The 10% of GDP Greek *surplus* on its services trade balance
Yesterday, as part of an attempt to raise the level of discussion about the Eurozone problems, I spent the better part of ten minutes to download a 98 page Excel-file from Eurostat containing data about the last sixteen years of European Union macro economic history. It turns out that Greece has a surplus of almost 10% of GDP on its ‘international trade in services’ account (among other things: shipping, tourism). That’s a lot by whatever standard and surely when compared with 2% of GDP German deficit. In the EU it is only topped by tiny Malta, Cyprus and Luxembourg. It is caused by the fact that Greece is not only home to one world-class economic sector (tourism) but even to two (the other being shipping), which is a lot for a country the size of Greece.
Does this mean that Greek services are hyper competitive, as opposed to a supposedly petrified German service sector? When it comes to tourism and shipping: of course. Greek beaches are more fun and have better weather than German beaches which, in combination with the British propensity to binge (and loads of vibrant companies as well as government transport and medical services) makes for a highly competitive sector! And 15% of the global fleet of merchant vessels is owned by Greek companies – at least to an extent because of a tax exemption enshrined in the Greek constitution as far back as 1967. Beat that, Ireland! Aside – when I found out about this I was surprised that this clause in the constitution did not prevent Greek membership of the European Union… Never mind, at the moment it brings home 15 billion a year.
But the point: There is a discussion going on about the ‘competitivety’ of countries. Often, current account data are used to prove that countries are ‘competitive’ or ‘uncompetitive’. Which is a bogus discussion. Large current account deficits (or surpluses) are not a sign of ‘competitivety’ of a country but a sign of unbalanced macro-economic spending in the country itself as well as in its trade partners. Capital flows can affect such imbalances: after the last quarter of 2004, many countries in and around the European Union saw their current account deficit increase with 5 to even 20% of GDP within two years. These are a sign of rogue capital flows which enable countries to live beyond their means (see the last link), drove up asset prices and (especially in Spain) attracted millions of immigrants. I’m not talking about benign 3 or 4% of GDP deficits of the current account here, I’m talking about deficits of 10, 15, 20 and even 25% of GDP. But countries with large current account deficits can, like Greece, still have highly competitive economic sectors. Stating that there is some kind of macro-economic kind of competitivety misses the point. Macro economics is about total flows of money and the money value of stocks: income, lending, debt, consumption, expenditure, lending and the like. Not about competitivety.
Next time: in a country like Greece, with a very high share of self-employed, deflation is not just about low wages but also and especially about decreasing profits and ‘mixed-income’ of the self-employed. And look here for the way economists do use disaggregated current account data to estimate competitivety, using a global value/production chain approach.