaluation in order to become more competitive. All statistics suggest that domestic devaluation has been quite substantial. Against that background, one can only assume that the Greek economy does not have enough of a productive sector to benefit from an improvement in competitiveness.

And that, the build-up of a productive sector, should be the number one priority of Greece's economic leadership!


  1. Her Klaus, Greece needs funds from foreigners to create value-as you many times, suggested-
    With 3 to 4 products imported to Greece in 2008 we could not have sustainable economics, but unemployment which came as a result is not sustainable, any more.
    We have funds? to use them so as to build new industries BUT the legislation is still confusing , and taxation huge for a period of a" build up".
    Still we have few technology or capital intensive companies, we need practical advantages


  2. And i disagree about this:
    "The declince in imports resulted mainly from lower oil imports"

    Oil Exports 2008 2013 Oil Imports 2008 2013

    3,7 6,8 14,5 13,5


    1. My comment related to the 2012/2013 periods. The comment was taken from the BoG press release. See below.

  3. It's the best news I have heard for a long time, it's too good to be true, and it isn't, but let's leave that for another time. The good news is that the EURO zone can now lean back and with Daniel Gros's words "starve the beast". Greece has all the time it wishes to decide if it will create a sound business model for the country, and an environment that will sustain that model. Judging from the last 3 years we can wait a long time for that decision to be taken. Have you noticed that during all the cost and wage cutting, NO STRUCTURAL REFORMS HAVE BEEN MADE? All the rotten systems are still here and fully functional. Greece is at crossroads where it can decide if it want genuine direct foreign investment (clean up their systems), or the Greek elites to go "cherry picking" on the cheap (keep the rotten systems). Eventually one would expect Greeks to understand that they cannot have both. No foreigner will invest in the present system and Greek elites will not invest in a clean system.
    PS. As for your remark "the patient died", the patient has shown suicidal behavior for quite a while.

  4. I have just learned that the YTD surplus of 2,2 BEUR includes a 1,5 BEUR one-time extraordinary item. So be it. That still leaves a 700 MEUR surplus in a period where a substantial deficit could have been expected, even under rather favourable scenarios.

  5. And apart from the 1,5 BEUR there are 2 or 3 tangible items that will reduce the surplus to a "pink zero", but even that is remarkable. More worrying are the non-tangible items, how much of the reduction in imports is caused by luxury goods, and how much by deferral of procurement of necessary goods? If the lower imports represent Range Rovers then it is perfect, we have enough of those to last us 2 generations. If the lower imports represent necessary goods, spare parts, renewals and maintenance in public and private industry then we are in trouble. These imports will then return with a vengeance. Imagine the following scenario: A big car manufacturer decide to change from the policy of having 3 month stock of everything for the assembly lines, to a "just in time" policy. The Chief Procurement Officer implements the policy in one year and reduces his procurements in that year by 25%. Bonuses all around and share prices going through the roof, I will leave the next year to your imagination.
    PS. I don't know what the proportion between the 2 extremes is, but I don't like what Greek history and my gut feeling tells me.