Sunday, 28 July 2013


Health Warning: See Manolis’ comment below and my response regarding the figures. By the looks of it, Eurostat didn't mess any figures up.
One of the core narratives employed in an attempt to explain the Eurozone crisis has always been a variant of the 'global imbalances' theme - the Euro peg puts member states on a treadmill, on which the weighted-average speed of the group sets the pace. If you can't keep up, you rack up current account deficits until you are unable to finance these and fall off. If you can keep up easily, you rack up current account surpluses at the expense of everyone else.

Since most of the trade carried out by Eurozone members is intra-Eurozone trade, the argument goes, it is impossible for everyone to achieve surpluses. The Eurozone treadmill is a zero-sum game, and unless you can lead the race, your best option is to exit.

Well the latest data can be found here, and they show that, at a price, current account deficits can come down within the Euro straitjacket. 

The detailed sources of Greece's adjustment can be seen here. It's mostly down to an improved goods balance, while a reduced net income balance is a distant second. 

'That's a recession for you' I hear some readers snort. Since Greece is in a deep downturn, imports must be falling and therefore the goods balance is improving. Except that's not the case. Looking at the goods balance in detail (data here), reveals the following:

And since better economists than me occasionally read this blog, a puzzle for you. Can you explain what happened to Greece's income debits in 2012 (data here)?

To my regret I was originally unable to, but my reader Manolis spotted the difference - Greek government interest payments. These fell by 2.2 percentage points as a share of GDP between 2011 and 2012 (see p 51 here), so they can probably account for most of the 2.7 percentage points loss of income debits during this period (data here).

My original guess, which I will keep up for historical reasons, was that the change had something to do with tax reform, since income debits spiked in mid 2002, following what was then called the 'mother of all tax reforms'. I theorised that the 2002-3 reforms had forced companies to change the way they used offshore companies to avoid tax, sending an increasing amount of money 'abroad.' I also thought that regulatory uncertainty around the tax reforms of 2012 might have momentarily stopped this flow of income. In fact, following Manolis' contribution, I would still offer my conspiracy theory to anyone trying to understand the remaining 0.5% drop.

For details of the 2002 reforms, and the pre-reform environment, see p. 26 onwards here and the image below:


  1. According to data from the European Commission (AMECO) total exports fell slightly between 2007 and 2012 (exports of goods increased somewhat and of services fell a bit more). The current account improvement was primarily due to the fall in imports:


    The data from Eurostat seems to show a larger increase in goods exports and I am not sure where the discrepancy lies. Detailed data here:


    I thought that the drop in income outflows was due to reduced interest payments on the public debt after the haircut but I might be wrong.

    1. I agree Manoli. I am not sure what the problem is. As you say, Eurostat has its story and everyone else has another. I've probably got the wrong figures somehow, so I'll put a health warning on the post until we figure it out.

    2. Actually Manoli, the AMECO and Eurostat data are quite compatible, they show the same trends. Note that the Eurostat data are % of GDP, not EURbn.

      See also p. 35 here, http://www.imf.org/external/pubs/ft/scr/2013/cr13241.pdf

      which shows that, in absolute amounts, real exports are flat. This would explain why nominal exports are up - it's down to inflation. And when you account for falling GDP, exports to GDP go up faster.


Please remember that I am not notified of any comments and will not respond via comments.

Try to keep your criticism constructive and if you don't like something, do tell me how to fix it. If I use any of your suggestions, you will be duly credited.

Although I'm happy to entertain criticism of myself in the comments section, I will not tolerate hate speech. You will be given a written warning and after that I will delete further offending comments.

I will also delete any comments that are clearly randomly generated by third parties for their own promotion.

Occasionally, your comments may land in the spam box, which may cause them to appear with a slight delay as I have to approve them myself.

Thanks in advance for your kind words... and your trolling, if you are so inclined.