Revised data on the Greek trade balance – still a large improvement but not spectacular anymore (graph)

About a year and a half ago I pointed out a spectacular improvement of the Greek trade balance (part of the current account), to a large extent caused by a swift increase in exports. I was however told that there were some problems with these data, especially regarding oil. Also, J.W. Mason pointed out, on the slack wire blog, that Greece had a deficit on the trade balance long before the Euro, which was first financed by EU transfers of money (i.e. gifts) which were gradually replaced by capital flows (i.e. private loans) from the North (which increased the deficit, by the way) and nowadays to an extent by Target2 imbalances (i.e. loans by the European System of Central Banks).

Today, Elstat has published revised data on Greek imports and exports, backdated to 2004, to tackle the oil problem. These, too, show that the decline of the deficit on the trade balance is not just caused by a decline of imports but also by a sizeable, double-digit increase of exports (graph), though this increase is not the 37% increase mentioned in the first blogpost anymore, but +20% in 2010, +16% in 2011 and +13% in 2012 (nominal values). The total improvement of 22 billions of the trade balance is caused by a decrease of imports of 16 billion and an increase of exports of 6 billion. The very latest data indicate, by the way, that the double-digit increase of exports has stalled. There is still a long way to go – and lowering wages won’t help.

Sources: Elstat, Eurostat

To quote Mason:

The fundamental question remains how important are relative costs. The way I see it, look at what Greece imports, most of it Greece doesn’t produce at all. The textbook expenditure-switching vision implicitly endorsed by Krugman ignores that there are different kinds of goods, or accepts what Paul Davidson calls the axiom of gross substitution, that every good is basically (convexly) interchangeable with every other. Hey Greeks will have fewer computers and no oil, but they’ll spend more time at the beach, and in terms of utility it’s all the same. Except, you know, it’s not.

From where I’m sitting, the only way for Greece to achieve current account balance with income growth comparable to Germany is for Greece to develop new industries. This, not low wages, is the structural problem. This is the same problem faced by any developing country. And it raises the same problem that Krugman, I’m afraid, has never dealt with: how to you convince or compel the stratum that controls the social surplus to commit to the development of new industries? In the textbook world — which Krugman I’m afraid still occupies — a generic financial system channels savings to the highest-return available investment projects. In the real world, not so much. Figuring out how to get savings to investment is, on the contrary, an immensely challenging institutional problem.