18/5/18: Euro area current accounts 1980-2017

What happened to the Euro area current accounts since the introduction of the Euro?

Periodically, I update my charts on the Euro effects on the external balances of the EA-12, the original economies of the Euro area. Here are the updates:

Considering first cumulated current account balances over 1980-2017 period, the chart below aggregates the EA12 into two sub-groups:

• The 'periphery' defined as a group composed of Italy, Greece, Spain and Portugal
• The 'core' group composed of the remaining EA12 countries

The chart shows several interesting facts

1. Current account deficits in the 'peripheral' states predate the introduction of the Euro
2. Since the introduction of the Euro through 2013 there was a consistent increase in the current account deficits amongst the 'periphery' states, with acceleration in deficits staring exactly at the point of the introduction of the Euro
3. Current account deficits in the Euro area 'peripheral' states were rapidly accelerating into 2009
4. Since 2014, current account deficits in the 'peripheral' states have been drawn down, at a moderate rate, as consistent with the internal deleveraging of these economies
5. Meanwhile, the introduction of the Euro accelerated accumulation of current account surpluses within the 'core' group of EA12
6. The rate of current account surpluses acceleration increased dramatically around 2004 and then again starting with 2009

In terms of external balances, the creation of the Euro area clearly resulted in compounding pre-Euro era existent structural imbalances in the EA12 economies.

Meanwhile, there is no discernible impact of the Euro on supporting growth in trade within the Euro area (here, we use changing countries composition of the Eurozone):

  As per above chart:

• From 2000 and prior to 2014, Eurozone performance in terms of growth rates in exports of goods and services largely underperformed other advanced economies (ex-G7) and was in line with G7 performance
• Before 2000, Eurozone was broadly in line with both the G7 and other advanced economies in terms of growth rates in exports of goods and services
• Lastly, starting with 2014, the Euro area has been outperforming both the G7 and other advanced economies in terms of growth in exports of goods and services - a development that is more consistent with the fallout from the twin Global Financial Crisis (2007-2009) and the Euro Area Sovereign Debt Crisis (2011-2013), as the process of internal devaluation forced a number of Eurozone countries into more aggressive exporting

On the net, there remains no current account-linked evidence to support an argument that the creation of the Euro has been a net positive for the Eurozone member states in terms of improving their external balances and exports flows. On the other hand, there is little evidence that the Euro has hindered trade flows growth rates, whilst there is strong evidence to claim that the Euro has exacerbated current account imbalances between the 'core' and the 'periphery' states.

13/1/2012: EU27 External Trade - Greece falling out of trade picture

As German lawmakers are putting pressure on the parties in the PSI negotiations in Greece with calls for Greece to exit the Euro to devalue and regain competitiveness have some serious basis in real economic performance of the country.

Today's data on trade balance across EU27 clearly shows that Greece is unable to sustain serious debt repayments under the current arrangements. Here are the details:

The first estimate for November 2011 euro area (EA17) trade surplus came in at €6.9 bn surplus, against the deficit of -€2.3 bn in November 2010. October 2011 trade balance was +€1.0 bn, against a surplus of +€3.1 bn in October 2010.

In November 2011 compared with October 2011, seasonally adjusted exports rose by 3.9%, while imports remained unchanged.

The first estimate for the November 2011 extra-EU27 posted trade deficit of -€7.2 bn, compared with a deficit of -€16.8 bn in November 2010. In October 2011 the trade balance extra-EU27 was -€11.2 bn, compared with -€9.5 bn in October 2010.

In November 2011 compared with October 2011, extra-EU27 seasonally adjusted exports rose by 2.8%, while imports fell by 0.6%.

EU27 detailed results for January to October 2011:

• The EU27 deficit for energy increased significantly (-€317.5 bn in January-October 2011 compared with -€246.4 bn in January-October 2010)
• Trade surplus for manufactured goods rose to +€198.9 bn compared with +€136.4 bn in the same period of 2010. 
• The highest increases were recorded for EU27 exports to Russia (+28%), Turkey (+23%), China (+21%) and India (+20%), and for imports from Russia (+26%), Norway (+21%), Brazil and India (both +20%). 
• The EU27 trade surplus increased slightly with the USA (+€60.8 bn in January-October 2011 compared with +€60.1 bn in January-October 2010) and more significantly with Switzerland (+€24.1 bn compared with +€16.6 bn) and Turkey (+€21.3 bn compared with +€14.7 bn). 
• The EU27 trade deficit fell with China (-€132.2 bn compared with -€139.8 bn), Japan (-€16.1 bn compared with -€18.3 bn) and South Korea (-€3.9 bn compared with -€9.6 bn), but increased with Russia (-€76.0 bn compared with -€61.1 bn) and Norway (-€38.7 bn compared with -€29.8 bn). 
• Concerning the total trade of Member States, the largest surplus was observed in Germany (+€129.2 bn in January-October 2011), followed by Ireland and the Netherlands (both +€35.9 bn) and Belgium (+€10.1 bn). The United Kingdom (-€98.2 bn) registered the largest deficit, followed by France (-€72.5 bn), Spain (-€40.1 bn), Italy (-€24.2 bn), Greece (-€16.9 bn), Portugal (-€13.3 bn) and Poland (-€12.0 bn).

Some charts:

The charts above clearly show that:

• Of all PIIGS, Ireland is the only country showing capacity to generate significant trade surpluses, with Irish merchandise trade surplus of €2.5bn in November being the second highest in EU 27 in absolute terms and the highest in terms relative to GDP. Exactly the same is true for Irish trade surplus recorded in October. Irish trade surplus in November was almost as large as the combined surpluses of all other countries with positive trade balance, ex-Germany (€2.9bn).
• In November 2011 Ireland posted the third fastest rate of mom growth in exports in EU27 (+8.3%), the effect compounded by the 9.4% drop (4th deepest in EU27) in imports.
• In contrast, Greece posted a 14.4% contraction in its exports in November 2011 compared to October 2011 - the largest drop of all countries in EU27. Greek trade balance in October stood at a deficit €0.1 billion and in November 2011 this widened to €0.2 billion.

So in terms of trade, Ireland is not Greece, and Greece is not showing any signs of ability to sustain internal debt adjustment within the euro structure.