Wednesday, February 19, 2014

Greece's Current Account - The Miracle Has Happened!

When I started observing the Greek situation in 2010, I wouldn't have bet one Eurocent on the likelihood that Greece would record a current account surplus within a decade; at least. That might have been the most lucrative bet in the world. Now, only three years later, the Bank of Greece has just released the statistics for 2013 (in BEUR):


2013 2012
2013 2012
Revenue from abroad

Exports 22,5 22,0
1,9 2,0

Services (e. g. tourism) 27,8 27,5
1,6 1,6

Other income 3,5 3,8
0,3 0,3

Current transfers 7,7 5,1
0,8 0,3

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

Total revenue from abroad 61,5 58,4
4,6 4,2

Expenses abroad

Imports 39,8 41,6
3,2 3,0

Services (e. g. tourism) 11,0 12,4
1,0 1,1

Other expense (e. g. interest) 6,4 5,4
0,4 0,3

Current transfers 3,1 3,6
0,2 0,3

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

Total expenses abroad 60,3 63,0
4,8 4,7

Net foreign deficit (current account) 1,2 -4,6
-0,2 -0,5

Trade balance -17,3 -19,6

Services balance 16,8 15,1

Other balance -2,9 -1,6

Current transfer balance 4,6 1,5

---- ----

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


1)  An optimal improvement is when revenues go up and, simultaneously, expenses go down. That's what happened in Greece's current account and that's why the improvement relative to 2012 (a deficit of 4,6 BEUR was turned into a surplus of 1,2 BEUR; a turn-around of 5,8 BEUR within 12 months!) is so large!
2) I could make quite a few more comments on the details, like I have always done in previous analyses of the current account, and I could point to some weaknesses. But who wants to spoil a party when the party really deserves congratulations?

Hats off!


  1. You obviously do not take into consideration some sensitive factors...If I come over at your house and kill some of your family members, cut down on their pocket money and their health (etc) expenses without caring whether they'll survive or not, you'll probably have an actual increase on savings ! Good for you ! congrats ! Furthermore, you can stop paying some of your debts towards third parties (ie verified tax returns due etc), lat time i checked on this, expired debts where in the region of 7 bln...That's a nice approach !!! No offense but some things can be seen from various points of view....

    1. I understand your point of view. I know that a major factor behind the improvement was that imports were radically cut, and cut by supressing domestic demand. I also understand that the price for having achieved a primary and current account surplus is close to 30% unemployment. But that also confirms Modern Greece's track record, i. e. that without financial impulses from abroad, the economy cannot employ its people in any satisfactory measure. It has always been that way since Independence. Such impulses come when Greece is an attractive place to do business. That is the real challenge for the Greek economy.

    2. Klaus: you really should know better than to take Greek government statistics seriously. I have told you this several times, and it is an area I am quite expert in.

      The fake data that are being used reflect the state's failure to pay its debts, refusal to refund taxes in a timely fashion, extracting VAT and other payments IN ADVANCE of actual transactional payments, and various other illegalities and forms of poltical manipulation of data. If a company does this, the accounts will be exposed as fraudulent and it will probably be forced rapidly into bankruptcy.

      True, they also reflect the State's reduction in salaries and pensions payments, and maybe some very small improvement in tourism spending. However, exports and production collapse are just as important and negate these small gains.

      So, what you are applauding is a massive scam to pretend that Greece is not in the middle of economic collapse. I presume that you did not react similarly when companies presented fraudulent data to the banks you worked for.

    3. What you describe by way of 'statistics' are the state's domestic transactions. The current account and balance of payments reflects the entire economy's cross-border transactions; the state in the form of the Bank of Greece only keeps track of them.

      Now you may say that the BoG cheats just as much as the state (which you expertly describe). But, heck, you've got to believe in something!!!

    4. I am more prepared to trust the Eurostat data, which they are being very careful with since the crisis. The Bank of Greece cannot be trusted any more than Elstat.

    5. The ECB pumped a few billion into the Greek government in 2013 which pushed the account into surplus. This money will probably have to be paid back.

      About the accuracy of the stats. I agree with all the others. The figures cannot be trusted.

      "If the government weather man tells me it is sunny and I look in the street and see it is raining, I am going to take an umbrella" - Peter Schiff

      Greeks know that things are going to get a lot worse. Economy has been in recession for 5 years, it is still contracting and yet the government is still increasing taxes. Even if the government were to stop increasing taxes today the economy would still be in recession for another year or two. Only when the tax increases stop will the economy stabilise let alone grow.

      And growth must come from bank lending or tax cuts and that shows no sign of happening.

      About the Greek economy not being able to employ its own people. The reason for this is that businesses do not want to gamble and expose themselves to the obligations that come with employees. Greeks want to work and Greeks want to employee people. All Greeks know this but at the same time most Greeks support socialism.

      Ultimately, like most countries, 99% of people are not economically literate which leads to them voting for policies which makes their lives worse.

      America was the last shining light of freedom but that started fading years ago.

  2. As much as I would like to share your optimism.
    The only remarkable figure I can find in the revenues is the increase of the currant transfers of BEUR 2,6. Not even the famous tourism is remarkable.
    On the expense side one can only hope that the falling imports are Range Rovers, one can fear that they are raw materials and spare parts for an ailing industry.
    Let me venture that the majority of the currant transfer revenues represent the fantastic "rate of absorbtion of EU funds" (if nothing else the Greek crises has given us a new language). These funds will be used for infrastructure projects such as roads and bridges that nobody needs as there are no goods to transport. The funds will benefit the following parties, mentioned in order of importance; the construction company owners, the national and local politicians, the Albanian workers who will do the actual work. I can find one thing common for these 3 groups of people, they will transfer as much of the money out of Greece as they can, as fast as they can. The funds will not contribute to building up a productive capacity, and motor ways are a lousy export commodity (as are souvlaki shops where most of the entrepreneurial Greeks invest their EU funds).
    Keep talking Greece.

  3. "Without financial impulses from abroad, the economy cannot employ its people in any satisfactory measure. It has always been that way since Independence."

    Not true, Greece could employ it's people fine during the capital/ trade-controls era.

    It was an era of less commercialization (less products, less cars, less electronics), but there was food on the table. No imminent threat of collapse for such a large part of society.

    1. Sorry, it is you who is wrong. If Greece had been able to employ its people, there would not have been mass emigration to the diaspora nor would there have been 1-2 generations of guestworkers.

    2. You need to clarify your statement.

      When you say "Greece" is not able to employ its people what do you mean exactly?

      The geography of country is substandard

      The people are substandard

      The government is substandard

      Where exactly do you see the problem?

    3. There is not enough domestic economic value creation, so Geece has to import economic value creation from other economies which means that jobs are exported to other economies. Switzerland has only little by way of natural resources. They import raw materials, add value and export finished products. They do that so well that they have to import jobs in massive amounts.

    4. Great. But what is your position as to the reason? People/Government/Geography

    5. The overall theoretical explanation is as Klaus states. The actual underlying causes for this are complex and have changed over time. Historically (19th centiry), it was a shortage of capital, lack of experience in setting up industrial production, and lack of extensive international markets and networks (unlike northern Europe in the mercantilist period). There were additional problems of extensive political corruption and nepotism, an over-extended state that tried to "fill in the gaps" of economy and society (as Mouzelis puts it), and very heavy reliance on individual or family production that could not be operate efficiently owing to both their small size and lack of technology.

      For much of the 20th C one has to consider the dire situation with two Balkan Wars, World War I, the Asia Minor Catastrophe and the exchange of populations... then, the occupation of Greece in World War II and the Civil War that followed. It was therefore only from the early 1950s that Greece had the opportunity to try and develop its economy; in reality, that was the period of mass emigration initially for economic reasons, then later for political reasons. Greece lost most of its highly skilled workforce to countries such as the USA, Canada, Australia, as well as a very large Gastarbeiter migration of unskilled workers to Belgium, Germany, and elsewhere.

      Therefore, it is in fact only since the late 1970s that Greece stood much chance. In particular, the period of maximal opportunity in terms of access to cheap capital, skills, and export markets is since entering the eurozone. This is the period where the Greek poltiicians, industrialists, trade unions, academics and (to a much lesser extent) Greek people generally have really not only wasted the opportunities, but actually damaged their own collective interests by acting in short-sighted, consumption-oriented and selfish ways. In this regard, the greatest failure lies with the State -- whereby the ministries failed to promote economic development and engaged instead in corruption. Moreover, the two main parties that remain in power engaged equally in corruption and abuse of resources, and diverted wealth for their own benefit. There is also blame to be attached to Greek business owners, who systematically bled their own companies dry: instead of using profits for reinvestment, new technology, staff training, recruitment of skilled workers etc to allow their businesses to compete, they chose to extract all money to spend on luxury houses in Ekali and expensive German cars etc. Moreover, most of the large private sector companies in this period were engaged in state corruption, with kickbacks, bribes etc to ministries and politicians. They thought that this gravy train would never stop, and this was how to run a modern economy.

      You see the outcome of their ignorance and stupidity now. Every time I see these people in Mercedes, BMWs etc in Athens centre, I look to determine if they had earned their money overseas or are a part of the Greek corruption. It is generally clear that the vast majority of such car owners are criminals, who have damaged Greece almost beyond repair.

    6. Sorry Klaus, what you're talking about happened after the ruin of the civil war. Once the economy got on it's feet, it could employ it's people fine without financial assistance from abroad.

    7. kleingutFebruary 21, 2014 at 3:50 PM
      My guess? Poor governance/management; poor public administration; weak institutions; a culture tending towards exploiting the state combined with corruption. Could it be that you are the only Greek who doesn't know that?

    8. "Guest" - I agree with most of what you say except "There is also blame to be attached to Greek business owners, who systematically bled their own companies dry: instead of using profits for reinvestment....." - For small business at least, there is zero tax benefits for doing these things unlike any other successful economy in the world. When small businesses do not invest in new equipment, new technology, staff training there is a very good reason.

      With regards to larger limited companies, from the ones I have seen, the ones that do not operate in protected industries, for example tobacco distribution, they seem to be comparable to companies in other countries. Like I said, the noticeable difference between Greece and other countries is in the condition of small businesses.

      About kick backs and bribes. I think it is the same everywhere but people have to put in a bit more effort in other countries. ie the money still changes hands but rather than under the table it is recorded as a donation, or consultancy fee, or for services etc etc.

      I too find myself wondering if I paid for a new Mercedes I see in the street or if the person is in the private sector!!

    9. Surely you do not need to guess? Poor governance/management. Possibly, but people being people, competition would see the cream rise to the top. Would I say Greeks are less competitive than people from other countries? I would say they are at least as competitive, let me put it like that.

      Weak institutions? There are many things I would call Greek institutions (I am assume you are talking about public) but weak is definitely not one of them. Do they use their powers selectively? Possibly.

      A culture tending towards exploiting the state? Yes okay but is this is any different to anywhere else. For example I cannot imagine taxpayers in Germany refusing benefits the government offers them, nor could I imagine UK public sector staff not wanting pay rises or French government workers refusing offers of early retirement or a generous pension. Exploiting the state is hardly a phenomenon confined to Greece.

      But let us cut to the chase.

      It is obvious why the Greek economy is in the state it is in.

      Set up a business in the UK and employ some people and do the same thing in Greece. The answer will be obvious.

      The political elite in Greece has no interest in seeing the country becoming powerful and self sufficient. This is what most Greeks know.

    10. Jim Slip. Absolutely. To compare Greece to Germany for example. Greece has access to the same technology as Germany. Greeks are just as well educated as Germans. Greeks have more land area per capita than Germans, Greeks have much more coastline per capita than Germans, the coastline in Greece is much more valuable than German coastline both in climate and location, Greeks have much more territorial water per person than Germans, Greece is in a far superior place geo politically, Greek land is more valuable from a development point of view although agriculturally probably not so, Greeks are more entrepeneurial than Germans although Germans have more employment opportunities) and the list goes on.

      There is no reason for the Greek economy to be the basket case it is. The country has everything going for it. Something must be fundamentally rotten and as I said to the blog’s author, the answer is obvious when you compare doing business in the UK and doing business in Greece. (And I am not saying doing business in the UK is good just much better)

    11. @limit_less
      In reply to your points... First, although it is the duty of the state to guide businesses and households in directions that are beneficial to the society (and the Greek state is a dismal failure) there is also some responsibility for business owners and consumers. The attitude of Greek business owners who made sizeable profits to:
      (a) their staff, in terms of career development and pay incentives
      (b) Training of staff to do their jobs better
      (c) use of appropriate new technology to increase productivity
      (d) investment in the company

      have been so negative that Greece sticks out like a sore thumb even in aggregate statistics, as about 20% of the worst country in the EU. I have seen it firsthand in private sector companies where I worked briefly, and the owners spent their days trying to cheat their workforce of their time (by refusing lunchbreaks), of their income, and of any returns due from increasing the profitability of the company. At the end of the day, I would see such business owners buying expensive dresses in overpriced Kolonaki shops, going to buy a Mercedes, going on luxury holidays --- all the time whining to their staff that there was no money to buy new computers, let alone pay decent wages.

      In terms of the larger companies, no they are not like the rest of Europe. Essentially, the contracts acquired through corruption and kickbacks are so important (in contrast with other developed countries) that from an economic perspective it is erroneous to call them private sector. They are integrated with the public sector through the volume of business conducted with the state, and are not normal capitalist businesses at all.

      As far as small busineses are concerned, they would have gone under in the 1990s had it not been for the mass inflows of undocumented Albanians prepared to work for low wages and easily threatened because they had no legal status. This phenomenon disappeared in the euro phase, and plunged many small businesses into problems -- with the State doing nothing. Now, they are overtaxed and closing down in droves.

      A few comments on other things.I do not agree that Greeks are competitive in the economic sense. I know why you say this, but there is a very clear history of minimal competition in the Greek economy. Almost without exception, Greek businesses try to avoid price competition by any means. For decades, there were entire streets with specialised shops selling near-identical products, and in the windows, no prices. Why? Because they wanted to avoid price competition and instead engage in what one might call customer competition -- that is, "Old Giannis" and his entire family have shopped with you for decades, and you assure them that as a personal favour they get the lowest possible prices -- zero profit for you, you tell them. And because of weak information on market pricing (since nobody displays prices) they believe the lies.

      Or, the tendency to create oligopoly at all costs, in order to avoid price competition. The Troika is trying to force some competition onto the Greek fresh milk market now -- good luck to them! We know that the supermarkets have an endless repertory of tricks to prevent competition.

      I also agree with Klaus that the greek insttutions are very weak. They are also highly overextended. They aim to interfere with everything, but have the competence to manage nothing. Moreover, their rationale is not to promote economic development, export markets, greek business efficiency etc. The state institutions see the private sector as a goose laying golden eggs that they must steal. Moreover, within most of Greek institutions (including much private sector) there is no comparison with global standards. Some people barely work, others reluctantly do so, and yet others work like maniacs and keep the company or ministry afloat. Nobody is punished for lack of or low quality work, and nobody is rewarded for excellent work. ..../cont

    12. /continued

      This brings me to the final nonsense I want to specify. In a modern capitalist economy, jobs are allocated on the basis of ability to do a job, are conditional on doing that, and lead to career trajectories reflecting achievements (or to unemployment). This does not happen in Greece. The criteria for pay are the following:
      (a) how long you have worked there (regardless of what you have done or screwed up)
      (b) your relationship to the owner or to a political party in a state job
      (c) your gender (women don't need money because they should marry a rich man, and might get pregnant anyway)
      (d) your age
      (e) how many stupid pieces of paper you have collected from Greek universities saying that you passed this or that course taught by an incompetent professor. If you are lucky, they will accept EU qualifications, but this was forced on Greece after decades of fines from the European Court

      What you will notice is that nowhere in that list is there mention of how well you have performed in your job. This is one of the primary reasons that Greece cannot compete -- that there is no acceptance of job evaluation other than foolish bureaucratic nonsenses. There is also no acceptance of the idea of losing your job through laziness or incompetence, or being promoted for excellence.

    13. Xenos.

      Your first & second paragraph, I explained the reasons in the previous reply.

      About price competition. The Euro and the internet has transformed the economy beyond all recognition in only the last 5 years. What you say was correct 5 years ago.

      About Milk, I agree, you can add most of the products in peripteros into the same basket.

      Institutions. I think you agreed with me, they have power which they don't use. unfortunately law abiding businesses comply and are at a disadvantage to those that do not comply.

      You wont hear any complaints from me on the remaining comments. You will notice that there is a common theme in both of our positions!

  4. @Jim Slip
    From 1950-74, remittances from guestworkers, were by far the largest foreign currency stimulus (far larger than tourism or shipping). Conceptually, that was like foreign investment. After guestworkers returned in the 1970s, that stimulus evaporated (except, perhaps, for pension receipts from abroad). It was dutifully replaced by EU grants. And those were then reinforced by cheap Euro loans.

    I don't have facts but I doubt Greece had many years of current account surpluses since 1832. There has got to be a reason why Greece became insolvent 6 or 7 times before this present crisis.

    1. In the interests of accuracy I think it is important to be specific when talking about the issues in Greece.

      The "Greek government" has become insolvent 6 or .......