Saturday, February 24, 2018

A Decade In The Life Of A Current Account

It was the year 2008 which will reserve Greece a spot of distinction in the world's history of absolutely shocking current accounts. In 2008, the Greek economy spent 105 BEUR outside its borders compared with only 69 BEUR which it earned outside its borders. In consequence, the external deficit of the Greek economy was 36 BEUR in that year. These numbers assume their real significance when comparing them to the 2008 GDP of 241 BEUR, as reported by ELSTAT: the external deficit was 15% of GDP (!). Perhaps not a world record but probably close to it.

Now, a decade later, Greece can reserve another spot of distinction, this time in the history of dramatic current account improvements. For 2017, the Bank of Greece reported an external deficit of 1,5 BEUR, or just about 1% of GDP. The significant figures of this development, as published by the Bank of Greece, are summarized below:

Current Account (in BEUR)
2017 2016 2008
Revenue from abroad
Exports 27,9 24,5 21,9
Services (e. g. tourism) 28,3 25,0 34,2
Other income 6,1 5,9 9,0
Current transfers 1,9 1,8 3,4
------ ------ ------
Total revenue from abroad 64,2 57,2 68,5
Expenses abroad
Imports 46,3 41,1 66,3
Services (e. g. tourism) 10,9 9,7 18,5
Other expense (e. g. interest) 6,0 5,9 16,6
Current transfers 2,5 2,4 3,7
------ ------ ------
Total expenses abroad 65,7 59,1 105,1
Net foreign deficit (current account) -1,5 -1,9 -36,6
Trade balance -18,4 -16,6 -44,4
Services balance 17,4 15,3 15,7
Other balance 0,1 0,0 -7,6
Current transfer balance -0,6 -0,6 -0,3
---- ---- ----
Net foreign deficit (current account) -1,5 -1,9 -36,6
Non-oil and non-shipping exports
2017 2016 2008
Exports "Other Goods" 19,9 18,2 17,0
Imports "Other Goods" 34,3 31,8 46,9
---- ---- ----
Balance of goods excluding oil and ships -14,4 -13,6 -29,9
Ratio: Imports vs. Exports 1,7 1,7 2,8

A truly meaningful analysis of the above development would require statistics at a level which the BoG does not publish (it might be a recommendation for the BoG to provide such a meaningful analysis!). Nevertheless, the following observations can be made with general accuracy.

1) "Exports", "Imports" and "Trade Balance" confuse in the case of Greece because these figures include large and widely fluctuating figures from oil and shipping trade. Still, overall exports went from 22 BEUR to 28 BEUR during the decade while overall imports declined from 66 BEUR to 46 BEUR. That represents a turn-around of 44 BEUR for the decade!
2) "Other Goods" are included in the overall exports/imports and they represent those categories which could be considered as regular trade. Here, exports went from 17 BEUR to 20 BEUR and imports declined from 47 BEUR to 34 BEUR, representing a turn-around of 16 BEUR for the decade!
3) Unclear is what happened to "Services" as revenues in this category declined from 34 BEUR to 28 BEUR. It certainly was not a decline in revenues from tourism (which actually increased from 10 BEUR to 15 BEUR). Instead, the main trigger was a decline in revenues form transportation from 14 BEUR to 9 BEUR.
4) The "Other" category declined on the revenue side from 9 BEUR to 6 BEUR but much more significantly on the expense side from 17 BEUR to 6 BEUR (!). The latter was primarily due to a reduced interest expense.

Last but not least: the import overhang ratio (imports vs. exports) in the category of "Other Trade" had been an incredible 2,8 in 2008, i. e. imports amounted to almost 3-times the volume of exports! It is now down to 1,7, still a high ratio in normal circumstances but certainly defendable in an economy with high services revenues (e. g. tourism), such as Greece.

One could be inclined to see only good news in the above development because the numbers do not show the methods employed in order to achieve them. The 'sledgehammer' was the most important method (i. e. strangle domestic demand so that less money is spent abroad). The risk inherent in that is that as growth returns - without other structural changes - money spent abroad will increase again in line with increased domestic demand. 2017 might already represent a negative omen: growth returned and while exports of "Other Goods" increased, too, imports of "Other Goods" increased much more significantly.


  1. "Two observations:

    1. Greece had a record year in tourism in 2017 and an all-time monthly record (August 2017), as it can be seen here:

    Therefore when one compares 2017 services (which include tourism revenues) to 2008, the loss in the part of services other than tourism (such as banking, legal, professional services) is even more pronounced. This is clearly an economy that has not yet recovered but simply looks good on paper in terms of current account metrics.

    The other part which shows the weakness of the Greek economy is that tourism (per the graph above) is only a six-month business (starting in May and ending in October). So Greece has not found yet the remedy/benefits of all year tourism which is vital in maintaining a well-functioning tourism industry. Each year leaves you guessing whether Greece would have a good summer in tourism which is not the strong basis you need to have in forward-planning.

    2. The other part which tends to lead to wrong conclusions is the imports category. It includes ships build mostly in Korea for 2017 which is a non-recurring item. So, I am not sure what conclusions one could reach from importing foreign vessels because it's obvious that in 2018 Greece will not import anything near as much in the same category.

    The other part of a distorted import image relates to petroleum imports. Greece is extremely vulnerable to international oil pricing because, among other things, which remain unknown to me, Greece has decided that petroleum products ought to represent 25% or more of its exports. This means that each year Greece imports a great deal of petroleum at fluctuating prices and trying to manage the level of exports overall is an exercise in futility. The amount of money each year transfers to petroleum exporters such as Russia, Iran, Iraq is truly obscene. A lot of Europeans blame the US for EU troubles in the Middle East but I think Greece should be given a medal about the enormous part of its budget it transfers for Mid-East reconstruction in the form of energy imports.

    I understand that most of the concern voiced relates to Greek consumption whose return might be an unwelcomed sign pointing to excesses of the past. But the real problem, in my opinion, is Greece's dependence on foreign oil which transfers vast amounts of national wealth overseas year in and year out.

    Dean Plassaras

    1. As I warned in the text, total export/import figures are distorted by oil and shipping. Below are, for 2017, the components of the total.

      Total exports: 27,9
      of which:
      oil: 7,8
      shipping: 0,2
      other: 19,9

      Total imports: 46,3
      of which:
      oil: 11,6
      shipping: 0,4
      other: 34,3

      The Bank of Greece, in its reporting, pays tribute to that anomaly by using expressions such as "exports excluding oil and shipping" or "trade balance excluding oil and shipping".

      As you suggest, oil has always been a huge question mark to me. When a non-oil country such as Greece exports oil, the logical conclusion would be that (a) Greece imports raw; (b) has a great refining capacity; (c) refines all and (d) exports what it doesn't need itself. That, however, is apparently not the way the system works because, I understand, Greece imports raw and exports raw.

      Over the years, I have read various explanations about Greece's oil balance, perhaps even one from you. All of them suggest that 'oily' things are going on here. Something akin to a smuggling racket. To me, the question has always been: if everyone knows that there is a racket, why isn't anything being done about it?

    2. Kleingut:

      I don't know the answer to you question; I wish I did because I am equally interested to know why.

      As far as the oil exports/imports for Greece, the Greek exporter's association site shows for up to November 2017(so one month is missing for a full year accounting) 8.1 Billion euros worth of fuel exports vs. 11 Billion euros of fuel imports.

      So, I expect the Greek fuel deficit for the year to be about 3.1 to 3.3 Billion euros.

      I also believe that the 2018 fuel deficit will be worse because world oil prices have moved up.

      So, yes we are talking about a true slippery slope for the Greek economy; that's why I felt that the topic of energy is where Greece could experience dramatic efficiency improvements if it chose to apply itself towards such task.


  2. Add to the above this text by Yiannis Stournaras about the future of the Greek economy and one is tempted to become really bullish about the future:

    Strangely, those few Greek commentators whom I have learned to respect for their good judgment over the years are not bullish at all. Instead, they are saying that all these positive factors are just optics, scratches on the surface while, in actual fact, SYRIZA is running the country into the ground.

    And a foreigner is supposed to understand this???

    1. I am sorry to tell you that I have complete disrespect for Stournaras whom I consider a Mario Draghi pawn with only real concern of items pertaining to the banking sector. Let's not talk about central bankers now and ruin our day.

      Having said this, I believe the true picture is somewhere in the middle between "running the country to the ground" and "bullishness galore".

      To be quite frank about it, as someone who understands the Greeks a little more than an outright foreigner, what we have now in Greece is an all out competition of who is going to take credit for an improving economy. It's the proverbial "success has a lot of fathers and failure is an orphan" sort of thing. So, Stournaras is interested in creating a favorable legacy for himself, even though we all know that central bankers don't create economies but only temporarily boost them or deflate them as the case might be.

      I read somewhere that the current Finance Minister, Tsakalotos will present a full blown growth plan for Greece no later than April 2018 because it's an obligation he has as part of the debt negotiation. So let's wait and see the "miracle of Greek performance" by April 2018 and then duly we could take it apart as unemotional professionals. It won't be difficult to do so; I have a feeling.

      Dean Plassaras

    2. Are you sure the doubt is expressed by Greek commentators and not the well known source of Der Spiegel?

      In my opinion, the period of applying real(credible) pressure to Greece is over. Obviously Troika is interested to squeeze out every last drop before it truly loses any credible means to bring the Greeks to heel. This is truly understandable. Complaining at the 11th hour for lack of reforms makes some sense because you know when the clock strikes 12:00 midnight, the game of real pressure is over and if you are Troika the only means of influence then left are only opaque and indirect at best.


  3. Mr. Kastner,

    As i have said for many years it is quite important to follow what exactly is being imported and exported. Of course the "oil" question is a huge barometer. However whatever it is, shady or transparent, it does assist in the over all picture.

    Separating that aspect, as to see the rest of the trade balance i refer you to the below site which i follow every 6 months for the last years. It is lagging in time however if you see the trend yr by yr, you can see the shifting of the non oil products. Imports exports.

    From the above you can see a large chunk which is about 18% which is relative to infrastructure. I have followed this closely and it is a growing number. Meanwhile on the other side you see the small goods increasing in exports. Many aspects which i have followed, only confirm what i have seen on the ground in real time. Greek entrepreneurs are/have been investing in equipment and facilities to produce. Whether it be for exports or internal consumption. It is also greatly relative to the growth of the touristic season. This you can see the reduction of consumables from imports following yr by yr.

    I do not agree with most that Greece is still a seasonality touristic country. On the contrary the RBB has exploded in Greece, having people come living for long extended periods of time in Greece. Do these people register under tourist? Even in my sleepy island in the dead of winter there are many northern Europeans vacationing. Many Germans have and still are purchasing holiday homes. Even from now (February) tourism is starting to register the normal increased numbers.

    The supply of rooms and the focus on tourism, as i see it will only allow this number to grow.

    As i stated about a few months ago. Should Greece continue this trend with large works, infrastructure, railways and hopefully one day energy, we will be he following:

    1. A hub of ports (commercial and Leisure)
    with a structure...
    2. To Store temporary goods or to be manipulated.
    3. As to be transferred to the eu.
    4. All while have a wonderful place where all can vacation.
    5. All the above (1 - 4) for energy as well.

    I have seen at ground zero, economical moves and acquisitions which show the smart ones following this vision. It will happen, it will come. You couple all the above with a friendly to business government, i also foresee all those medium small businesses and factories returning from turkey, Bulgaria and Fyrom.


    1. V:

      When you see a figure of 7.1% of all Greek imports pertaining to "Machinery, Nuclear Reactors and Boilers" (which is the 2nd largest import category after Fuels) my mind goes to projects like the TAP pipeline or the Ptolemaida V Power station, the construction and operation of which requires a great deal of specialized construction equipment and boilers/machinery which have to be imported because they are so specialized in nature. The real question about such figures is whether they are replicable or not. Would they re-appear during 2018 and 2019 and beyond?

      The 3rd largest import category is pharmaceuticals(6.4% of total imports) which as you know is a total mess for Greece. So if you can fix the energy(22% of all imports) and pharmaceutical sectors(6.1% of total imports) for Greece (via diminshed importation) then I think we could make a giant step towards recovery.


    2. Dean:

      I am in the light manufacturing sector, so what i see all around me are middle to large and even small companies heavily investing in machinery and equipment. This a trend up till 2015, where we almost left the eu, then after continued after the "Tsipra Kolotoumba."

      Of course the comparison of manufacturing equipment is dwarfed by larger equipment for specialized projects. Most certainly, the higher value, is on the specialized sectors. However there is movement on all levels. And when a trend starts something bad must happen to stop it. If you couple what i see with the extensive buy outs (or investments) from larger foreign companies of greek companies and in specific sectors why is this so? Because those entrepreneurs see something. And it is not by chance.
      Finally, do you not see that large equipment of those specialized sectors will cease? Greece's potential in vast majority of sectors will require this number to grow. And it will for many 10's of years to come.

      One sector that has remained strong within the crisis is the pharmaceutical sectors. Where investment has also taken place. But you also need to break down those numbers of imports and exports. (where such analysis is unavailable on that site.) Also view the period in which those numbers represent.

      What i am getting to on this sector is we are mainly a country making generics and some originals. As you may know generics is the future until some huge breakthrough come with pharmaceuticals in genetics or a huge cancer breakthrough. Those charts represent value. Generics are cheaper. The originals imported have higher value. As time goes on those higher values will drop and be replaced by generics. There are very few new drugs which will last for the next 20 which they have patents.

      Finally the period we see is a time where the whole greek health services was readjusted in pricing. As such it is only logical that local manufactures seek to export their goods even with lesser profit (lower value) than to sell locally.

      In my point of view, everything in Greece is on the rise. And when specific large projects start to be implemented, Greece's growth will be long and consistent. I wont detail because i have posted those projects on many articles here so many times.


    3. V:

      I am not sure if you know this already but the largest part of German exports to Greece are pharmaceuticals. Not cars or machinery as one would expect but pharmaceuticals.

      The irony is that Greece also exports pharmaceuticals, so one would expect that Greece has enough capacity and know how to produce its own drugs. There is nothing wrong with generics; it's the same drug as the non-generic for the same purpose and quite frankly new drugs which hit the market(which by definition are protected from generic competition for a period) promising miracles only are of marginal value. The Greek state has no business buying non-generic drugs. If a patient wants to use a new drug then they ought to pay out of pocket. This business of foreign pharmaceutical firms either paying off officials or using incentives for private doctors to prescribe expensive drugs payable mostly by the state has to stop here and now.

      This is what the Novartis case is all about. The corrupt influence of foreign pharmaceutical firms which as a giant squid are sucking the life out of a bankrupt state using politicians and suppliers to achieve this truly awful objective.

      Let's agree this stops now. We have plenty of drug manufacturing capacity in Greece and we can augment it if we have to but we do not need to import foreign drugs.

      It's that simple. Those who want to chase after exotic drugs then they can do it by spending their own money. It is clear that the Greek state needs to get out of the foreign drug buying business yesterday.


  4. We all wait for the Greek plan in April, we have been waiting for 8 years. Personally I expect it to be historical, unprecedented, fair, honorable, just, social, comprehensive, all encompassing and in the best interest of all parties. Most of all I expect it to be what the world and Europe should do for Greece, in short, a list of what Greece would like for Christmas.
    Greek parties and governments have never presented viable plans, well knowing they would not be able to fulfill the promises they give to voters. Blood, toil,tears and sweat, is a hard sell in Greece.
    We shall see if/when the plan materializes.

    1. Lennard:

      I can personally guarantee you that the sole purpose of the April 2018 Greek economic plan is to piss you off and throw you off balance.

      The more the plan makes you squeal, then the better the plan.


  5. If you want to know about the oily things in Greece, read up on Dimitri Melissanidis, there is plenty on the internet. He is in the process of disengaging from Greece.

    1. I did read up and, yes, it was oily!

    2. Yes but he is building us a new shiny stadium.

      Forza AEK!!!! :-)


    3. More like modern gladiator Coloseums :-)

  6. @ Dean Plassaras.
    The plan (if it comes) will certainly not annoy me.
    If it is viable, I will be pleased, and hope for Greece she can execute it.
    If it is a I predict, I shall shrug my shoulder and say, tu, was du nicht lassen kannst.
    After all, I am observing, and sometimes predicting, Greece.

    1. O.k. Lennard. I engage black humor sometimes as means of warming up the conversation.

      But, as an example, instead of talking about the miraculous Greek fleet we ought to be talking instead about the miraculous Port of Piraeus:

      There is a connecting thread in the Greek economy because it will never be about manufacturing in Greece. Greek economy is now tourism,energy, logistics and real estate (at some future point about the dormant real estate market).

      So if one wants to observe Greece then he/she ought to observe these sectors as a hawk because 90% of the action is within these 4 sectors.

      That's my HPOV.


    2. Lennard:

      As you know Greece lost its Economy Minister due to a recent scandal involving rent subsidies received by his wife, also a resigned minister.

      So, I am not sure if this will affect the April 2018 Economic plan timely publication/introduction.

      However, here is the energy plan presented by minister Stathakis (sorry for the Google translation) - to me not a very clear plan but better than nothing, I guess:

      "The Minister of Environment and Energy, Mr. George Stathakis, presented the main axes of the country's energy strategy and the agreement framework for the dismantling of 40% of the PPC's lignite units, speaking at the 10th Regional Development Conference of the Peloponnese held in Tripoli.

      Tackling climate change and the environmental objectives set by the Paris Agreement and the European Commission lead to courageous decisions to change the energy mix on three main pillars, the Minister noted: the gradual disintegration of lignite, the rapid increase in exploitation of Renewable Energy Sources (RES), the safeguarding of energy efficiency in the transition phase, using natural gas.

      Under the agreement on the dismantling of PPC's lignite plants, which, as noted by the Minister, was a one-way street following the European Court of Justice's conviction that the company has a dominant position in access to lignite mines, three are the conditions set and achieved by the government: (a) safeguard jobs and industrial relations; (b) divide and sell process transparent; (c) disinvestment is beneficial to PPC and further development of the company.

      The agreement allows PPC to maintain all its gas plants and all its hydroelectric plants, as opposed to the "Small PPC" plan, which was horizontal and the government canceled. Also, with the proposal submitted to a market test and progressing, PPC today maintains 90.9% of its total production capacity and 78.6% of its lignite potential.

      The Minister announced that he will come to parliament in the coming weeks, following a broad dialogue with the local community and institutions, the relevant bill detailing the disinvestment process, the way the units will be separated from PPC, labor rights and the government's commitments made in the agreement with the EU.

      A key role in the energy transition is played by the development of RES, said Mr. Stathakis. The target is by the end of the next decade about half of the energy consumed for electricity to come from RES, compared to 29% today. He also referred to the new Energy Communities Act that enables citizens, local authorities, small and medium-sized local businesses to engage in energy planning through their dynamic engagement in energy projects.

      For the transitional period, natural gas is used as a fuel-bridge, either by expanding the relevant network or by developing infrastructure. The DESFA pipeline reaches Megalopolis. The Public Gas Distribution Company of other Greece has already included in the development program the development of a network from 2019 in Corinth, Argos, Nafplio, Tripoli, Sparta and Kalamata.

      The Minister also dealt with the question of the electrical interconnection of Crete with the Peloponnese until 2020, as well as the saturation of the High Voltage Network of the Peloponnese, which has the effect of not being able to absorb additional power from RES. In this direction, the UMWE implements the extension of the 400 kV grid, having provided for two connections of the Megalopolis KET.
      In closing, the Minister pointed out that the debate on the post-war period is open, a wider debate is developing in the European Union and we are called for this transition to be done in the best possible way."


  7. @ Dean Plassaras.
    Even allowing for Google translation this is blah blah and privatization, not an energy plan. If I had to recommend an energy plan for Greece in broad strokes it would be.
    -Tell EU they can go fly a kite regarding Greece's CO2 emissions for the next 3 decades, they will understand you have other worries. For EU there would not be "out of pocket money".
    -Change to renewable energy (RES) to the extent it is competitive.
    -Do not farm out electricity production to other countries (import).
    -Let PPC build the 2 new coal plants (domestic) they have projected, make sure they comply with state of the art particle emission. Make sure they can be converted to HFO and LNG if/when it becomes domestic, it is not expensive as they are steam turbine plants.
    -Upgrade the plants that need it with filter systems for particle removal.
    -If LNG becomes domestically available, give priority to non-mainland connected islands.
    As for the islands:
    -Take the offer from EIB to finance the cable from mainland to Crete 50%, it will change it to domestic coal fuel.
    -Leave the other islands on HFO (imported) diesel engines or modify the engines to LNG (imported), the tested technology is available.
    -If the islands are close to each other connect them electrically in clusters, that will maximize reliability and minimize the need for installed overcapacity (redundancy).

    The above is the minimum I would expect from an energy minister with hundreds of civil servants with energy experience. To explain the background for the plan I would expect him to make press releases about the import/export and the emissions as the above.

    Keep it simple and solve the problems where they are, not in Israel or elsewhere.

    1. -Tell EU they can go fly a kite regarding Greece's CO2 emissions for the next 3 decades, they will understand you have other worries. For EU there would not be "out of pocket money". - o.k.
      -Change to renewable energy (RES) to the extent it is competitive. Rebuttal: I am for RES too but have heavy subsidies attached which Greece does not have the money to pay and/or passing on to the consumer is now a big stretch. If another subsidy formula is found then let's go.
      -Do not farm out electricity production to other countries (import). o.k. but at the peak of summer with tourists which quadruple the Greek population (30 Mil. tourists vs. 10 Mil. Greeks) it's hard to produce electricity on demand at competitive prices. On principle, I am with you on not importing.
      -Let PPC build the 2 new coal plants (domestic) they have projected, make sure they comply with state of the art particle emission. Make sure they can be converted to HFO and LNG if/when it becomes domestic, it is not expensive as they are steam turbine plants. - o.k.
      -Upgrade the plants that need it with filter systems for particle removal. o.k.
      -If LNG becomes domestically available, give priority to non-mainland connected islands. o.k.
      As for the islands:
      -Take the offer from EIB to finance the cable from the mainland to Crete 50%, it will change it to domestic coal fuel. Rebuttal: o.k. But the Crete-mainland connection, as well as the Attica Syros connection to Mykonos and peripheral islands, is already underway.
      -Leave the other islands on HFO (imported) diesel engines or modify the engines to LNG (imported), the tested technology is available. o.k. but some undersea cable is already scheduled to be laid.
      -If the islands are close to each other connect them electrically in clusters, that will maximize reliability and minimize the need for installed overcapacity (redundancy). - o.k.


    2. Lennard:

      What do you think of this solar converter idea?


  8. @ Dean Plassaras.
    Thanks for your comments, a ping back.
    -RES should not be subsidized unless they will invest the same in redundancy capacity for a rainy day when the wind is not blowing. My key word was COMPETITIVE.
    -You are falling into bad habits again with your peak capacity arguments. The cost of peak capacity for the tourists goes with the territory, if you want them, pay. You give the impression the peak load will quadruple, not so, at the annual seasonal peak load (Aug. 22, 1542 hours?) there may be 6 million tourists here? I'm not so hot on tourist statistics, but you also have to deduct cruise tourists. Low contributors, but they don't put strain on infrastructure, electrical, water, sewage etc.
    -The cable to Crete is not in the bag. The latest was a, mid 2017, published prospect from Terna. Scope, the cable and a 950 MW wind farm. Budget, BEUR 2,4. Starting date April 2019, curiously they don't mention date of completion. The prospect paper is weak, there may be a better one available on request for potential investors.

    More general observations.
    Cables to the islands are good, but if you want full redundancy you either double the cable and the 2 converter stations or keep local plants stand by with sufficient fuel. I would not trust any Greek authority to keep local plants stand by.
    Stand by's are a lot of different things, in generation the most important are:
    -Spinning reserve, is any capacity, switched on to the grid, that is not utilized.
    -One hour reserve can deliver to the grid within an hour, typically gas turbines and diesel/gas engines.
    -24 hour reserve as above, typically steam turbines.
    -RES cannot be categorized, because "you never know".
    Not only is it a bad idea to install 23000 SUNPOWER Stirling generators at Cyprus, it is a mad idea.

    1. If can kindly use your translator this article describes which islands will be connected as well as answers your Crete connection: