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Wednesday, August 20, 2014

Greece's Current Account - Trends Since 2011

Below are the trend-figures of Greece's current account, each year for the period January-June (6 months); in BEUR.


2011 2012 2013 2014
Revenue from abroad

Exports 9,5 10,4 11,1 11,4

Services (e. g. tourism) 11,7 11,6 11,0 12,5

Other income 1,6 1,9 1,7 1,8

Current transfers 3,1 3,6 3,9 4,2

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

Total revenue from abroad 25,9 27,5 27,7 29,9

Expenses abroad

Imports 23,7 21,5 19,3 20,5

Services (e. g. tourism) 7,2 6,5 5,4 5,6

Other expense (e. g. interest) 5,6 3,5 3,5 3,2

Current transfers 2,1 2,0 1,9 1,7

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

Total expenses abroad 38,6 33,5 30,1 31,0

Net foreign deficit (current account) -12,7 -6,0 -2,4 -1,1

Trade balance -14,2 -11,1 -8,2 -9,1
Services balance 4,5 5,1 5,6 6,9
Other balance -4,0 -1,6 -1,8 -1,4
Current transfer balance 1,0 1,6 2,0 2,5

---- ---- ---- ----
Net foreign deficit (current account) -12,7 -6,0 -2,4 -1,1

These figures are an analyst's dream: revenues consistently go up; expenses consistently go down; net result consistently improves. What else could a dreamer want?

The above figures do not really reveal where the weakness is. One has to look into the details of the exports. The above exports include oil, shipping and 'other goods'. It is really those 'other goods' which reflect whether the Greek economy manages to increase its output for the sale in foreign countries. Below are the 'other goods' included in the above export totals:

2011 2012 2013 2014

Other goods 6,2 6,6 6,8 7,0

To put this into perspective: during the January-June period of 2008, Greece's best export year before the crisis, the export of 'other goods' was 6,5 BEUR. Yes, there has been some improvement since then but only very little.



    Klaus, do you agree?


    1. Yes, this article is very much along my lines of thinking. And, yes, Target2 saved the periphery a lot of adjustment pains which Latin American countries had to go through when they hit their foreign payments crises back in the 1980s. The former Chilean Finance Minister Andres Velasco had commented about that in a brilliant speech at the 2011 INET conference in Berlin when he suggested that someone must have provided continued funding to the South, otherwise the periphery could not have maintained current account deficits. He suggested "that perhaps German citizens have not been quite as ungenerous as some people at this meeting have made them out to be". This video is worth watching over and over again and here is the link:

      In fact, I wrote an article about it which is here:

      Regarding the article, I would only add that the services part of the current account is too much neglected. Now, there are economies where the services part does not play an important role but there are other economies, like the Greek one, where the services part is the pillar of everything. Put differently, to equate the current account more or less with exports/imports could be misleading.

      The current account shows how much an economy spends outside its borders and how much it earns outside its borders. If spending exceeds earning, there is a deficit which affects the economy just like a family. If a family spends more than it earns, it needs to borrow or make an inheritance. The economy also needs to borrow and the equivalent of an inheritance is, for an economy, foreign investment. Whether it is an economy or a family, spending more than earning means reducing wealth.

      No economy needs to export in order to be able to obtain imports. The South Sea island may not produce a single thing. As long as they get enough revenue from tourism, they can import all the products they desire. The only question is whether the services sector can employ people as well as the production sector.

      Greece today has a balanced current account (actually it is positive!). Still, the Greek economy cannot employ its people in a satisfactory manner. Thus, the Greek economy will simply have to do more production, be it for domestic consumption (substitution of imports) or for exports. While the services sector now provides sufficient income from abroad to balance the current account, it does not seem to provide sufficient employment.

  2. With do respect to Prof Andres Velasco i have a "reservation"in the meaning he is giving in nominal exchange rate but maybe i m wrong. He is saying logical thinks however.

    Given your last paragraph, the positive current which is 100% possible and for 2014, is helping to expand economy?
    Exports (excluding oil products) and due to geopolitical crisis in Ukraine & Middle East are going to be possibly a little lower, we are in deflation for 2 years and consumption, generally is negative, not of course to buy expensive imported products, but the basics.