Germany’s continued dependence on the Eurozone’s stragglers

There is a growing consensus among commentators that Germany is de-coupling from France and from the rest of the Eurozone’s deficit regions. That German industry is turning instead to Asia and the rest of the world (even to Britain) for sources of demand for its net exports. However, the data suggests otherwise. Germany remains perfectly dependent on the Eurozone’s deficit member-states for the purposes of financing its net trade deficit with key non-Eurozone countries.

In 2012, mostly on account of energy imports, Germany had a net trade deficit of €27 billion with Russia, Libya, and Norway. In addition, it sported a €4.7 billion trade deficit vis-à-vis Japan and a sizeable €11.7 billion trade deficit with China. In total, Germany’s trade deficit with these net exporters summed to €43.4 billion. Meanwhile, Germany’s trade surplus with the Eurozone’s deficit nations (France, Italy, Spain, Greece, Portugal, Cyprus and Ireland) came to a still staggering €54.6 billion – despite the sharp diminution of this number following the sharp decline in imports in these crisis-hit nations.

Put differently, Germany’s net exports to the countries that the German press likes to lambast as ‘laggards’ that constitute a drain on German ‘progress’, sufficed to pay for Germany’s net trade deficit vis-à-vis China, Japan, Norway, Russia and Libya, with €11.2 billion to spare: enough to cover for the €3.4 billion transferred to German factories in the Czech Republic and in Slovakia and a large chunk of German companies’ transfer payments to their Dutch partners or subsidiaries (which are in a surplus of more than €15 billion with their German partners).

In short, despite all rumours to the contrary, German global trade surpluses are still being financed by the deficits of the imploding Eurozone ‘stragglers’. It is in this sense that Germany’s denial of the systemic nature of the Eurozone crisis, and its leaders’ commitment to the principle of ‘the greatest austerity for the weakest Eurozone member-states’, is perhaps our epoch’s most spectacular own-goal.

190 thoughts on “Germany’s continued dependence on the Eurozone’s stragglers

  1. Take it from the pros:

    http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024122/debunking-austerity-claims-makes-no-difference-to-europes-monks-and-zealots/

    Germany has a colossal current account surplus of 7pc of GDP. It is getting bigger, not smaller. The country is sucking demand out of the European economy, and the globe.

    It has become the world’s biggest currency violator in absolute terms. Germany is lucky not to be treated as a pariah state, though that may come.

    • @Dean: if you really think that journalists have superior analytical ability and knowledge to those who research and publish, then you are off your head. Kindly stop it with the ad hominem comments, lest others return them to you. Thus far, I have been polite.

      This is not a pro-Greece blog, and I would not participate if it were. Perhaps you should reconsider what is the primary purpose of Yanis’ blog and do him and us) the courtesy of at least partially respecting it.

    • Sorry Dean, you just don’t have the qualifications or background to make that judgement. My reading is that you simply laud people who agree with your opinions. This is not rational informed argument, it is political activism.

    • Dear Dean
      Cc you post from today at 7.07:
      The article is almost three years old.
      I’d like to add:
      Even before the introduction of the Euro, German exports to Greece were often roughly twice as big as Greek exports to Germany.

      Then, the Greek trade balance got completely out of control from around 2004 – only Germany to blame for that?
      What about this: Greece as a country bought way more goods and services from Germany than they could afford. It’s a bit like going on a shopping spree and then complaining that Harrod’s should have thrown you out to protect you.
      Something obviously went wrong. Probably on both sides.
      Blaming exclusively Germany for the Greek largely self-inflicted disaster seems unfair to me.

      It would be interesting to see how the graph in the article would look today (it ends 2009, before the crisis-related adjustment kicked in). Probably exports are now more in line with imports.

    • Dear Martin:

      This is an excerpt from a Der Spiegel article in 2010 titled “How German Companies Bribed their way to Greek deals”. Does it ring a bell?

      “Highly Lucrative Deals

      Germany is one of Greece’s leading trading partners. Last year, Germany exported goods worth €6.7 billion ($8.5 billion) to Greece — compared to a volume of imports of only €1.9 billion. But what methods are used to achieve this enormous surplus?

      According to the US Securities and Exchange Commission, for example, German carmaker Daimler has paid miza in past years to pave the way for vehicle deliveries to Greece. And even Germany’s national railway operator Deutsche Bahn apparently resorted to bribes to win an underground railway contract in the run-up to the 2004 Olympic Games in Athens. To clinch the deal, a six-digit sum was reportedly given to a Greek decision-maker via an adviser. Transparency International rates Greece as the one of the most corrupt countries in Europe.

      Such business deals are highly lucrative — even with miza. “Anyone who pays bribes to get a government contract can pad his margin with a few extra million,” says one investigator. “The excessive prices are of course shouldered by taxpayers.”

      This man must know what he is talking about — he’s been investigating for years the Siemens corruption scandal, in which a double-digit million euro amount was allegedly siphoned off for kickbacks in Greece. The Siemens branch in Athens reportedly relied on such sums to fuel the company’s business deals in Greece until the year 2006. This included contracts with the former state-owned telecommunications company OTE, surveillance and security technology in connection with the 2004 Olympic Games, and underground railways.

      Massive Slush Fund

      Investigators into the Siemens scandal have found that the company’s Greek branch needed an annual slush fund of some €15 million. To secure the €500 million OTE contract alone, the firm allegedly paid €35 million in miza in the late 1990s. At Siemens headquarters in Munich, they spoke with great admiration of their branch in Athens for years — hardly any other national subsidiary had delivered such impressive results.

      ……

      The German defense industry has also apparently been just as active as Siemens in Greece. Athens spends between €3 billion and €4 billion on arms imports each year, according to estimates — an absurd amount for such a small country. German arms manufacturers have reaped the greatest benefits from these sales. Between 2004 and 2008 alone, they delivered roughly a third of Greece’s defense imports.

      Munich’s state prosecutor is currently investigating whether everything was done by the book during the sale of four submarines. The order amounted to nearly €3 billion, and €2 billion had to be paid in advance — which is unusual for such deals.”

    • Dear Dean
      No doubt that arms are a particularly shady business – and I am easily convinced that also when dealing with Greece, arms suppliers try to “convince” the potential buyer by adding a nice “compensation for the inconvenience”. That is ugly – but I am pretty sure it is universal practice.
      In the end such practices may have an effect such as that a German submarine is bought (instead of e.g. a French or Italian one). However, I’d be surprised if those two mentioned countries were 100% bribe-free in this area.

      Regarding non-government related business, I’d say the “bribe argument” becomes a lot less plausible. Do you really think that a major problem in the context of the Greek trade balance lies in the fact that in some cases, Mercedes “convinced” individual dealers to sell their cars (instead of, say, BMW, Jaguar, Range Rover, Lexus, Volvo or Audi)? What’s the difference from a trade balance perspective what brand it is? In any case it’s non-Greek – and quite possibly a German one because Germany has a big market share in this area.

      In the end it’s the consumers who decide and you cannot “explain away” the fact that Greece imports so much more than it exports by claiming that e.g. Mercedes bribed its way into the Greek market.

      There are sure cases of unfair practice but the core is that Greece buys stuff it can’t afford and doesn’t need. That has to stop.
      …but it’s naive to expect submarine producers or Mercedes to fix that for you.
      You just need to stop buying the stuff?!

    • Dean, congrats for finally zeroing in on the issue which really matters for the real economy of Greece, namely the level of domestic value generation relative to the needs for products and services of domestic consumers. It is domestic value generation which creates jobs. If Greece uses too much the value generation of other countries, the jobs are in other countries.

      To be sure, under no circumstances should I be interpreted as arguing against free trade. Free trade increases the wealth of ALL nations (division of labor, economies of scale, etc.). Under one condition, though: provided that it is somewhat balanced over the long term. If the balance gets out of whack, then free trade can become destructive for some economies. Then the no-fear-of-debt-having American consumers buy Chinese products and the Chinese import German machinery to make them. Thus, the one-sided consuming economy of the US became the engine of world-wide growth for decades (and became the source of capital inflows into the US, which I believe is one of Yanis’ arguments in The Global Minotaur). No big sweat for the US because their economy is large and flexible enough to reverse such trends over the long term (see the turn-around in the energy balance) but big sweat for countries like Greece.

      Normally, the reaction should be that Greece should simply achieve balance by exporting more products and services but that presupposes that the Greek economy has the capacity to do that. If not, some level of import substitution cannot be avoided if one aims at better employment.

      Greece should not only reduce its imports from Germany; it should reduce its imports from the entire rest of the world and substitute them with domestic value generation. To give some extreme excamples: Greece spends enormous sums importing oranges, lemons, apples, potatoes, meat, fish and even olive oil. If Greeks purchased these products from Greek sources, Greek farmers and fishermen would have the jobs which presently the farmers and fishermen of other countries have.

      If you just cut imports and do nothing else, you reduce the standard of living. If you replace them with domestic value generation, you maintain the standard of living and increase employment. My favorite example is my toothpaste which is produced in Brazil and comes to Greece via an importer in Hamburg. The production jobs for that toothpaste are in Brazil and most of the distribution jobs are in Hamburg. Any reason why Greece couldn’t produce that toothpaste?

      One way for Greece to do that would be to tell the Brazilian toothpaste manufacturer: ‘Look, we are happy for you to sell your toothpaste in Greece but you will have to produce at least some of it in Greece’ (foreign investment).

      Personally, I doubt that the free market forces of the EU and the Euro will accomplish that. I think there have to be additional incentives for that to happen. Such incentives might be foreign investment incentives and some temporary special taxes on ‘unnecessary’ imports, particularly luxury imports.

      Import substitution can be implemented very quickly. Export expansion takes time. However, if Greece increases its domestic value generation first through some import substitution, it may develop the capacity for products and services which could also be exported.

    • Klaus & Martin:

      I like the idea of import substitution with domestic products. No argument there.

      But when Martin says “well, stop importing from Germany”, I think he misses a certain reality on the ground. Which is that a great deal of local Greek dealers of German products have a vested interest in aggressively promoting German product use from within Greece.

      Whether these people have been given “incentives” by Germany to expand their commercial sphere of influence in Greece and thus effectively block competition while firming up their territorial influence is a topic worthy of its own study.

      The fact remains that there many Greek merchants who derive a living by selling stuff to people. What sort of stuff and from what country it becomes a secondary issue to them.

      Therefore German companies ( which are very good at such game of gradual expansive influence) have created a symbiotic relationship with local representatives who in turn make sure of the sale dominance of German products.

      However, a big question remains. How is it possible for German exports to Greece to be stuck at roughly 5 Bil. euros per annum when all indicators show that the consumption capacity of the average Greek citizens has gone way down. And, using the same train of though, how is it possible for Greek exports to Germany to be stuck at about 1.7 Bil. euros per annum, at a time where competitiveness for Greece is increasing. Don’t you find it odd that Greek products are becoming much more competitive with many countries ( say Turkey as an example ) but not with Germany? It almost feels that there is an informal quota system in place and that indeed German efficiency has created the so called “elusive managed trade” with Greece and others. In business, we marvel at “just in time” inventory techniques practiced by large retail chains, however Germany seems to have elevated the game at a whole different level. This is like precision and carefully managed trade surplus techniques which Germany guards with her life, no?

    • Dear Dean
      You posted a link to a graph showing Greek / German trade over the last 10 years or so a couple of days ago.

      If I remember correctly, Greece has been importing about twice as much from Germany as it exported to Germany.

      This can be sustainable if you have other sources of income from Germany (e.g. Greeks living in Germany who send money back to Greece and, of course, German tourists visiting Greece and spending money there.

      However, from around 2004, the Greek / German trade balance got out of control, growing from roughly 1:2 to around 1:4.

      This probably reflected a loss of competitiveness of Greece versus Germany – but also a domestic boom in Greece, fuelled by taking loans.

      From that perspective, a ratio of 1.7 versus 5 billion has broken a disastrous trend (if the development of the trend 2004-2009 had continued, the ratio would be 1:6 or so – and not less than 1:3).

      Wrecking something is always easier than fixing it afterwards. I believe 1.7 vs 5 billion is quite ok considering where the ratio was a few years ago.

      To continue to fix things, you cannot wait for e.g. Mercedes, Siemens or submarine or toothbrush producers to decide they stop exporting to Greece out of their own initiative.

      That won’t happen.

      But within Greece a lot can be done: Some stuff (like luxury cars and submarines) are not available from Greek producers. In such cases, the question is whether Greece could do with less of such stuff. I’d say yes! Then the question is how to manage that?
      Submarines are easy: just make sure your government is so scared of the reaction of the public that they don’t dare to buy any more weapons in this kind of economic situation. Electing the right people to power and then covering their decisions by critical media should do the job. If they still want to do something stupid, the public outrage must be so massive that they just stop their idiot weapons shopping.

      With regards luxury cars, if their sale is still high, I’d say tax is the answer: a luxury tax would reduce such imports – as would futher taxes on the rich in general. Plus a degree of outrage by the population (a rich, potential luxury car buyer must be so scared of the reaction of his environment that he rather buys, say, a Renault).

      These are all things Greece can do on its own.

      Plus there are products Greece can actually produce itself. Loads, actually: Food, more simple products – and also probably some more sophisticated stuff.

      Greeks must become interested in the origin of the products that they buy and go for Greek stuff – even if its sometimes more expensive than Chinese stuff or a little less sophisticated than Northern European stuff.

      Greece can do a lot!
      …finger pointing against Germany won’t help – but other things would!

    • Martin:

      Unless Germany helps by cutting its exports to Greece on a temporary basis, there is no way for Greek exports to cover Greece’s severe trade deficit.

      If you click on the table at the bottom of this hyperlink, you will find out that all Greek export growth is based on petroleum products. Furthermore, petroleum exports represent 25% of the total Greek export trade. This is not sustainable in the long run. It’s an accounting gimmick by ELSTAT which is trying to prove(present propaganda evidence) that the Troika program is working:

      http://www.bankofgreece.gr/Pages/en/Bank/News/PressReleases/DispItem.aspx?Item_ID=4243&List_ID=1af869f3-57fb-4de6-b9ae-bdfd83c66c95&Filter_by=DT

    • Dear Dean
      Here’s an excerpt of the Bank of Greece document you posted the link for:
      “In the January-February 2013 period, the current account deficit narrowed by €1.5 billion or 59% year-on-year, to €1.1 billion.”

      I would not simply dismiss the achievements as “accounting tricks”. You should celebrate your success – a 59% decrease of the current account deficit is an excellent start!

      You cannot expect the current account deficit to magically disappear after it’s been growing for years like crazy. Breaking the trend and significantly bringing the deficit down is a very respectable achievement.

      I would also like to strongly suggest you focus on the current account balance and not only on the trade balance. Greece has a natural advantage due to it’s beauty, the great climate and cultural heritage. In this field it is potentialky extremely competitive – and income generated that way can easily offset a negative trade balance.

      You are asking for too much if you insist Greece absolutely has to have a balanced trade balance with Germany. It could be that it never achieves that – and it could even be to the benefit of both:
      If Greece imported e.g. German machinery necessary for investments in Greek manufacturing and foods processing, this could actually contribute to a much better trade balance mid- to long-term.
      Also trains and infrastructure investments etc can be examples of imports that could actually make Greece richer.

      What Greece needs to avoid is further nonsense such as a submarine fleet it cannot afford (and doesn’t need) or luxury cars for its incompetent elite.

      Those kinds of imports make Greece poorer.

      Some luxury imports could actually make Greece richer: if Greece imported e.g. German components to upgrade hotel bathrooms, this could actually turn out a good investment: imagine Greek hotels were regarded as generally superior to Turkish ones – then Greece could charge higher prices and generate more income from abroad.

      Also, even a Mercedes car import does not necessarily make Greece poorer: if it’s used to generate income (e.g. By offering luxury tours for paying foreign tourists with it), it can be a wise investment.

      So it is not so easy: just cutting imports like crazy without a concept would not be wise as it would also further hurt businesses that could have continued to operate or expand and generate income from abroad.

      It’s really dependent on the details: a Porsche car that’s imported by somebody in Greece who does not pay taxes and uses the car to demonstrate his superior wealth (or a submarine) is a stupid import.

      Imports (some of them German) that generate income from abroad such as upgrading hotels and manufacturing facilities can be very clever imports.

      Who could decide best what falls in which category?
      …Greece itself!

      You also don’t need to slave-like import German stuff: Spanish bathroom equipment for hotels seemed fine to me – maybe import that? And trains etc can also be imported from e.g. France.
      And just don’t buy anymore really silly stuff just submarines.

    • Martin
      Yes, Greece’s current account development is, from a numbers standpoint, phenomenal and deserves praise. Two years ago, I would have never thought that Greece’s current account would be in balance by early 2013, which it more or less is (after adjustments for interest). But…

      As far as I can tell, this improvement has come almost exclusively as a consequence of collapsing demand and not as a consequence of structural reforms. Put differently, if a miracle happened and demand would return overnight, the current account balance would immediately return to deficit for reasons about domestic value generation which I explained in an earlier comment.

      Right now, we have a situation which should make technocrates quite happy: Greece’s domestic accounts (primary budget) and external accounts (current account) are more or less in balance, if not in surplus. Wonderful! Operation successfully completed! And the patient?

      The patient has unemployment exceeding 25%. Put differently: with the current economic structure, Greece cannot employ its people if domestic and external accounts are in balance.

      The primary reason for structural reforms is not to make the Troika happy. The primary reason is (or should be) to implement structures which allow the Greek economy to employ its people without being dependent on foreign subsidies to accomplish that.

    • Or put more simply, a cluster of neuclear bombs dropped on Hellas would have worked equally well – pushing immediately into ‘balance’ Greece’s current account and primary budget deficits.

    • Dear Klaus

      I think you are absolutely right when you say: “with the current economic structure, Greece cannot employ its people if domestic and external accounts are in balance.

      The primary reason for structural reforms is not to make the Troika happy. The primary reason is (or should be) to implement structures which allow the Greek economy to employ its people without being dependent on foreign subsidies to accomplish that.”

      Yanis’ scenario with dropping nuclear bombs on Hellas strikes me as not very sensible.
      It just makes something necessary (and admittedly difficult and very unpleasant) such as bringing the current account balance into shape and restructuring the Greek economy seem like something completely foolish, destructive and evil.
      When really, it is inevitable (unless the north wants to shower Greece with giving away money, which it seems to be unwilling to do).

      I can agree with Dean when he says that Germany should not exactly push for more exports to Greece. I am sure that if Greece was interested in buying more submarines, the German government would probably not be too enthusiastic about it but ask the Greek if that was meant as a joke, given the current situation.

      I hope Greece can do its part to “steer” the imports away from senseless “luxury” imports to long-term very sensible investments into, say, manufacturing equipment, upgrading hotels and some infrastructure.
      …and sure not all from Germany – it would probably be very healthy for everybody if there was more import from e.g. France.

    • I have to agree with Klaus on this one. And Yani. So, I am posting this for Martin’s benefit to understand why I call the Greek trade deficit performance ” an accounting” trick. It would appear that all Greek export boom is based on one commodity, petroleum products, and this primarily because such products can not be sold domestically for various reasons(lack of demand, declining income etc).Thefore they are headed overseas and land primarily on Turkey and other close destinations.

      Therefore, at the risk of branded as persistent, I would like to request Germany’s help in this regard. Germany needs to implement a program of limited exports to Greece for awhile.

      http://www.greekdefaultwatch.com/2013/04/greeces-elusive-export-boom.html

    • Dear Dean
      I do agree with Klaus. Increasing domestic value creation in Greece would be great.
      Not so easy – but not impossible either.
      I also agree that some sort of protection from imports may help – though I still fail to see how Germany can fix the Greek trade balance problem. Imagine Germany would unilaterally declare that effective immediately, it will not allow any exports to Greece (completely against the idea of the common market and very difficult to implement, but lets assume Germany somehow tried it anyway).
      You may be happy but there would be an outcry and we’d be called Nazis or whatever by treating Greece “without any respect” (not even selling them even if the individuals or companies have the money to pay).

      I think for reducing the Greek trade deficit to work through measures outside Greece, it may produce a situation that resembled trade sanctions against Greece. Like against Iran.

      If just Germany did not sell anymore stuff to Greece, as long as there’s money in bank accounts, Greece will find others who sell them stuff, don’t you think? Italy, France, Japan, China, South Korea…
      …they’d all very happily fill the vacuum replacing Volkswagen with Hyundai, etc.

      I think for it to work Greece would need to be allowed to charge tariffs on imports. But it finds it difficult to collect tax from its citizens – would it be realistic to expect that the government would be able to collect tariffs from import/export businesses? I’d be surprised. May end up as a complete chaos with customs officers looking the other way when they are offered bribes, stuff that’s actually urgently needed not let through because no bribe is offered, etc.

      Wouldn’t it be much easier to restrict imports by charging e.g. a luxury tax on cars with more than 70 horsepower or something?

      Denmark has a hefty tax on cars. It must be legal under EU law. Why not simply use measures that exist and are proven to be effective, legal under the EU framework and fully in the hands of the Greek government to decide?

      Refusing to do that and instead insisting on Germany to fix everything seems to me a bit like another excuse not to do too much and instead telling others what they have to do?

    • Countries such as Greece willingly took part in a deal to help create a stable and prosperous western Europe, despite the war crimes that German occupiers had inflicted just a few years before.

      The debt cancellation for Germany was swift, taking place in advance of an actual crisis. Germany was given large cancellation of 50% of its debt. The deal covered all debts, including those owed by the private sector and even individuals. It also covered all creditors. No one was allowed to “hold out” and extract greater profits than anyone else. Any problems would be dealt with by negotiations between equals rather than through sanctions or the imposition of undemocratic policies.

      Perhaps the most innovative feature of the London agreement was a clause that said West Germany should only pay for debts out of its trade surplus, and any repayments were limited to 3% of exports earnings every year. This meant those countries that were owed debt had to buy West German exports in order to be paid. It meant West Germany would only pay from genuine earnings, without recourse to new loans. And it meant Germany’s creditors had an interest in the country growing and its economy thriving.

      Following the London deal, West Germany experienced an “economic miracle”, with the debt problem resolved and years of economic growth. The medicine doled out to heavily indebted countries over the last 30 years could not be more different. Instead, the practice since the early 1980s has been to bail out reckless lenders through giving new loans, while forcing governments to implement austerity and free-market liberalisation to become “more competitive”.

      http://www.guardian.co.uk/commentisfree/2013/feb/27/greece-spain-helped-germany-recover

    • “The “strategy” in Greece, Ireland, Portugal and Spain today is to put the burden of adjustment solely on the debtor country to make its economy more competitive through mass unemployment and wage cuts. But without creditors like Germany willing to buy more of their exports, this will not happen, bringing pain without end.”

    • @Dean: To answer your question below. Business management techniques are for companies, not for countries. The obvious difference here is that it it is possible for all companies in an economy to make profits. It is not not possible for all countries to make trade or current account surpluses. At any point in time, assuming a high degree of openeness of economies (as in the EU) there will always be surplus and negative trade balances across the world.

      The point about current account is simply that services do not appear in the b.o.t. which means that economies with a high degree of tourism or other services (such as banking or insurance) are likely to have a trade deficit, but it does not matter if it is balanced by services. Trade and services are normally viewed as identical in effect — even though they may not be.

      As far as the empirical points about Greece and Cyprus are concerned, I imagine that (for recent historical data) they have different causes. Cyprus (whose economy I really do not know) doubtless ran a trade deficit that was financed by services, especially banking. Greece ran a trade deficit in modern times primarily owing to import substitution (from an overvalued exchange rate). This was in excess of the income from services, so there was also a current account deficit. (As a sidenote: if the cheaper credit that was available in the eurozone had been made available under the Dracha regime, this would simply have been an expansionary monetary and fiscal policy — resulting in some additional imports (depending on the effective multiplier) along with increased domestic production possibilities and incentives. Therefore the primary problem is the inappropriate exchange rate for Greece, over time, since joining the euro.)

      If you broaden the question and ask which countries over an extended period run trade surpluses, you will see that it is countries with efficient production, global markets and an appropriate exchange rate. Both China and Germany have all of these — and it is no surprise that they have high surpluses. Of course, Chinese exports are rather different in character and quality from German ones, but that is not an issue. The other side of the coin is which countries tend to run large and sustained trade deficits: excluding economies (as Cyprus used to) that have massive services sectors, they are countries with low productivity levels (according to their exchnage rate) and weakly developed export markets, and are dependent on imports for raw materials (e.g. food, oil) as well as manufactured goods. Their trade deficit has to be financed somehow, and is most likely from external borrowing.

      The problem is what to do about it, when you cannot devalue. The idiots in the Troika came up with this stupid “internal devaluation” which tries to cut production costs by cutting wages and state expenditure. It cannot possibly work, because the entire structure of the Greek (or other) economy has to be adjusted to get any significant benefits. In the process of doing this, you create a depression and cut state revenues thus exacerbating the fiscal crisis of the State. This leads to pressure to further cut state spending (education, hospitals, social services) which ultimately will result in social and political collapse.

      Anyway, as you pointed out, I am not expert on trade. So, anyone with more expertise in this area is welcome to correct any mistakes here (I hope there are none).

    • Dear Dean
      I don’t get it. What’s “shameful” about it?
      Greece importing way too much from Germany?
      Or Germany importing not enough from Greece?
      I’ve done my bit on a personal level: I went to Greece 5 times on vacation, among that my honeymoon. As I wasn’t a backpacker but stayed in pretty nice hotels, went to nice restaurants, etc. that way, I spent thousands of “German Euros” in Greece. Apart from that, I don’t see much opportunity in my everyday life to help fixing the Greek trade balance: Once I found Greek olive oil (way more expensive than the other stuff) and I bought it.
      What else could I do? Buy Greek or Cypriot cars, hair dryers or consumer electronics? Never seen any.
      Surprisingly for me, I am not aware of having seen much in terms of fruit, vegetable, cheese or yoghurt from Greece. Which is weird because I remember having those products in Greece and liking them. All imported? If at least some of that is produced in Greece & Cyprus, why isn’t it produced in huge quantities and shipped to e.g. Germany? Spanish stuff is – and Greece should be able to produce similar stuff.

      I think blaming Germany for your messed up trade balance is a little cheap.

      Produce stuff that others want to buy and it will be bought.
      No rocket science involved.

      In the meantime, maybe buy Fiat cars instead of Mercedes and Chinese fridges instead of Gefman ones – and maybe buy a little less imported stuff generally?

    • A quick reply to Martin: i agree with you. But the problem for Greece is not only the overvalued currency: it has always been an issue of limited economy of scale, poorly organised co-operatives (that can synthesise economy of scale, up to a point), underdeveloped export markets and networks, and a complete lack of support from the state structures (in contrast to Spain and Italy). Some commentators on Klaus’s blog have even pointed out political opposition in the past to the Greek private sector being able to develop export markets, because this would take them out of the political control of the Greek political parties.

      So it is not really about Germany: it is about the euro and it is about Greek business size and economic structure, and it is about Greek politics. Germany is responsible for many serious errors within the eurozone, and should understand this, but it is not responsible — directly or indirectly — for Greek economic management.

    • Martin & Xenos:

      Obviously a bit of both. Germany needs to import more from Greece and export less to Greece.

      Let me give you a concrete real example to understand. Take Turkey, not exactly a friendly country to Greece for historical reasons which are manifested on both sides. Now, the not so friendly state of Turkey used to have a trade advantage with Greece of 2:1 in 2009 and prior years (Turkey exported twice as much to Greece than it imported from her).

      Last year’s figures(2012) indicate that the total trade between the two countries was close to $5 Bil. with Greek exports to Turkey @ $3.6 Bil. and Turkish exports to Greece at $1.4 Bil.(source: TurkStat).

      We don’t have the Greek official trade figures for 2012 yet (ElStat is not the most efficient organization in Greece) but when they come out they will show that the best export market for Greece in 2012 would be Turkey and such would relegate Germany to an even lower place. We know this with some certainty because of the German statistical office which reported for 2012 total Greek exports to Germany equalling 1.8 Bil. euros.

      So there you have it. A country, Turkey, with which Greece has deep geopolitical divisions and various historical enmities, has the courage nevertheless and a political leader, Erdogan, who single handedly decided to give such advantage to Greece given the circumstances.

      Germany on the other hand is like a glutton in its trade with Greece. It only wishes to maintain advantages with large multipliers despite Germany been the cause of suffering and pronounced misery for Greece.

      All Germany has to do, given the brutality of her approach, is to make a gesture towards Greece at this hour of need. The same gesture Greece’s archenemy Turkey has already made.

      We all know that 90% of the euro-problem is political. So where is the German political will to prove without a reasonable doubt that Germany means well rather than exhibiting a severe predatory behavior towards Greece?

      Why can’t Germany be more like Turkey?

    • @Dean: I really despair in trying to understand what these arguments are. Let me put it in formal terms.

      (1) Trade is the result of agreements on how open markets should be to imports. There are no restrictions on trade between EU countries.

      (2) Turkey has a customs agreements with the EU, which allows more or less free trade.

      (3) Since it would be illegal to restrict imports or exports, no EU country can openly do so. Maybe Turkey can restrict its exports, because it is not a properly democratic country.

      (4) You are suggesting that Turkey does restrict its exports to Greece, and encourages imports. It is possible that you are correct, although you have adduced no direct evidence to show that.

      (5) Following from (4), you now suggest that Germany should construct political control over its private sectors to stop exports to Greece. This is an outrageous suggestion, in contravention of the European Treaties, the entire raison d’etre of the European Unions, and also in breach of international law.

      If you believe that Greece cannot participate in unrestricted free trade in the EU during this crisis, then you should support the idea that both Klaus and I advocate, which is that Greece should be given temporary exemption from the free trade obligation. This limited protectionism would give a chance for the country to regain competitiveness and export markets — but would be very difficult for the EU to accept. What they will definitely NEVER accept is your idea!

    • No Xenos, you don’t get it.

      This is not about restriction of trade or artificial trade.

      This is about steering the economy and thus trade from the top.

      Just like Merkel asks private German citizens to come to Greece and spend their vacations here and in the process solve a public problem with private money (her favorite trick), she could also instruct German commerce to establish a priority of importing Greek products and reduce German exports.

      40% of all German exports are auto related. Why is Germany exporting autos to Greece? who is buying them?

      There is a lot of work that Germany can do to put her house in order. This unbalanced trade with Greece is a clear abomination in that it is both contrived and deeply injurious.

    • @Dean: I don’t know where you studied economics, but your comments do not make sense. Politicians do not control markets in the way that you describe: it would be illegal, impractical and ridiculous. It is indeed possible that Turkey does this to some extent, as it is not a fully developed or liberal economy.

      Political controls over markets in the developed world consist primarily of promoting competition, stabilising the economy with prudent monetary and fiscal policies, and promoting trade and investment. The latter option is not relevant between EU countries, for political and legal reasons. I suppose Merkel can promote Greek tourism, but as far as I am aware the Germans actually have been saying this! But according to your own comments, this will not improve the trade balance.

      The problem is not with Germany, it is with Germany’s role in the eurozone. These are different things. Nor do they affect only Greece, so your focus on Greece is misplaced. Equally, there is a problem with Greece’s role in the eurozone, which Greece has to solve. Simply blaming Germany for this as some sort of political decision takes the discussion away from economics and more towards the art of war. I strongly discourage this idea.

    • Then explain to me an other sin this blog, what is Germany exporting to Greece and why the German exports find Greek buyers. Is this military equipment or what? Because it can’t be consumer goods.

      Further explain, by the use of real numbers, which German exports to Greece have not hardly been affected in 2011 and 2011 (almost exact same level). How is it possible that during these two years of hardship for the average Greek consumer to display demand for German products? Are you suggesting that the private Greek industry is buying or has any need for machinery?

      I would also recommend referring to the German Statistical Office site which breaks down the typical profile of German exports.

      Therefore using the typical profile (autos, machinary, other) guide through which of those categories remain unaffected by the severe liquidity experienced in the Greek market.

      Are you suggesting that German companies are making direct loans to Greek distributors to carry German inventory products they themselves can’t sell?

      How is this working exactly? Pray do tell. I would love to learn.

    • @Dean: if you want to make some sort of conspiracy hypothesis, using trade data, then feel free to do so. The normal structure of such a thesis is: plausible hypothesis — evidence to test it — conclusions about the possible validity of the hypothesis.

      It is not my or anyone else’s task to prove that your ideas are wrong. It is up to you to prove that they are at least plausible, of which you have failed to convince even one person here. That is how scientific method works, which is very different from religion. You appear to be inclined to the latter methodology.

    • O.k. Xenos, let’s continue then.

      It’s apparent that you are interested more in winning an argument at all cost, rather than discovering the truth.

      Please do this. Click on the hyperlink below. Scroll down to where it says Current Trade right underneath it . Click on the magnifying glass icon to open up the graph. Look at the exact and precise synchronicity between German exports and imports. When German exports fall at the same precise moment, and as if by some miracle of German 6th sense , German imports fall by an equivalent rate to compensate for the export loss leaving the German trade surplus untouched (same Delta).

      By looking at this graph, can you make( with the straight face) the argument that German trade policy is not closely and artificially guided? And that somehow trade follows market forces? Can’t you see the unmistakable meddling pattern with your own eyes?

      So you are trying telling me that the Greek_German trade volume happens because of free market forces? Or the law of the jungle? the fittest wins and that has to be Germany?

      https://www.destatis.de/EN/FactsFigures/NationalEconomyEnvironment/ForeignTrade/ForeignTrade.html;jsessionid=60165574E2693E5537C7951CD6D690A2.cae2

    • @Dean. No, I am not interested in winning an argument because there is no argument here to be won or lost. You have no hypothesis, no explanation and no evidence to back up the idea (whatever the idea is exactly).

      As far as the detailed question you ask is concerned, I am not sufficiently expert to be able to explain why it would or would not be normal to see the patterns that you observe. The problem is that you are not expert in international trade patterns, either. So, unless you can find some experts who are able to confirm that there is a reasonable hypothesis that can be proposed, this is akin to witchcraft. You think you can detect a witch, so you look for evidence to support it: ah yes, she floats on water, she must be a witch. What your approach most definitely is not is acceptable scientific argument.

      Moreover, it is primarily a conspiracy theory — something that is very common in Greek popular discourse, but hardly something you can expect us to take seriously here.

    • o.k. Xenos, I just got it.

      You are the wrong person to have this conversation with.

      And you expect a Phd thesis otherwise you are unable to grasp elementary issues that everyone in management understands.

      BTW, after looking at this carefully managed graph do you still hold the absurd theory that trade volumes are something that just happens and that managing trade is not for countries but for companies only?

      I have never seen more evidence of managed trade prior to looking at this graph. This has “managed and contrived trade” written all over it.

      No need to reply.

    • Dear Dean
      I sure cannot answer all the questions or refute your conspiracy theories…
      But I’m quite confident regarding at least one of them:

      You are stunned by the fact that German imports and exports tend to fluctuate in parallel. This probably leads you to believe that there is some sort of centralised control mechanism, possibly with Ms. Merkel “ordering” “the German economy” to import less / export more etc.

      In a communist system such a command structure may have worked to some extent.

      In an open economy I don’t believe in that kind of explanation.

      Instead, I’ve got these two to offer:

      Imports as well as exports are dependent on the economic activity within Germany and abroad. A significant downturn such as 2009 would hit both imports and exports. Over the long term, both can develop independently (to some extent). In 1991 imports went up a lot more than exports due to the reunification (west Germany effectively lifted east Germany from a low level to a level comparable to west Germany, importing more and exporting less – instead shipping stuff to east Germany). From around 2000, exports grew more than imports, reflecting the depressed German domestic economy as the lost competitiveness after the German reunification had to be regained and a lot of German money was thrown away by investing it in the Eurozone periphery while lowering investments and living standard in Germany.

      Second point: A lot if not all German exports are not based on value creation and material which is 100% from Germany. If Germany sells e.g. a fridge to Greece, it is well possible that, say, the compressor is from Holland and the plastic inside from China while the metal outside structure was made in Poland. It is a “German” product – but before it could be exported, a good part of the stuff had to be imported, first. So if German exports increase, this automatically triggers an increase in imports for that reason.

      That effect plus the above mentioned dependency of both imports and exports on the world / EU / German economy (which are quite often more or less in sync) explains what looks like conspiracy to you.

    • Martin:

      Yes, I am mystified by the total coordination if imports and exports and I find it suspect. Let me give you a few questions on the subject because I am not sure you are framing it the right way. But a bit later.

      BTW, there is nothing of a conspiracy theory here. Just pure factual observation. If the process is managed then it’s managed. No need to introduce conspiracy to that. It would appear that that’s the practice followed. But hold on, we will discuss in more detail.

    • Martin:

      Let’s start with some basic assumptions.

      Do you agree that the largest German export item is autos and the largest German import item is energy related?

    • How about this little revelation Martin?

      A full 41% of Germany’s surplus comes from France, Italy, Spain and (gasp!) Greece, where Germany is still exporting like gangbusters despite the poor country being in its fifth year of recession. In fact, Germany’s trade surplus per person with Greece is 3.6 times bigger than that with the U.S. (290 euro per Greek versus 81 euro per American).

      http://www.creditwritedowns.com/2012/07/germany-biggest-winner-euro-fixed-exchange-rates.html

    • Dear Dean
      Having read the “Huffington Post” article (not always the most reliable source of information” on what helps Germany to avoid a trade deficit, I find it interesting. But much of it is not very concrete. When it gets concrete, it’s sometimes a bit odd. Like where it says due to Germany (like most of the world) charging VAT there is an unfair advantage because imported goods are charged ang German ones are not. That is not true. Have a look at this, especially “imports and exports” (section 6):

      http://en.wikipedia.org/wiki/Value_added_tax#Imports_and_exports

      Germans use credit cards less than Americans and that has certain implications.

      I think overall it is safe to say that the German model and culture leads to a trade surplus while the US one tends to result in the opposite.

      Maybe both could copy parts of the other model so in the end it’s better for both?

    • Martin:

      Our topic is not US-German trade. We could discuss this later. Out topic for now are the deep inequities of Greek-German trade.The purpose of the article was to show hidden barriers (i.e. evidence of “managed” trade policies pursued by Germany. BTW have you heard of a German organization called BAFA whose expressed purpose is to regulate both imports and exports in Germany? That would be another strong evidence of managed trade#.

      Can you please identify what exactly the Greek consumer needs from Germany at this juncture of the Greek economy? Because I can’t figure out how Germany sells Greece about 4.6-5 Bil. of stuff every year, year after year.

      It would help if you could pin point the largest German exports categories for Greece. At this stage of severe contraction in the Greek economy my guess is that it can’t be autos or machinery (2 traditional strong export categories for Germany). This leaves military purchases, chemicals and pharmaceuticals.

      Again, I can’t see any reasoning for chemicals at this stage of the Greek economy. Pharmaceuticals maybe, but the Troika is pushing for generic drugs which means that brand names are now irrelevant. This leaves military purchases from Germany. Is this true?

      Can we abandon generalities and get down to specifics?

      PS – After we get done with Greece, I promise to give you a free analysis of the US-German trade.

    • Dear Dean
      I (again!) replied to the wrong field so my reply to your posting today 7.07 is further up (sorry)!

      Regarding your post from tosay at 7.52:
      Greece (and France and Italy for that matter) are in a currency union with Germany. So the exchange rate between the DM and the Drachma is fixed, if you like.
      That has advantages and disadvantages (as most things in life). One advantage was that “the markets” (wrongly) assumed that the countries would behave responsibly and therefore, the interest rates for e.g. Greece decreased significantly. That is a very stimulating impulse that could have been used to bring the debt down (by using the saved interest) and / or productive investment (e.g. infrastructure, education, intelligent trigger-funding of strategic industries). This did not happen. Instead, Greece enjoyed the good times.
      And went “shopping”. Which is understandable on an individual level but a bit reckless if a whole nation does it.

      Now the mess is there and all you come up with is that Germany is to blame / we should have stopped you / now we need to pay because it’s all our fault etc.

      Isn’t that a bit odd?

      No doubt it was stupid of Germany to lend you all that money – but don’t you think Greece is ultimately responsible for managing its matters – and not Germany?

      Regarding the trade deficit that apparently still is huge: maybe bring it down by importing less?
      And try to export more?
      You have both things in your hands!

    • Martin:

      Let me make the point of why we need to understand the composition of German exports to Greece even more clearly:

      Here are the top10 trade product categories for Greece(click where it says “Trade & Tariff Graphs” to open and then click on the top bubble chart to see the category details):

      http://www.intracen.org/country/greece/

      Here are the top 10 trade product categories for Germany(do the same clicking sequence):

      http://www.intracen.org/country/germany/

      Now, please explain why would Greece have a persistent 3:1 trade disadvantage with Germany. Where is the nexus?What specific products Greece needs the most from Germany?

    • Dear Dean
      I don’t know what exactly Greece buys from Germany. I guess it’s a wide range of stuff – from electric toothbrushes to, yes, submarines.
      If Greece can’t really afford the stuff and does not need them why does it not simply stop buying it?

    • Martin:

      As we said before, you can’t play a game whereby only one country wins and all other countries lose:

      http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=133.TRD.M.I6.Y.X.TTT.I6.4.VAL

      “Excluding Germany, just over half of all euro trade is with each other. But with bad policy pushing southern Europe into depression and northern Europe towards recession, euro zone countries can’t afford to buy as much stuff from each other. That adds a degree of difficulty to recovery for southern European countries that need to export their way out of trouble. As you can see in the chart from Eurostat, intra-euro zone trade has stagnated the past few years after rebounding from its post-crash depths. The euro zone’s weak links are dragging the rest down — but only because the rest refuse to pull the weak ones up.

      Read more: http://www.theatlantic.com/business/archive/2013/03/why-the-euro-is-doomed-in-4-steps/274470/#ixzz2RWxDXajI

    • Dear Dean
      Two more inputs to help you understand why the German public does not exactly love the idea that Germany should simply pay:

      Germans are actually not that rich!
      On page 76, please find the net wealth comparisons for EU countries:

      http://www.ecb.int/pub/pdf/other/ecbsp2en.pdf?c7c70e0af0a722104513164db71faff9

      It seems odd at first, but actually German private wealth is rather low compared to e.g. Italy’s.

      As a second input, have a look at the graph in this article (in German, but the graph also makes sense when you don’t understand German):

      http://www.faz.net/aktuell/wirtschaft/menschen-wirtschaft/gesetzliche-rente-deutsche-bekommen-weniger-als-andere-europaeer-12162202.html

      “Männer” means “men”, “Frauen” means “women”.
      The numbers relate to the average number of years that men or women in the respective country receive pensions. So this correlates with long life expectancy and low retirement age.

      Italy (“Italien”) as well as Greece (“Griechenland”) are on top of the list. Germany (“Deutschland”) is rather low on the list.
      What the article says (in German, unfortunately) is that the percentage that the typical pension makes up of the average prior salary differs by country – and Germany’s is not particularly high.

      Why I say this?
      Germany is taxing its people high and the result is that the people are actually a lot less wealthy than other European nations.

      This makes it very difficult for the polical class to sell the the electorate that they should continue to bail out Southern European countries that are currently in difficulties (or even better just continuously help them with tranfer payments).

      How would you sell to your electorate that you should pay for people that are actually wealthier than your own and enjoy longer retirement with a more generous pension level?

      I am aware that this is only one way to look at the situation. And probably, as the numbers are a couple of years old, the gap between Germany and the others has decreased.

      Nevertheless, please be aware of such facts when you imply that Germany is so incredibly rich and should “just pay”.

      The German population is NOT so incredibly rich!!

      Where we both do agree to some extent is that the German current account surplus is too high and should be reduced. It is the result of a long-term German trade surplus and underconsumption in Germany. The money gets “invested” abroad, quite often only to be found missing after a while, because the German investment went into some foreign asset class that the stupid German banks did not understand (e.g. “asset backed securities”, Greek government bonds, etc) and turn out to be worth a lot less than originally assumed.

      This is the perfect way to destroy German wealth. And it contributes to blowing up speculative bubbles and keeping unsustainable developments (like debt-taking in Greece) going for longer than need be.

      This German obsession with an export surplus and then investing money abroad has to stop.

      I am pretty sure that this is gradually changing – but it takes time to sink in and to be implemented.

      The overall assumption in Germany (not exactly over-optimistic) was that we are falling behind the others (e.g. Spain and Greece), in relative terms and that we are aging more than the others. Therefore, it was rational to invest as much as possible abroad. This has to stop and be reversed. Then I would not have to have discussions like this one where I have to (absurdly) discuss why Germany exports so much, etc.

    • Dear Dean
      You wrote: “As we said before, you can’t play a game whereby only one country wins and all other countries lose”

      I agree with you. The system has to work in a way that all participating countries can see their participation as beneficial.

      Greece had some benefits (low interest rates) but did not appreciate them. Instead they focus on the fact that being in a monetary union with Germany, Austria, Finland and the Netherlands means that you have “to become a bit like them” (because you are, well, in a monetary union with them and cannot devalue your currency anymore to disguise poor governance).

      Germany on the other hand has the advantage for its export sector that the Euro is of lower value than the DM would be – but focuses on the negative aspects (being chained to countries that, from a German perspective, follow a suicidal course – and the relatively low value of their currency compared to DM times when they went to Greece or Italy).

      I’d say that in both countries (and the “core” and the “periphery” in general), there should be an open and honest discussion about the benefits and disadvantages of the Euro the way it is now.

      If the consensus of both was that the benefits more than make up for the negative aspects, then both have to do what’s necessary for it to work (and that would not primarily be Germany destroying its export industry to become some kind of Greece with bad weather).

      If only one of both parties thinks the Euro is not good for them, then we should see if we can find some kind of deal (preferably not involving huge indefinite transfers from the core to the periphery) or we just stop the experiment “Euro” in a way that minimised the damage.

      Maybe splitting it into a “North Euro” and a “South Euro” would help both.

      Or maybe only the weakest like Greece should go, devalue and maybe join again later (if both sides still want that).

      Or maybe Germany and maybe some of its neighbours find they’re better off together, because they share similar enough ideas about governance. That way, the Euro would get a lot weaker and France could be the leader of that club, making everybody happy?

      I guess if there’s no visible improvement within the next year or two, all sorts of options should be discussed.

  2. Pingback: Deutschlands fortwährende Anhängigkeit vom Export | Das Billiglohnland D-Land

  3. The socialists all over the place are talking about too much austerity. The only issue is, that if you look at the numbers there is very little austerity (= an ascetic practice) going on!

    “One would think that a person is austere when she saves, i.e., if she spends less than she earns. Well, there exists not one country in the eurozone that is austere”

    http://mises.org/daily/6289/The-Myth-of-Austerity

    • You are confusing thrift with austerity. One is a microeconomic and moral concept. The other a macroeconomic one.

    • You did not look at the numbers in the link. Do you honestly would say that governments, with expenditures 30% higher than revenues are austere?

  4. Let me reframe the issue a bit differently than Yanis.

    Yanis thesis is that Germany has a dependency on EU southern trade which of course she does. But the key issue is the degree of dependency on a country by country basis.

    If you take the countries of the south (Portugal, Spain, France, Italy) then Germany’s own trade numbers for 2012 show that Germany on average outsells these counties by a factor of 1.34 to 1.

    Yet Germany outsells Greece by a rounded factor of 3: 1 and Cyprus 5:1. In other words, Germany outsells Greece almost 3 times the European Southern average and about 4 times in the case of Cyprus.

    Even if we took the position that Greece belongs in the geographical area of SE Europe (aka Balkans) and we look at the German trade figures of Romania, Bulgaria, FYR Macedonia, Albania, Montenegro, Bosnia, Serbia, Croatia and Slovenia, then Germany outsells this group on average 1.43 to 1.

    So even if you consider Greece not part of the European south but rather a Balkan backwaters of sorts, even then Germany scores some way off the charts trade ratios with Greece and Cyprus.

    The question then becomes: Why? And given the brutal austerity the issue gets magnified because it looks like a case of German unjust enrichment towards Greece and Cyprus.

    Therefore the conclusion is that given the brutal austerity regime, Germany needs to lower its trade ratio with Greece at levels below the 1:34-1.43 average indicated above. The fair way to approach Greek and Cypriot trade is to have a ratio below 1.0 while the 2 economies recover.

    • Dear Dean
      I see your point. One question to maybe ask could be, why Germany “outsells” Greece and Cyprus by so much more than the other countries in that area (and e.g. Portugal). My answer would be that this cannot only be explained by some sort of German conspiracy or unfair practice. If Portugal manages to have a much better ratio, maybe it’s got to do with Greece and Cyprus actually producing very little that would be bought abroad. Which is not necessarily anybody’s fault. It just reflects what has gone wrong over the last 12 years or so (in particular). By the way: the export / import ratio in Greece is improving.
      Plus there is no need for Greece to suddenly become a world leader in manufacturing. Just importing less, replacing some of that with domestic production and generating some more income from tourism would be enough…

    • Maybe looking into the imports of agricultural products to Greece reveals something ;-)

    • Really, this discussion approaches the level of Monty Python. In a European regime predicated on free trade since 1957, why are you discussing trade imbalances? We know perfectly well why Greece has a terrible trade deficit: it is because the Greek exchange rate (the euro) is overvalued for its level of economic efficiency. It was not in 2001, and became progressively so.

      Moreover, consumption was financed through cheaper borrowing within the eurozone and tended to favour Greek consumers’ preferences for high quality German goods over Greek products. This also depressed demand for, and production of, Greek goods.

      There is sod all else to say! Please, stop it with the conspiracy theories. The only conspiracy was the eurozone’s inclusiveness in order to capture southern european markets: this was not directed solely at Greece, and you can see all the countries affected quite easily now.

      The only short-term solution (apart from exiting the euro, which would be a disaster) is temporary limitation of free trade in the EU for those countries in crisis. It won’t happen (for political reasons) but I am prepared to advocate and fight for it.

    • I would just add to the above that the MAIN reason german goods are bought in Greece is not in fact their superiority (they are on the whole far from superior) but their cheapness due to the economies germans have been able to achieve through large scale production. We could buy a german / chinese washing machine, and still can, for 120€ at Praktiker (Schwab Lorenz), ditto a medium size refrigerator for 120€, toothpaste for c.95€ at Alpha Beta, cheap frankfurters, EU butter mountain butter and white goods at Lidl…

      In fact as the economy worsened in Greece the price of generic white products in foreign-owned supermarkets has risen by as much as 50%. Desperate people buy the cheapest items and generic goods now account for the largest proportion of supermarket sales. Even though the prices have risen (and are in a price war of 1-2 cents locally) they are STILL the cheapest.

      Greek products, from pasta to toothpaste to soap to metal wire etc on the whole cannot match these prices. On the other hand greek owned Proton have recently called the foreign supermarkets bluff in LOCAL product areas where greek companies CAN compete with lower prices (and better quality!). These are olive oil, loukanika, soaps & detergents, local cheese & milk….

      And please note: greeks pay up to twice as much for the exact same products as the germans, english, finns etc do – from the same chains. So these foreign companies are deliberately making a killing here during a time of humanitarian crisis.

    • Really?

      Then how do you explain that the Greek trade imbalance with the Netherlands is even worse than Germany?

      Do “Greeeks in addition to “high quality” German products also need “super high quality” Dutch products”?

      Or is it that the Dutch who have a trade surplus with Germans could outsell everybody who walks on the face of this earth? Remind me again the name of that Dutch car?

    • BTW:

      Xenos, help us connect the dots here. Isn’t it you that wrote this book on migration patterns?

      LINK REMOVED AT XENOS’S REQUEST. YV

      Therefore your specialty is migration and labor issues related to migration. How does such background qualify you to opine on what is important or not important on trade economics?

      Furthermore, explain to us why trade – which is the only source of power for an one trick pony economy such as Germany – is important to Germany but for some unknown reason is not important for Greece?

    • Yani

      Please remove the link that Dean has placed here without my permission. My identity was previously communicated to him privately at his request and he is now abusing that to try to win his arguments.

      This is not acceptable, I am sorry to say.

    • @Dean

      To answer your question: I do not claim any special expertise on trade, although I have lectured on various aspects of macroeconomics, political economy and economic history in the distant past. If we have anyone commenting here with that expertise it would be most helpful, but I am not aware of anyone.

      May we ask for your own expertise in this area? I mean, research, publications, professional appointments etc.

    • Xenos:

      I am neither a researcher nor an academic.

      My knowledge is based on my MBA background and real life management experience. Trade is its broader form is a pure management issue. BTW, I still have my final test from my graduate macroeconomics class and has A+ on it.

      So, maybe you want to cut me some slack on the issue of trade and/or the ability to conceptualize broad economic themes.

    • BTW Xenos:

      So, that we could put this matter to rest.

      You claimed that the current account is the correct lense of vewing at trade issues.

      And in Greece’s case your position is that as long as any trade deficits are covered by tourism and other revenue sources leading to a current account close to zero (i.e. a zero sum game) then that is o.k.

      This is not how management would look at this issue. As far as I know no country has ever signed or implied that a close to zero current account is a good thing or even a harmless thing.

      The way a good manager would look at this issue is:

      a. Bring trade deficits to zero and maybe turn them into trade surpluses if possible.
      2. Maximize tourism revenue to the hilt (if that’s an area the subject country excels).

      The objective would be to have a positive current account to the greatest degree possible. If so, then additional burdens to Greek citizens are averted and a reasonable path of recovery begins. Otherwise an austerity driven economy without a positive current account is like a gas chamber without a window. No escape, only certain death.

  5. Not quite related to your post but… So as it turns out the whole idea that countries should do their out-most to achieve a 90% debt to GDP ratio was all an arithmetic mistake. Ken Rogoff and Carmen Reinhart the authors of the influential paper cited as support for all the austerity measures in Europe and of course our homeland, was based on an excel error. Important columns of data were mistakenly not included. Ooops!
    30% unemployment in Greece and Spain because the math was wrong. I wonder what Angela Markel will say now!

    http://www.cepr.net/index.php/blogs/beat-the-press/how-much-unemployment-was-caused-by-reinhart-and-rogoffs-arithmetic-mistake

    • Well, no. R&R made some EXCEL mistakes, this is obvious. But the conclusions you (and others) draw now are not justified. Krugman postet a graph (http://tinyurl.com/cc44zxt) on this, which showed a clear correlation between low debt and high growth.

      And also a clear correlation between high debt and low growth. But, unlike what R&R believed to have found (that a debt higher than 90% significantly reduces growth): the red line is already at 60% of debt and/or 2% of growth.

      Why and/or? Simple. It just can’t reliably be answered if there is also a causation at all and if, how it looks like. What is the chicken, what the egg? One can guess and argue, but never provide irrefutable proof.

    • “I wonder what Angela Markel will say now!”

      Hopefully: “This is not my business. Go and fix your problems yourself!”

    • From what I am reading, it was not an arithmetic mistake but …

      “… most likely an exercise in data mining and selective use of data series that are rampant and that practically all economists engage in … not to mention the causality issue in interpreting the statistical evidence to which many now are also referring.”

      The above quote is part of an article from Mario Seccareccia on R & R. Warren Mosler has the whole article posted on his site today: moslereconomics.com.

      There are viable alternatives for Europe other than the present course of S&M (austerity). One such alternative is Varoufakis’ Modest Proposal.

      .

    • Yes. So much for US peer-review and how serious economics is as a science. It is an absolute disgrace, and an exemplar of why nobody should believe anything from the mainstream economics profession.

  6. I am not an economist, but i learned some facts and then connected them to get to the conclusions.

    If i give you $20, that is my loss and at the same time it is your gain. How can one bill of $20 be gain and loss at the same time?
    It is bookkeping/ accounting. It depends on the viewpoint.

    Let me write about mid evolution of money, how money switched from being backed by gold to being backed by Treasuries (debt).
    In 17th century, Britain needed funds for wars so it issued Treasuries to the Bank of England, Bank of Scotland, Bank of Ireland which all had issued their own guarantees for gold reserves which people used as means of exchange (currency). So banks bought the Treasuries but could not wait for maturities so they cut them up in smaller bills and sold to the population which also used it as means of exchange since they could not wait for the maturity or state took them in in payment of taxes.
    This completed a full circle of how state debt became the base for the currency.

    Then banks decided to limit the state’s ability to print more money (Treasuries) and demanded money to be tied up to gold. But that also produced problems so that was cancelled. Now, states do both, print debt (money) and banks use it to leverege it up as credit, which is also debt, Credit (our debt) which we then use as means of exchange. Our debt becomes our wealth.

    So you can view this as debt upon debt, upon debt which is used by us as a mean of exchange. Or you can view it as money upon money upon money which we use as a mean of exchange. Is it debt or money , it depends on the point of view of those that use it.

    Money is debt, in short. depending on who is recording it in their accounting. Accountants know that every transaction involves two entries; one as a liability and another as an asset. It is the effect of double entry bookkeeping.

    In other words; if i give you $20, that is my loss and at the same time it is your gain. How can one bill of $20 be gain and loss at the same time?
    It is bookkeping/ accounting. It depends on the viewpoint.

    • Thanks for the kudos, Jordan. Little weak on differential equations, though.

      Money is demand. No money, no demand.

      It is also debt. In fact, it is mostly created as debt. See: Paul Grignon’s great video: “Money as Debt” to see how the banks create money out of nothing, and then collect the interest off money they just made up.

      And worse.

    • Since it depends on a viewpoint (i.e. illusion) why don’t you let Greece have an annual 188 Bil. euro trade surplus and Germany a deficit of the same amount.

      Let’s see what happens then, if it’s just a simple viewpoint as you say.

    • Dean
      You should know what is the context here. For the point of views, both view are real. But, in the context (point of view) of the shared account at Central Bank both of us are in, like in total GDP, the views are “illusion” there is no change in total ammount if there is 20 gain and 20 loss. Change from original is 0 but for lower level it is real.

      If the EU was a state and ECB a real Central Bank as FED is in USA, then deficit of Greece and Surplus of Germany would not matter. It would have fiscal transfers that makes that point irrelevant.

      If a parent gives money to the kid, did total wealth of the household change?
      One level up and a point of view becomes “”illusion”.

      The point is, if Greece borrowed from ECB, which should have unlimited money supply as other sovereign central banks do, instead of from banks as it did, nobody would notice how much is deficit or surplus, because Greeks paid the products from Germeny and producers got the money. It would matter how much EU produced in total, only.

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  8. While admittedly, at first glance, your point sounds very plausible, I struggle when I try to understand more deeply:

    To simplify things, let’s assume it’s only Germany, China and Greece. Now let’s assume Germany has a trade surplus with Greece of 5 billion EUR and a trade deficit with China of also 5 billion EUR. Great for Germany: the balance is zero, so no problem.

    But really, Germany needs to pay China those 5 billion EUR (because China expects to be paid for the difference).

    So can the surplus that Germany has in her trade with Greece somehow pay for this?

    I don’t think so: Greece probably also has a trade deficit with China. And it pays the import balance (of 5 billion EUR in my simplified example of a world that only consists of China, Germany and Greece) with German loans.

    Instead, with Greece also having a deficit towards China, the overall Eurozone deficit with China is bigger than that of Germany alone. The Greek deficit with China makes things potentially worse for Germany, as long as it shares a currency with Greece:

    China can use the EUR it accumulates by importing less from Greece and Germany than it exports to them as it wants: it can buy German or Greek enterprises with it. Or German government bonds. Or it can send a small part of the 80 million members of the Chinese communist party to Greece for a luxury holiday and spend the 5 billion that way. It can buy land, etc etc.

    It can do what it wants – and I do not see at all how a German trade surplus with Greece (with which Germany is in a currency union) somehow offsets the German trade deficit with China.

    I am not an economist but it seems implausible to me.

    • Hi Martin, Iam not an economist either, i think in your example you need to identify in your 3 country world trading system which country is the “hegemon” or the one in the most powerful position.

      If China is the hegemon, then I think it can set the “rules of the game” so that Greece will have a constant “trade deficit or surplus” with Germany or with itself…by contant I mean until these is some economic crisis in China which impedes its hegemonic status.

      I would be interested to see what others have to say..Alex

    • Even in your case you agree that Germany offsets its trade deficit with China through its surplus with Greece…and this I think is the whole point: if there were no Greece (and rest of deficit countries in europe), Germany would need to find other countries to buy its products in order to offset the deficits it has with the rest of the world. There is a clear dependency here but somehow the deficit countries are pointed at and thought of as drags.
      This is actually a very important part of Yanis “minotaur”: How do you recycle this surplus?

    • Martin:

      I am sorry, I don’t get it.

      You say “Great for Germany: the balance is zero, so no problem.”.

      Then why trade then? Of course there is a problem: It’s called zero sum game in trade.

    • Dear Dean
      That was related to my hypothetical model example of a world consisting of China, Germany and Greece with the latter being in a monetary union.
      Imagine Germany had a trade surplus with Greece of 5 billion EUR and a trade deficit with China of 5 billion EUR.
      Does the surplus vs Greece equal out the deficit with China?
      Yes and no, I’d say!
      On one level, it of course does.
      In the real world, things are more complex: if Greece can’t really afford the trade deficit, then it will at some point no longer be able to finance the deficit with futher loans. Which is the point we reached a couple of years ago.
      Since then, the (luckily shrinking) deficits are covered with loans that are handed over at below market rates and with a significant danger of a Greek default (which has already partly materialised).
      Therefore, as long as Greece effectively can’t pay it’s bills, I don’t think having a trade surplus with Greece is worth much. It may look good on paper but the loans that will part lily turn out to be present are just a combination of emergency help and export subsidy.
      I don’t see how such a surplus can offset a German deficit with China. The latter is real because Germany will have to pay. The former is virtual because Greece will not (able to) pay.
      So Germany will pay for it’s own deficit with China and for the goods it exported to Greece that Greece can’t pay for.
      Plus, Germany may end up having to service some EUR liability Greece ran up by having a trade deficit with China of its own that it may not be able to finance.
      Instead of things balancing out, Germany may have to pay three times!

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  10. What happened in Cyprus? Rich kleptocrats got hammered.
    What in Greece? Germany provided Greek government with the list of tax evaders in Swizerland 2-3 years ago. GG ignoreed so they hammered all of the people for voting in such corupted government.
    There is a list of offshore heaven tax evaders that flooded the governments of the world. Who finaced those jurnalists? Who gave them the list? No jurnalist group could ever come across such secrets on their own.

    Frances debt interst rates went all the way down last week. Why? they have strong safety net and high marginal taxes.

    So, what northerners want from PIIGS in order to let them in on the ECB money printing? They want strong safety nets and high marginal tax rates to be implemented in the south too. That will show the power of their governments to control wealthy and reduction of corruption.

    Will northerners loose the sight of the goal in 5-10 years when euro goes appart, since they are using false rationalization to achieve it?

  11. What is really going on in EU today? EU is sort of a confederation, The major players want it to be a federation, united to be really a strong world power, but most of the southern states are aginst it because then they will loose many jobs in government. In a federation, states have smaller and less independent government, less power. PIIGS politicians do not want to loose their positions so they resist the proces of federalization.

    History repeats itself all the time, not necesserilly in the same place. EU is on the course the USA was in the 19th century when they were moving from confederation toward federation and southern states were childish in not accepting it even tough that meant more power to the whole against other countries, more unity.
    To see that, you have to look at money matters, how monetary system works in confederation and how in federation. When USA southern states were complaining about state rights against federal rights, they were thinking about power to create money while it was presented as power to decide on slavery. Lay people are not supposed to know what really matters: who controls the money supply?.

    In the beggining of the 1800s, every state in USA had their own money, every state(state central bank) issued their own currencies. Federalization in 1830s did not change that untill later on. It was political unity first trough the Civil War, then monetary in 1913 with the creation of the FED. EU is encountering the same problems even tough the process seems to be different, but the outcome will be the same, hopefully.

    Will we go to war between north and south again, but this time in Europe? it depends on people of the south who, i think, want more unity but governments still do not have rationalizations to defend their resistance to federalization. With each passing time, those governments get more excuses to resist federalizations; Merkel = Hitler???????? Northerners want to rob us of our state assets? Make us debt slaves?
    It all might be true but all depends on southerners. It is a pressure to force southern governments to accept federalization.

    I think that is a really bad way to go about making southerners accept united EU, and it might lead to a war. It would be much easier and succesfull to tell the truth to the public, but even Northerners do not want to admit who really controls the money supply; Banks. For now we are repeating the American way of federalization. Would it be worth it?

    “Money turns the world around” Liza Minelli.

  12. The sooner you kick the filthy europigs out of Greece the better for her people. The stinking fourth reich of nazieuropigs won’t rest until their dirty jackboots have trampled the fine peoples of Greece, Cyprus, Portugal, Italy, Spain, Ireland, France etc etc Their stormtroopers led by die Fuhrer Merkel. Freedom to the people of europe, Death to the EU and Euro!

  13. The correct title of this entry should have been ” The Continued German Exploitation….of everyone in the phone book” instead of “dependence”.

    According to the official German statistical site here are the unfortunate victims (aka countries with which Germany runs a trade surplus):

    1. France ………….. 39.72 Bil. euros
    2. United States …. 36.26 Bil. euros
    3. UK ………………….28.64 Bil. euros
    4. Austria……………. 20.64 Bil. euros
    5. Switzerland ……. 11.17 Bil. euros
    6. UAE ……………… 9.0 Bil. euros
    7. Spain …………….. 8.85 Bi. euros
    8. Poland ………….. 8.69 Bil. euros
    9. Turkey ………….. 8.10 Bil. euros
    10. Sweden ………… 7.24 Bil. euros
    11. Italy ……………… 6.83 Bil. euros
    12. Saudi Arabia …. 6.51 Bil. euros
    13. Australia …….. 6.32 Bil. euros
    14. Belgium ……….. 6.22 Bil. euros
    15. So. Korea …….. 5.02 Bil. euros
    16. Mexico ………… 4.57 Bil. euros
    17. Canada ………. 4.43 Bil. euros
    18. Hongkong …… 4.36 Bil. euros
    19. Ukraine ……… 4.20 Bil. euros
    20. South Africa …. 3.72 Bil. euros
    21. Denmark …….. 3.43 Bil. euros
    22. India…………… 3.40 Bil. euros
    23. Luxemberg …. 2.90 Bil. euros
    24. Greece ………. 2.86 Bil. euros
    25. Iran……………. 2.2 Bil. euros
    26. Israel ………… 2.03 Bil. euros

    Therefore the problem is wide-spread and affects many countries.

    If the top 10 countries on this list banded together and demanded a trade factor of 1:1 with Germany then the 188 Bil. euro trade surplus would vanish in thin air.

    If all Top 26 countries on this list demanded the same treatment (aka 1:1 trade factor) then Germany would be running a trade deficit.

    The real question is: how long do you think it will take for at least the top 3 to create a game changer and demand what’s fair.

    • True. If all the world’s people started buying Greek or other products that would solve the German problem once and for all. Good idea.

    • You mean there are no useful Greek products? Well, then start to produce some and stop complaining about those who do so.

    • I would like to remind readers that the EU is governed by the ‘four freedoms’ (since the beginning of the EU; not only since the Eurozone), one of which is the free movement of goods & services. To impose a trade factor, however plausible it would sound, is not possible. If a country like Greece wants to bring its trade with Germany into balance, it either has to export more to Germany or import less from Germany. To do either one of the two is entirely within the powers of Greece. I just read elsewhere that Greek consumers are buying charcoal imported from Argentina at 10 EUR/kg (compared with Greek charcoal at 5 EUR/kg). As long as Greeks want to enjoy such luxury, the country needs to borrow and be dependent on foreign funders.

      I also repeat that what really matters in the final analysis is not the trade balance but the current account balance (trade balance adjusted by services like tourism and shipping, and others). If Greece got Germans to spend enough in Greece as tourists to compensate for the deficit in trade, everything would be fine.

    • I find the part about Tourism as a baseless/empty argument. Tourism is not a trade item since both the services and the intangible benefits(environment, ambiance) never leave the country and as such are not tradeable. In the case of tourism, the customer has to to go to the destination and not the item to the customer as is the case with trade.

      When you trade an item you part with ownership of such item in perpetuity. Tourism never parts with anything. It’s either a place you want to be or not to be. If you want to be part of the particular place then you pay a royalty or entrance fee if you wish (with both the royalty or entrance fee based on the fluctuations of demand).

      If tourism was a tradeable item then everyone who has ever visited Disneyland would have had retained some form of ownership. Yet all benefits stemming from the Disneyland brand are 100% private and none are transferred to occasional visitors.

      As far as the other self-serving comments, the US Treasury secretary disagrees with you:

      http://www.dailyfinance.com/2013/04/09/lew-trade-surplus-nations-bolster-consumer-demand/

    • Dean, here is my suggestion to you: google for ‘current account’ and make yourself familiar with it. You will then undoubtedly understand that, for a country’s cross-border accounts, it doesn’t matter so much whether it is tradeable products or services. All that matters is whether it generates income from abroad to provide the resources for payments abroad (imports). If there is a shortfall, it is called the current account deficit. The current account deficit is sommething like the ‘cash-flow statement from cross-border operations of a country’. If that cash flow is negative, it needs to be compensated for through a surplus in the capital account (and vice versa) because the Balance of Payments must balance. The Bank of Greece has beautiful excel spreadsheets showing the details. Or to make it even easier for you, just follow the link below. Incidentally, you might also consider a current account deficit as the amount of wealth which a country transfers to the rest of the world in a given period (in Greece, it was 197 BEUR from 2001-10).

      http://klauskastner.blogspot.gr/2011/11/greece-current-account-and-foreign-debt.html

    • If Germans could vote on an export ban to Greece. Exports to Greece would be stopped at once!

    • The topic here is trade. If tourism was part of trade then tourism figures would have been reported as trade figures.

      Yanis point was to prove a dependency of German trade to southern European states.

      But this is not good enough. Because trade with large southern countries such as France, Italy and Spain revolves around a trade factor range of 1:1 to 2:1. No big southern state would even consider trade deficits of more than 2:1 against them.

      Yet the story becomes very different. Germany runs a trade deficit with Greece of 3:1 in its favor, with Cyprus 5:1

      Import/export German figures with other smaller countries show clear patterns of trade racism.

      We can look at country-by-country figures and the whole picture emerges. Germany practices a sort of selective trade policies with countries whose votes at the EU Parliament she controls.

      This nexus between sympathetic voting patterns and trade practiced by Germany, in any other part of the world would have been considered as buying votes with money(aka trade).

      The pattern is very disturbing really. Even large countries which Germany considers inferior show this pattern of racist trade. (Turkey as an example where Germany exports 20 Bil. and imports only 12 Bil. euros).

    • Klaus is correct. The current a/c is what matters.

      The problem with tourism is not its contribution to GDP or the current account: it is that it is a seasonal activity that can provide only seasonal employment for the natives. Unless they have something else to be employed in during the colder months, they have a serious problem. Moreover, high-end tourism is fairly capital intensive in terms of the cost of building, maintaining and staffing four and five star hotels. Thus, the exchange rate in force at the time is central to viability of the sector: so why exactly did Greece join the euro? If it was to have access to capital at low interest, then this was not taken up. All we saw was consumer spending and propertly speculation.

    • Klauss

      It is possible to impose a trade factor, especially with a bankrupt country.

      Just have look at the way Argentina trades with other countries even today.

      Germany doesn’t want to.

    • Eud, Perdo et al:

      If you want to discuss something using figures then go ahead and present your case.

      Take neighboring Macedonia (FYROM) for example: Germany exported 512 Mil. euros to FYROM in 2012 and imported 964 Mil. euros worth of trade from FYROM. Almost a 2:1 trade advantage for Macedonia.

      Are you trying telling me that FYRoMacedonia, whose per capita GDP is only a fraction of the Greek per capita GDP, is some sort of export powerhouse? The same FYRoMacedonia which Greece outsells at least by the same factor of 2:1? So Greece outsells FYROM and then FYROM outsells Germany because according to you Greece does not have any exports worth buying or “what exports ?” as you put it? What’s the logic there?

      You don’t seem to get it. There is no other EU country with which Germany holds a 3:1 or 5:1 trade advantage as with Greece and Cyprus. The question is why? and why at this time of extreme austerity? Usually such trade advantages are capped at below 2:1 range. And all of this German trade advantage after 4 years of impossed austerity
      to Greece by no other than Germany? Have you ever heard of the expression of “having your cake and eating too”?

      So, while Greec eis saving German banks through brutal austerity, Germany scores 3:1 and 5:1 trade advantages? where else in Europe do you see such patterns?

    • Excuse me Xenos and Klaus but your qualifications on the matter of trade with Germany given that you are citizens of UK and Austria are below zero.

      Austria holds a trade deficit with Germany of 21 Bil. euros, making tiny Austria the biggest trade transgressor/loser of the German trade game.

      UK is no better either. With 29 Bil. trade deficit with Germany it hardly makes UK a paragon of any particular skill in the trade game.

      So, I find it ironic that the #3 and #4 losers in the German trade game are trying to give Greece advice on how to fudge the numbers and “look at them another way”.Perhaps the logic you employ is for self-serving purposes to sooth the unmistakable pain of how decisively Germany is cleaning your clock.

      I am sorry but you have both flanked the trade class.

      Now, concentrate on my argument for a second and try not dispensing unwanted advice.

      The argument that I making is that there is no other European country other than Greece and/or Cyprus that has such a disproportionate disadvantage with German trade. No other country gets outsold 3 to 5 times. Most either get outsold 1.5:1 or outsell Germany themselves.

      We are now open to your reply but I would strongly advise that you back it up with trade numbers only.

    • Dean, since you mention Austria as a victim of German trade racism, it is opportune to draw parallels with Greece.

      Austria has a structural trade deficit, not only with Germany but with the entire rest of the world (as does Greece). Principal reasons: Austria does not make cars nor has it oil, but Austrians like cars and cars run on oil derivatives (not unsimilar to Greece). If that were all, Austria could not have the living standard it has. However, whatever Austria overspends abroad in the trade account, it more than makes up for it through services revenues, most of all tourism. That has allowed Austria to record fairly substantial current account surpluses of late (and that’s where Austria differs from Greece).

      It’s fair enough if you prefer to always view yourself in the vicitim’s role; the target of other people’s racism or otherwise. But please don’t infect others with that disorder. If there were a survey, I guess 99,9% of Austrians would express enthusiasm about having Germany as a trading partner, despite the trade deficit. Without Germany, the Austrian economy would be a basket case. A very, very large chunk of Austria’s tourism revenue comes from — you guessed it, from Germany. If Austrians treated Germans for the trade deficit the way you suggest Greeks should do, German tourists would soon find other travel destinations.

      You brainwash readers with the staggering revelation that Germany has a trade factor of 3:1 with Greece. Well, THE ENTIRE REST OF THE WORLD had a trade factor with Greece of 3:1 from 2001-10. Those ratios are more or less on the Cuban level.

      Since you seem very competent at researching numbers, let me ask you the following: compile a list of countries with their ratios of exports as % of GDP. My guess is that Greece would be very close to the bottom. That would indicate that the Greek economy is simply not capable (yet) to make sufficient products which are wanted/needed outside of Greece. At the same time, the imports show that many of the products which Greeks want/need cannot be made in Greece. Think of you and me: I want everything you make but I make nothing that you want. For a while, you may be giving me credit but at some time you will probably say to me “go, make your own stuff!”

      Last thought: Germany accounts for about 15% of Greece’s total deficit. Have you every thought who the other 85% might be? (try China; then France and Italy). How about improving your analysis from ‘one-sided’ to ‘more balanced’ by informing the readers a bit more about the other 85%?

    • “Excuse me Xenos and Klaus but your qualifications on the matter of trade with Germany given that you are citizens of UK and Austria are below zero.”

      Are you only willing to get treated for cancer by a doctor that had cancer himself?

      What is all that nonsense about trade ratios. It is a free market. Do you want to tell individuals what they have to buy/sell?

      If it is really such a big issue for you why don´t you propose that Greece & Cyprus exits the EU and then you can protect your market. We will not even notice in Germany, the Impact will be similar to an additional public Holiday per year…

    • @Dean: you need to get a grip on yourself. The validity or nonvalidity of any statement is not determined by the nationality of the person who utters it. The accelerating force of gravity is not ethnically determined such that Albanians have to suffer more gravity than Croatians, for example.

      Nor is my own nationality even slightly relevant, since I know the Greek economy rather better than the UK and I live in Greece.

      The fact is that trade deficit can be compensated by services such as tourism, which appear in the current account. Therefore the tarde balance can be misleading, and you need to pay attention to the total context. That is all I told you.

    • You folks are talking apples and oranges.

      No one has asked you to explain Austria’s economy(which nothing more than a German province), no one has suggested that you have a better macro-economic view of things and no one has asked you to opine as to the metric called current account.

      All we asked you to do is explain why German behavior towards Greece and Cyprus is off the charts in terms of a punctuated trade surplus in favor of Germany.

      Answer the specific question please and leave you personal theories aside. Either you know or don’t know. If you know, present the numbers to back up your claim. Very straight forward stuff.

    • Xenos:

      To show you how off base you are. You say “the current account” is what matters.

      So, now assume this:

      Say you are a manager of a business and you are looking at a metric such as the current account which is close to zero (or gravitating towards zero). What sort of conclusions can you draw from such about managing the business better?

      That while a specific department (aka Germany) is full of red ink that the rest of the company’s operations manage to compensate for such punctuated loss and break even?

      So you want me to take a problem caused by a single country and then lump sum it with revenue streams produced by all other countries and therefore come to a conclusion that I have no problem with that particular country because my trade with the rest of the world is just enough to cover it?

      May I ask you from what university or institution of learning you are coming up with such remarkable theories?

      Because I can’t believe my eyes on the imputed logic of your argument. What you say flies in the face of every known management principle known or practiced.

    • @Dean. I regret to inform you that you are the one with personal theories. I merely presented you with standard logic and the standard meaning of certain economic aggregate statistics (which it seems you either did not know or have forgotten).

      As far as expressing opinions is concerned, by posting yours you invite responses and you do not have the right to control those responses. The only person who is entitled to set a code of conduct is the blog owner. I do not recall Yanis issuing an instruction that we should all do as you tell us, so in the absence of such a code of conduct I (and others) will make whatever responses we choose and feel are appropriate.

      I have not commented on your excess of posts about trade figures, but as you persist, my opinion is that you are barking up the wrong tree. We all know that certain countries have trade surpluses and others deficits, and we also know that if you ignore services some of those deficits will look even worse. What is the point? To blame Germany for successfully exporting? This is ridiculous.

    • Xenos:

      Your reply makes no sense. It’s obvious that you don’t understand what it’s the proper meaning of current account.

      The current account is not a means of covering up areas (of a country’s economy) that need fixing. And a country with a close to zero current account it’s the same thing as a zero sum game.

      http://www.tradingeconomics.com/greece/current-account

      As to the rest of your comments equating lack of expertise to a restriction in freedom of expression it sounds like a self-revelation of a deep personal fear.

    • “No one has asked you to explain Austria’s economy(which nothing more than a German province), ”

      The irony is that the Greeks decided to be a German province too, when they decided to join the Euro. Mrs. Thatcher knew better and saved the UK from becoming one!

    • @Dean. No, it looks as if you don’t know why certain aggregate economic statistics exist. It is the task of economists to use whatever data are available to try to understand the more complex workings of economies. Why are you providing me with links to basic things that I knew and taught over 20 years ago? Do you think I am an idiot and you know better?

      As far as my comments on freedom of expression are concerned, these were the direct result of your clear instructions to me and Klaus to shut up. They are the result of your aggressive words and not any psychological problems on my part! You sound like the geriatric Samaras supporter in Australia with these attempts to explain others’ behaviour with ad hominem remarks. Please desist.

    • Eud:

      If this were to be true (i.e. UK independence) then the (all important according to you) metric of current account would indicate so.

      Yet, the UK current account shows a completely different picture and that fact that the UK runs a 29 Bil. trade deficit with Germany makes the UK clearly a German export colony:

      http://www.tradingeconomics.com/united-kingdom/current-account

      If you want to reduce the comparison to something very simple then think along these lines:

      Greece with 10 Mil. population runs a 2.9 trade deficit with Germany. The UK runs 10 times higher trade deficit with Germany with only 7 times the population of Greece. Which means that on a per capita basis the UK is worse off in its trade German dependence than Greece.

      The only tool of independence the UK possesses is its own currency. But the numbers show that such “independence” is used in a manner making the UK more dependent on German trade.

      This is like comparing two drug users hooked on a particular drug(in this case German trade) saying that one drug user could employ a currency exchange methodology in buying more of the drug.

    • Xenos:

      I am sorry but you have chosen the wrong guy to run against in a marathon of persistence.

      Since you are an educator, let me put it in terms that you might understand:

      Say a student comes to you and says that he/she has a broken leg (aka a deep trade deficit with Germany). To which you reply “oh, just don’t worry; stand there in the second row for a group picture and no one will notice your broken leg”.

      It makes absolutely no sense to me that while we are discussion a very specific topic for Greece which requires immediate fixing (aka her pronounced trade deficit with Germany) , you want to introduce a generalized metric such as current account whose effect is to lose the trees from the forest.

      And since you are talking about your Austrian buddy who pioneered the “current account” nonsense as a non-argument then try to explain this:

      Austria trade deficit of 21 Bil. euros, given the 8 Mil. total Austrian population, translates to roughly 2600 euro per capita Austrian trade deficit with Germany. Such high per capita amount of trade deficit is simply unheard of and it only fortifies the case that Germany looks at Austria as its own internal market (aka the German province theory).

      If we were to use your metric of current account, then Austria looks fine:

      http://www.tradingeconomics.com/austria/current-account

      So according to you and your Austrian buddy, we are supposed to ignore that Austria has a world record on a per capita trade deficit basis with Germany because the current account produces some marginally positive numbers?

      This is like saying let’s ignore ignore your hidden cancer because overall you look healthy.

    • At least the UK does not rob Germany via the ECB in order to fund their deficit!

    • @Dean

      I am not an educator: I conduct research, publish and occasionally teach. I consider my task as identifying problems, understanding current thinking and its limitations, and proposing policy solutions. All the things that you claim to be doing, I actually do professionally.

      Where we differ is in the diagnosis. You see a problem in some symptom (and ludicrously analogise it with cancer) and I see a symptom which has much deeper causal roots. So you can blabber on as much as you like about the symptom, but it is just not very important. If the patient has a boil on his leg, perhaps you will tell him to cut it off. If I tell him it is through poor diet, and how he should modify his diet, this is a rather more intelligent solution to the problem.

      As far as the current account is concerned, I told you that this is more important (usually) than balance of trade for countries with significant tourism. Your nonsensical arguments about tourism not being a good are completely irrelevant: this is why tourism is in the current account and not the trade account. If anything, the benefits to a German taking a holiday in Greece are much less than the benefits to a Greek buying German goods because even consumer goods have a reasonable lifespan and do not expire after the tourist season. I have not looked at the nature of German imports into Greece, but I presume that most are high-quality products that are of benefit to Greece. (If they are not, then your arguments would make more sense)

    • @Readers other than Dean Plassaras

      In case you are confused by Dean’s ramblings, let me give 2 examples:

      1) Picture an island republic in the South Sea which produces nothing but has such a thriving tourism business that it generates enough revenue from foreign tourists to allow the islanders to import everything they need. Despite a horrendous (infinite) trade deficit, everything is fine for the republic because foreign revenues match foreign expenses. It could be, however, that not all islanders find employment that way. If not, they will have to start producing something, either for export or for import substitution, to create jobs.

      2) Think of the ISS space station. The astronauts live entirely on imports from planet Earth but they have nothing to give planet Earth in return. Thus, they are totally dependent on transfers (credit) from planet Earth.

      Greece is somewhere between the two. Not because Greece decided to be there but, instead, for reasons which Xenos explained in these comments.

      From 2001-2010, Greece imported 446 BEUR but exported only 146
      BEUR. Put differently, the rest of the world had a trade balance ratio with Greece of a little over 3:1. Germany had that ratio with Greece,
      too, but Germany is only one part of the rest of the world (about 15% of Greece’s total deficit).

      The real issue is how Greece can improve its trade situation with all of the rest of the world (Germany included). Pathological paranoids out to seek revenge will blame Germany for the trade surplus with Greece. They ignore that if Germany cut its trade surplus to zero, ceteris paribus, someone else would replace it and nothing improves for Greece overall. People who are constructively interested in Greece (instead of revenge-seekers) will ask what Greece could/should do to improve its trade situation with the entire rest of the world. In fact, everyone should be asking this question!!!

    • Klaus, your point about Greece is apt. Even if Germany’s trade surplus with Greece was annulled, Greece would remain in purgatory as long as its uncompetitiveness, low productivity and lack of any oligopoly power (in any sector – including tourism) remain intact. The point on my post, however, is that Germany’s ‘business model’ within the Eurozone is at odds with the Eurozone’s design. While Germany is the dominant decision maker and remains in denial of that incongruity, the Eurozone is bound to proceed from crisis to crisis with Germany being the largest potential victim – something it will only recognise when it is too late.

    • My research is on migration and labour markets. I used to be an assistant professor in economics and then political economy (in the UK), and later an adjunct professor, but I no longer teach. All of my work is very focused research on problem-solving in employment related areas, for international agencies or governments.

    • Come on guys! These are not serious arguments.

      If you know that a country has trade deficits and you elongate the number of years long enough you can fabricate any trade ratio you want.

      This nonsense by Klaus of fabricating a period for such purpose is just that, nonsense.

      Here is another source: Use WTO numbers.

      Choose as the country Greece(where it says: Reporter) and then click on the graph on the right hand side(image of the graph). It shows you a trajectory of exports over the years. Then compare it to Germany. The trend looks identical (but the numbers are different). So this alone shows you that Germany and Greece are part of the same export trend.(relative speaking)

      What you fail to explain is the particular unbalanced trade between Germany and Greece.

      http://www.wto.org/english/res_e/statis_e/statis_bis_e.htm?solution=WTO&path=/Dashboards/MAPS&file=Map.wcdf&bookmarkState={%22impl%22:%22client%22,%22params%22:{%22langParam%22:%22en%22}}

    • @Dean
      Yes, these are serious arguments that it seems all three of us are agreed on. The problem for Greece is that it made the terrible error of joining the eurozone (owing to the major gap between the characteristics of the Greek economy and the German economy). The problem for the eurozone is its particular configuration, as Yanis just pointed out.

      As far as bilateral trade deficits are concerned, you continue to provide evidence that defeats your own arguments! If the trade imbalance (and it should be current account balance) between Holland and Greece is as serious as that between Germany and Greece, logic would suggest that the problem could be with Greece. As indeed it is. Greece cannot compete with northern Europe and has lost a lot of its production sector over the last decade.

      The question, as Klaus correctly points out, is what can Greece do about it. This is a very difficult question to answer, since there are many aspects to it. However, i am certain of one thing: that continually putting the blame on Germany in a generic sense is not helpful. If you want to advocate specific problems and possible solutions, I am all for it, But just going on and on about how bad Germany is will not solve anything.

    • Is there a function on this blog that can filter Dean´s posts? It would be great not to be forced to see that nonsense and franatic hate towards one country.

    • Xenos:

      I am sorry, you lost me again.

      This is a place of debate, not a fan club where 3 fans can come together to crowd out the fan of the opposite team.

      If I have to listen to someone it won’t be you but your compatriot Ambrose Evans-Pritchard who is far more experienced than you are and has the background to show for it.

      Why do you read his piece published on the Telegraph, posted at the top of the page, and then tell me where does it leave the club of 3 doctrine you are invoking?

      Because any which way I read his opinion it seems to be identical to what I am saying. In my case I also show a particular injustice done to Greece.

    • Yanis, as often happens, the comments take on a life on their own and depart from the original article. My comment was addressed at what I called the ‘ramblings of Dean Plassaras’ and not at the content of your article. To be sure, I don’t believe that I have ever come close to suggesting that the German ‘business model’ is in sync with the Eurozone’s design.

    • @On current account balances (con’d)
      Before this degenerates into an either/or argument whether current account deficits/surpluses are bad/good, one needs to make another attempt to understand what a current account is and does.

      A current account deficit means that an economy must be (or rather: is) importing capital in the form of loans, grants, investments, etc. An economy which does not generate sufficient domestic savings to finance the necessary growth is WELL ADVISED to import capital to facilitate greater growth. From that standpoint, I would say that it is GOOD for Greece to have a current account deficit. However, it all depends… It depends on the form the imported capital takes and what it is used for.

      If the imported capital takes the form of non-repayable and non-interest bearing investment and if it is invested into value generating activities which create employment, a current account
      deficit is wonderful. If imported capital takes the form of interest-bearing and repayable loans and if it is used to finance short-term consumption, then you get what Greece got: the consumption belongs to the past but the debt is still there.

      The mirror image applies to a chronic current account surpluser like Germany. By definition, Germany MUST export capital to the rest of the world. That’s mathematics and not economics. The price the German economy has to pay for being a current account surpluser is having to export capital to the rest of the world. Evidence of that is that German banks, over the last 10-15 years, were involved in just about every international financial bubble (with the possible exception of Bernie Madoff…). No way to avoid that.

      What the German economy has trouble understanding is that one cannot have the cake and eat it at the same time. One cannot pursue a model of generating enormous current account surpluses without, at the same time, being willing to export capital. Again, the reason for that is mathematics and not protests on the streets of the periphery.

      The trouble of the German economy is that, since WW2, it has only been able to employ its people thanks to having so many customers in the rest of the world. The entire structure of the economy has been built around that model. Let something happen to those customers and unemployment in Germany will explode. To change something like that is not a matter of implementing a new policy. That requires a change of culture and mindset.

      One thing which would, in my opinion, accelerate a change in mindset is if Germans, on a personal level, started to feel that there can be costs involved in exporting capital. No capital export without risk. If Germans, on a personal level, started having to pay a visible price for exporting capital, they may start asking why it is that Germany is exporting so much capital. And only then may they begin to understand that offering suppliers’ credit around the world may be great for the export industry but it may become very costly for tax payers.

  14. Pingback: Why Germany (Mistakenly) Thinks it Can Kill Its Export Markets Through Austerity and Still Prosper « naked capitalism

  15. This is a public apology to Yanis.

    Yanis, having read klemperer85’s commentary on my “push towards fascism” comment this morning, I realise my comment was easily interpreted in completely the wrong way and potentially extremely offensive especially when taking in the context of your previous post “On CBC Radio’s ‘Writers’ Program: Interviewed by Eleanor Wachtel on the Global Minotaur”

    For this I apologise without reservation. I was not implying you were a fascist or that you wanted to “push” Europe towards fascism in any way shape or form.

    I was voicing my opinion that having the ECB in control of debt that is backstopped by the taxpayer is fascism.

    I accept that you do not subscribe to my opinion in any way and this is why you see Eurobonds as a solution.

    I ask that you consider rescinding my ban on the proviso that I will be more diplomatic in the future.

    I live in Greece, I see the destruction that is being inflicted upon the population just as I did during the miners strike in my own country. I understand that my urgency can sometimes come across as extremely insensitive and again, for this I apologise without reservation.

    I throw myself upon your mercy

    • Richard, as I’ve read the dreadful 1st line of your comment I was thinking, jeez, he must have temporarily lost his so far perfect grasp of the English language.

      And I understood perfectly well Yanis’ response, he was absolutely doing the right thing.

      Since I can read this new post of yours I do hope he accepts your apology. This blog would be quite a bit poorer w/o your thoughtful contributions.

      BTW, I want to thank Yanis for the patience he had so far also with me. I am perfectly aware that I am not the nicest person in town. But I try to learn. Especially here in Yanis’ home office: to better understand the point of view the people living in the GIPSIFs (no pun intended!) must have (developed).

    • So you are British? I did not understand such from the quality of your English! I imagined that you are Dutch.

  16. Actually the most odious part of German behavior is that -according to 2012 export figures – it maintains a 3:1 trade advantage ratio with Greece and a 5:1 trade advantage with Cyprus. In other words it outsells Greece 3 times and Cyprus 5 times.

    At this moment of extreme pain for Greece, Germany maintains a 3 bil. euro trade deficit with Bangladesh and a 3 Bil. euro trade surplus with Greece.

    Meanwhile, the US in recognition of Greece’s need for assistance run a trade deficit in 2012 with Greece after almost 30 years of surpluses going all the way back to 1980.

    So, there you have it folks. US is a true friend and ally while some other countries are The Vulture:

    http://www.census.gov/foreign-trade/balance/c4840.html

    • Germnany is not profiting from the Euro.We are paying more for this shitclub EU than anyone else. When the Party was still going, at the expense of a German recession no ione in the South was complaining about trade surplusses of Germany. Only, when the Music stopped playing the search for the responsible was running wild. and most people in the south don´t see their own mistakes. they are always pointing to others, never ever taking a real view into the mirror.
      Besides that, I am all for a raise of salaries in Germany, since the crap salaries are one of the main reason for Germany´s “success”. But this all at the expense of the working class. It is a classical pitcture, only parallel to the years before 1914. It is big Capital against the working class, worldwide.

    • Priapos, just look at the development of the ranking of Germany what GDP per capita or net wealth is concerned…. Germany is the big loser in this EU-centralist chaos.

  17. Something not excactly irrelevant

    Ἡ ἀπίστευτη παρακμὴ τοῦ Ἕλληνος

    Δὲν εἶναι μόνον ἡ Βουλή. Εἶναι καὶ ἡ τηλεόραση. Ἡμέρα μὲ τὴν ἡμέρα, ὥρα μὲ τὴν ὥρα, ἀσχολεῖται ἀποκλειστικὰ μὲ τὴν καθημερινότητα, δηλαδὴ μὲ τὶς ἴδιες χιλιοπροβαλλόμενες εἰκόνες τοῦ ἔμπα βγὲς τῆς Τρόϊκας, τοῦ ἐὰν καὶ πόσο θὰ συνεχισθῇ ἡ καταβολὴ τοῦ χαρατσίου, ἐὰν ἤ ὄχι θὰ φορολογηθοῦν τὰ ἀγροτεμάχια, δηλώσεις τοῦ μέσου πολίτου ὅτι θέλει νὰ πληρώσῃ (!) ἀλλὰ δὲν ἔχει, ἀναλύσεις οἰκονομολόγων καθηγητῶν ποὺ γίνονται ἔτσι ἁπλά, γιὰ νὰ τὶς καταλαβαίνῃ ὁ δῆθεν κάθε ἠλίθιος. Ὁ στόχος εἶναι ἐμφανής. Πρῶτον νὰ ἀποτρελλάνουν τοὺς Ἕλληνες καὶ δεύτερον νὰ τοὺς ἀπομονώσουν ἀπὸ τὴν ὑπόλοιπη ὑφήλιο. Ἐδῶ γίνονται φοβερὰ πράγματα στὴν Συρία καὶ τὴν Βόρειο Κορέα, εἴμεθα στὰ πρόθυρα πυρηνικοῦ πολέμου καὶ ἐμεῖς ἀσχολούμεθα μὲ ἕναν Στουρνάρα καὶ ἕναν Τόμσον. Κάποτε ὑπῆρχαν Ἕλληνες. Τώρα ὑπάρχει ἀστυνομία βουτηγμένη στὴν διαφθορά, στρατὸ ποὺ τρέμει γιὰ τὸν μισθό, ἀντί νὰ πάρη τὰ ὅπλα ποὺ διαθέτει γιὰ νὰ βάλῃ τέρμα στὴν μασκαράτα. Ἔρχεται καὶ πάλι ἡ τρόϊκα λένε, καὶ τρέμει ὁ κόσμος ὅλος. Τί πτώση, τί κατάπτωση, τί βύθιση, τί ἀποβλάκωση τοῦ ἄλλοτε ἄνθους τῆς παγκοσμίας φυλῆς τοῦ πλανήτου! Τί λήθαργος εἶναι αὐτός. Θὰ πεθάνουμε μὲ τὸ εὐρὼ δαγκωμένο στὸ στόμα γιὰ νὰ μὴ μᾶς ξεφύγῃ, μουρμουρίζοντας ὕβρεις κατὰ τῆς κυρίας Μέρκελ καὶ ἔτσι θὰ περάσουμε ἐξευτελισμένοι στὴν Ἱστορία. Ἕνας ὁλόκληρος λαὸς ἔγινε γκαγκά. Ἐπιτέλους, ἀρκετὲς ἀναλύσεις καὶ ἱκεσίες!

    Δημήτρης Κιτσίκης 7 Ἀπριλίου 2013
    .

    http://endiameseperioche.blogspot.gr/

  18. Hello Mr Varoufakis,

    I am Greek, just like you, and I would like your opinion on the works of a grekk blooger, who accurately predicted the crisis back in 2006, and I’ve been reading him ever since. He is a marxist, and he stopped writing a year ago, but now he is writing again. Here are some ofhis recent posts:

    http://ciaoant1.blogspot.gr/2013/03/blog-post.html

    http://ciaoant1.blogspot.gr/2013/03/blog-post_25.html

    http://ciaoant1.blogspot.gr/2013/04/blog-post_7540.html

    http://ciaoant1.blogspot.gr/2013/04/blog-post_7540.html

    Thanks,
    Nick

    • That person has some good conclusions and some bad ones. But most of the base knowledge is wrong. Not knowing the right basic truths you can still get at the right conclusions if you know mechanisms that lead to the conclusions. Gold is not the base for the money as he/she thinks, gold was replaced with state debt long time ago. State debt is the base of the currenices today, not gold.

      What is really going on in EU today? EU is a confederation, The major players want it to be a federation to really be a strong power, but most of the southern states are aginst it because then they will loose many jobs in government. In a federation, states have smaller and less independent government, less power. PIIGS politicians do not want to loose their positions so they resist the proces of federalization.

      History repeats itself all the time, not necesserilly in the same place. EU is on the course the USA was in 19 century when they were moving from confederation toward federation and southern states were childish in not accepting it even tough that meant more power to the whole against other countries, more unity.
      To see that you have to look at money matters, how monetary system works in confederation and how in federation. When southern states were complaining about state rights aginst federal rights, they were thinking about power to create money while it was presented as power to decide on slavery. Lay people are not supposed to know what really matters: who control money supply.

      Will we go to war between north and south again, but this time in Europe? it depends on people of the south who, i think, want more unity and governments still do not have rationalizations to defend their resistance to federalization.

      “Money turns the world around”

    • Jordan, I may not be an economist, but I do know that state debt, or any form of debt, CANNOT be the base for any system to work.

    • I am not an economist either, but i learned some facts and then connected them to get to the conclusions.
      Let me write about mid evolution of money, how money switched from being backed by gold to being backed by Treasuries (debt).
      In 17th century, Britain needed funds for wars so it issued Treasuries to the Bank of England, Bank of Scotland, Bank of Ireland which all had issued their own guarantees for gold reserves which people used as means of exchange (currency). So banks bought the Treasuries but could not wait for maturities so they cut them up in smaller bills and sold to the population which also used it as means of exchange since they could not wait for the maturity or state took them in in payment of taxes.
      This completed a full circle of how state debt became the base for the currency.

      Then banks decided to limit the state’s ability to print more money (Treasuries) and demanded money to be tied up to gold. But that also produced problems so that was cancelled. Now, states do both, print debt (money) and banks use it to leverege it up as credit, which is also debt, Credit (our debt) which we then use as means of exchange. Our debt becomes our wealth.

      So you can view this as debt upon debt, upon debt which is used by us as a mean of exchange. Or you can view it as money upon money upon money which we use as a mean of exchange. Is it debt or money , it depends on the point of view of those that use it.

      Money is debt, in short. depending on who is recording it in their accounting. Accountants know that every transaction involves two entries; one as a liability and another as an asset. It is the effect of double entry bookkeeping.

      In other words; if i give you $20, that is my loss and at the same time it is your gain. How can one bill of $20 be gain and loss at the same time?
      It is bookkeping/ accounting. It depends on the viewpoint. And on the period of time that it is viewed for.

  19. @Veryserioussam:
    ….Strange that you permanently focus solely on looking for alleged mistakes by Germany. Might it not be a better idea to focus on what the Greeks, Portugees, Cypriots and so on THEMSELVES could and should do to change things?

    What mircale can these three countries do to satisfy your idea of correct financial behavior?

    Do you expect Greeks who have been hiding their wealth from tax collectors for years to step forward and petition Greek government to take as much as they want in taxes so they can save Greece.

    Will an offer to give up 30% of their wealth by Portuguese and Cypriots lead to a miracle cure of their current debts?

    What help Germany has offered in return for austerity has not lead to easing of the financial crisis. Until Germany is willing to listen to some economists like Yani who offer concrete steps to turn this mess around, the crisis will only drag on. Who knows maybe these countries can handle another ten years of increased austerity until their Debt to GDP ratio is so large even the Germans will realize there is no way it can be paid off.

    • My ‘idea of correct financial behaviour’ is that neither individuals nor organisations, from companies up to nation states, can and should live for a prolonged period of time so far beyond their means that they impose huge debts onto the shoulders of the generations to come.

      Consume now, let others pay later, this is not what I call fair and sustainable. Not for people, not for nations. You may, I don’t.

      As for what to do: certain nations have to accept the simple fact that the standards of livings their people enjoyed thanks to much to cheap borrowed money are gone for good, since they were never sustainably backed by the business models of their economies. And of course they must as well accept that they can’t make others pay limitless and forever to keep the standards of livings on the levels where they were.

      Then, also of course, they need to get their houses in order. To make those of their people who profited most during the years of milk and honey contirbute a lot, if they want or not, is inivitable.

      One out of many, many things that must be done to achieve this is, yes, collect the due taxes. If the wealth hiders you mention don’t volunteer to pay, take it from them.

      And of course there are things like reduce balooned public sectors, invest in the real economy instead of the finance parallel universe.

      As for the common currency: one size doesn’t fit all, this can’t be disputed. Those for whom the Euro proved to be a desaster should really consider to give it up. Maybe team up with others who are in the same siituation.

      It is high on time to accept the fact that the Euro is failed and must be unwinded. This will be expensive for every one, the creditors and the debtors. But it will probably be the only way to end the vicious circle, the only way to stop the increasing hostility between nationws who were perfectly in sympathy before the wretched Euro was brought into existence on demand by the French.

    • Unwinding the Euro: “This will be expensive for every one, the creditors and the debtors.”

      I will be delightd to watch this from a distance. All the dumb People who Keep Money in bank accounts, bonds and “life insurances” will get hammered!

  20. I’m trying to remain objective reading all of this but what a mess. And not one “European” was asked or even voted for the euro, it was simply imposed by planners (rulers). Yes, UKIP still has me on this one; as they say there’s nothing democratic about the euro, its actually antidemocratic. Why not recognize it, dismantle it and stop trying to fix what is incredibly broken, which happened to suddenly replace many currencies that were not.

  21. Yanis,

    Further to my comments in response to your post of the 25th March – “On Cyprus, the Eurozone and the Australian economy: A 30′ minute interview by Doug Henwood” might I also suggest you listen to the excellent BBC Radio 4 podcast “Report: Cypriot Banks” – http://www.bbc.co.uk/podcasts/series/r4report. The story that unfolds is typical example of what William Black (in his excellent book The Best Way to Rob a Bank is to Own One) refers to as “control fraud” i.e. the executive/s at a bank systematically hollow it out by a series of ever more fraudulent but really quite simple stratagems that inevitably end with the implosion of the said entity. As the recently announced re-calibration of loses demonstrate all to clearly the whole foundation of the Cypriot political economy is probably rotten to the core, and I confidently predict that in the coming months we will be treated to a rich diet of expose and scandal along the lines we’ve already witnessed from the mainland (Madame Lagarde’s “Rich List, etc).

    One further point for general discussion; one reason that Greece’s finances are in such a ruinous state, and by extension those of Cyprus, is the level of Greek military expenditure; 2.3% GDP (bad, but at least down from on a historic average of around 3%!). True it’s not as big the UK’s at 2.6% (but then I would argue that our bloated and dysfunctional arms procurement process is one of the enduring reasons for this country’s progressive [and I fear terminal] industrial decline, or for that mater Turkey’s at 2.7%. But leaving aside that the latter can probably (just) about afford their self destructive habit, Turkey unarguably inhabits a far more dangerous neighborhood than does Greece. The fact remains that in a state suffering chronic economic meltdown, money on this scale can still be found to indulge the generals (yes, and fund German defence contractors, but just because they’re selling doesn’t mean you have to buy – the same principle applies at Dunk’in Doughnuts, you don’t have to buy the crap, unless of course the supplier is stuffing your Swiss bank account) is indicative of something deeply corrupt at the heart of Greece. And it probably goes some way to explaining why the Bundesbank/Merkel aren’t to predisposed to showering their taxpayers/electors money on Grecian heads.

    Sleepwalking into fascism might be less convulsive than a coup d’tat but in the end you end up in the same hellhole. For my money, I think that Greece stands a better than 50/50 chance of experiencing something similar to what happened in Turkey in 1980. So, if I were you Yanis, I’d be spending a little less time ruminating on the travails of the global economy with your new ‘A’ List “friends” and a little more on making practical preparations with fellow minded countrymen and women for a repeat showing of “The Colonels”.

  22. Yanis, it is just stunning how commenters on this site do not get Global Minotaur message.

    The message is: Deficit and surpluses are not the problem to be solved, they are the byproduct of private sector needs and desires. Deficits are natural and pure accounting fenomenon and prosperity of the world economy depends on uninterupted flow to support deficits.

    I admit, i did not read your book but i get the gist of it from your audio and video talks.
    I did expand on it to develop a theory that includes flow of money on every level of the economy, with a diferent name: Nominal Surplus Circulation.
    Nominal since it is about money flow, not flow of goods and services, Surplus since the flow of surplus is what makes real values be used on wide scale and Circulation to point to important aspect of circular movement of money. NSC

    Deficit, and with it surpluses, exist on every level of the economy, but using different names.
    Within a single currency, there have to exists deficits and surpluses and they keep growing larger and larger, but on some levels they are not recorded in accounting as it is recorded at the state level.

    -Every household/ family has permanent deficit and surplus areas, it is just that since deficits are not recorded we do not think about it that way. EMployed parents are permanent surplus while kids and unemployed inside household are permanent deficit areas. Parents gives children their surplus (whatever it is not spend on them i call surplus) by paying for food, clothing, school, giving space… without ever calculating the deficit and kid’s debt to them.

    -Subdivisions also have permanent deficit areas within a city, without that deficit ever being recorded in accounting.

    -Industrial zones are permanent surplus area in a city/ town that gives it to the deficit areas of the city. There is no accounting for such deficit within a city, but it is there and we do not pay attention to it. That is a permanent state of things.

    -Cities within a region-county have permanent deficit areas, they all give taxes into county accounting and get back different investment size then they gave. But who cares about that. It is permanent deficit.

    -There are permanent deficit and permanent surplus counties inside states.

    -There are permanent deficit and surplus states inside a country (USA). Lately, they started looking into those and found out that southern states in USA are permanent deficit states, while most of the developed northern states are permanent surplus areas, they give more into federal budget then they receive. Now they are looking into it since southern states, that enjoy higher returns then payments (“spending above their means,” permanent deficit…) are against those redistributing flows with which they get more.
    Those redistributin mechanisms are federal (united) retirement (SS), military spending, Medicaid, Medicare, purposefull investment into less developed states. Those are all means of surplus flow into deficit areas.

    -EU is a single currency area, since most of them are pegged to euro if not part of the EZ, which has the same effect as if it is a single currency area.
    There are and there will always be permanent deficit and permanent surplus countries within the EU. Asking to forcefully erradicate deficit is asking for unemployment so that a deficit country is so poor that it can not import more then export. Imports are the cause of deficits.

    -The most important permanent deficit areas are poor people against wealthy as surplus area.
    Before 1975, under Keynesian policies, Nominal Surplus Circulation was supported with sufficient redistribution of surplus from the wealthy to the poor using 94% marginal taxes, full employment policies, strong Social Security, Union backed good wages, but after 1975 that NSC was supported with debt instead of by rising wages. In 2008, wealthy realized that their debtees can not grow their debt anymore and realized that debts will not be repaid to them and cut the flow of surplus to the deficit area (low wage worker).
    Nominal Surplus Circulation was interupted and it has to restart in order to get into the recovery. By now they are continuing to support NSC with more debt but that will have to stop again. Wealthy will get scared again.

    • Good! You have figured out the producer-consumer problem! Barring sufficient counter-flow of money, no matter how much money the consumer starts with, eventually the producer ends up with all of the money. And then, crash and burn, baby. Crash and burn.

      One of the most fundamental problems in economics, yet nobody talks about it. Interesting.

      Reality is a little more complicated, of course, since thanks to modern financial wizardry, third parties are ending up with all the money, and even the actual producers of goods and services are ending up empty handed and resentful. Anyway.

      For the periphery there are only two ways out: 1) Germany just gives gives the money back to the periphery, and keeps on doing so. (More loans just dig the hole deeper.) Not likely, even though it is in German interests to do so, since it will maintain the hold their economy has on the rest of the Eurozone. Third parties are involved. Or: 2) Trade restrictions are instituted by the countries of the periphery, so the periphery can eventually recover and, if so inclined, pay the Germans back.

      Austerity and internal devaluation and deflation will not do it, and, as mentioned above, more loans will just dig the hole deeper.

      Free trade is death to an economy running a trade deficit. See:

      http://anamecon.blogspot.com/2013/04/more-on-negative-effects-of-trade.html

      And:

      http://anamecon.blogspot.com/2010/04/effects-of-unbalanced-trade.html

      There is an interesting moral aspect to all this, but that is beyond the scope of the article.

    • Thank you.
      There is 2,500 year old solution (probably older) to permanent deficit problem: in Deutoronomy 15, Moses ordered Izraelites a debt forgivness every 7 years in order to reduce poverty. Debt Jubilee.

      Sure, that would be impossible to implement, but there is a modern day equvalent, silent and prolonged one: slow rising inflation on a fixed rate is equvalent of a debt forgiveness.

      Steve Keen recomends giving away to every citizen $100,000 with condition to pay the debt off first. In EU situation it would be an equvalent of giving away to the countries that ammount per citizen. He calls it Modern day Jubille.

      I was wondering if Merkel and co. are doing this to force other nations into United banking system; all banks within EZ to be insured by ECB instead of their countries? Is there another way to force divided politicians to accept loosing their percieved sovereinty?
      EU also needs united retirenment and health system, military system. Full confederalization of the EU is recquiered.

      I am also wondering if anyone gave the name to the problem as Nominal Surplus Circulation? Is there a name in economics for that?

    • Greg, great work you are doing there.
      If i may suggest to work with diferential equations instead of jumping from equilibrium to equilibrium. Work with dynamic system instead of static. Economy is dynamic.

      Steve Keen is working on “Minsky” a program that is dynamic picture of an economy with bank and debts calculated into the systems. Now he is trying to make a much more complex program that can include multiple countries and interdynamics of their economies. It is a program of the flow of the whole world that will have predicting abilities.

      To be bold; Steve Keen will be new John Maynard Keynes.

    • The euro does not appear to be a currency. Which is the sovereign bond yield of the euro? …
      For an unit of account to become a currency (money proper) willingness to mutualize public debt and to support indefinite fiscal transfers are required.
      It seems that the euro does not go beyond the status of being the name for a virtual unit of account of a multi-currency peg.

    • Even if it were. We now have two Euros with different values. The Euros trapped in Cyprus and all other Euros!

    • JS
      Sorry, but currency is a medium of exchange. Other stuff about indefinite fiscal transfers are not noted as defining currency.
      Indefinite fiscal transfers are important part of single currency area and since EU does not have mechanisms for it, euro is in a dissolution mode.
      I was also attacking classical economist myth about Optimal Currency area which is based on production and resource caracteristics. OCA theory is a bs, no such thing. OCA is actualy a good fiscal transfer within single currency area without initiating tribal antagonizms.

  23. Το μεγάλο αυτο-γκολ; Η Γερμανία εξισιρροπεί τα μεγάλα εμπορικά της ελλείματα με Ρωσία, Κίνα, Ιαπωνία, Νορβηγία κλπ με τα πλεονάσματα από Ισπανία, Ιταλία, Ελλάδα κλπ. και θέλει να τα καταργήσει ;;;^%#}{!!! ´Η μήπως βλέπει πιο μακρυά και ελπίζει ότι ο φθηνότερος νότος αν μεταρρυθμιστεί και αυξήσει την παραγωγικότητα του έιναι η μόνη ελπίδα της Ευρώπης απέναντι στα BRICS; Πρέπει ο νότος ντε και καλά να μείωσει τις εισαγωγές από Γερμανία; Δεν μπορεί να αυξήσει τις εξαγωγές προς τα BRICS;

    • This is the official narrative when it comes to solving the crisis. There are several reasons why this cannot happen;
      1) Peripheral countries have accumulated substantial private debt that will inevitably become unsustainable when wages and profits fall past a certain level and unemployment rises beyond a critical point of say 25% due to the internal devaluation process. When that happens it is game over for these countries when it comes to their eurozone participation. Devaluation and inflation is the only way out. Assuming they are allowed to do even that.
      2) Italy aside the PIIGS countries are more oriented towards services than industrial products.
      3) They lack any competitive advantage in relation to industrial infrastructure (China, India), natural resources (Brazil, Russia), worker cost (All BRICS) and access to money markets (Again all BRICS).
      I could go on and cite demographics, private investment levels, domestic consumption that supports local industries but these three should be enough. Sure if one takes a look at exports in PIIG countries a rise of exports towards non-eurozone countries is observed (even in Greece) but at levels that are simply irrelevant in the big picture. You know, in the end if Germany cannot compete with China in a free market environment, what possible hopes do PIIGs countries have? It is imposible.

  24. Funny all these numbers are small in comparison withthe Target2 claims that Germany has against the ClubMed.

    So what you are saying is that Germany is financing ist imports from Japan with the worthless caims against the ECB it gets from exporting to the ClubMed? Looks like a pyramid scheme to me!

    • The argument that current account deficits are financed through target-2 only applies to members of the.Eurozone. Yes, the Northern target-2 claims are much higher than the sum of Southern current account deficits because the bulk of those claims was caused by deposit flight.

    • Isn´t also caused by the unwillingness of private money going to the South? As Long as the South would get loans from (non central bank) Northern banks and private Investors, there would be no T2 claims.

      The T2 claims started to rise when private Investors realized that the South would never pack back these loans. This was long before Greeks, Spaniards and German companies starting to withdraw their deposits from the South (for good reason).

    • EUdSSR
      Yes, it started with private lenders (correspondent banks) calling their short term loans to Greek banks. If I recall correctly, that process started back in 2009 (if not earlier). So, Deutsche, for example, would call back, say, 100 MEUR loans to the Greek banking sector and the Greek banking sector funded that via the ECB. Simply a change of lenders: before it was Deutsche; afterward the ECB (actually the Bundesbank). Then the run on deposits started, I believe, in late 2009. At the peak that was over 80 BEUR in deposit losses which had to be refinanced via the ECB (Bundesbank). And the accumulated current account deficit 2010-12 was, I believe, around 45 BEUR.

      On a macro-basis, Germany didn’t really change the risk profile of Germany as a country through the explosion of target-2 claims of the Bundesbank. On a micro-basis, before the risk was carried by, say, Deutsche and afterwards by the tax payers.

      Some even argue that Germany as a country reduced its risk profile. Had Deutsche lost 100 MEUR on Greek banks, it would have been 100% German loss. Once that 100 MEUR is lent by the Bundesbank, the German share of a loss would only be about 28% of that (Germany’ share of the ECBs capital). In fact, this argument is technically correct. In practice it’s a moot point: should the Euro evaporate, then the ECB would evaporate, too, and any claims in a currency which has evaporated against a Central Bank which has evaporated will make lawyers rich but everyone else poor.

    • If Deutsche Bank goes belly up it is not a 100% German loss. The owners are largely foreigners. In addition the tax payers was not ask to take the risk of lending to bankrupt countries at artificially low interest rates (it is the same with the ESM), whereas private institutions can take that decision.

      This is such an utter mess and I hope there will be a revolt in whatever form (overthrowing governments, wiping out the banks, rise of sound private money). The sooner the System collapses the better/cheaper.

  25. As important as the trade balance is, I really think the current account balance is more important. It would be interesting to see to what extent Germany’s trade surplus with the stragglers is compensated by the deficit in services. I have googled but couldn’t find any plain and simple source of information.

    Obviously, the North/South imbalance in the current accounts is at the core of the debt problem but, in the absence of devaluations, how does one correct that? Suppose a miracle happened and Germany’s wages/salaries were increased by 5-10%, thereby increasing aggregate demand. How would Greece benefit when Greece does not have the products which Germany wants to import or when Germans spend their tourism Euros elsewhere?

    Incidentally, on the surface it is correct that Germany’s global current account surpluses are financed by the imploding EZ-stragglers. However, in actual fact, the Southern deficits are financed by the ECB via target-2. Put differently, EZ-tax payers (including German as well as Greek tax payers) have been financing the current account deficits which the South has with Germany.

    I would also be curious to know which other countries have benefited from the Southern current account deficits. When I analyzed the Greek current account deficit some time ago, I was surprised that Germany accounted for only 15% of the total from 2008-11. Who are the other 85%? What are they doing to support Greece?

    • >>>Suppose german wages/salaries were increased by 5-10%

      You are absolutely right. It would not help the South a bit. What would people do with the money? Many do not need it, so they invest it (outside the crippled EZ) or fix their house, anything that the EU/their government cannot take away from them!

  26. … but this implies that Germany is not going to leave the euro for a return to an overpriced mark !?
    would the German industrialists and bankers allow the politicians to follow a precarious path towards some narrow-minded, protestant ethical meandering in the north ?

    my reading of your data is that, provided we remain alive and manage our systemic problems, we shall be ok at the end.
    All it needs is some mix of eurobonds, banking rationalisation and and…
    DX

  27. Strange that you permanently focus solely on looking for alleged mistakes by Germany. Might it not be a better idea to focus on what the Greeks, Portugees, Cypriots and so on THEMSELVES could and should do to change things?

  28. Yanis – As usual you want to push us towards fascism.

    Where do you think Greeks are getting the money from. Could it be they are recycling the money that was saved during the boom times?

    And why would you want to get the government involved in Greek-German trade? Even it is indirectly.

    The whole recycling mechanism depends on some sort of EU income tax paid to the EU/ECB (in addition to taxes already in existence) This is going to negatively effect Germany as they will see less than they put in and it will generally move money out of the hands of the private citizen and into the hands of government. Why would you want to do that?

    Name a single industry where a government is doing a better job than the private sector equivalent. Of course you cannot so again, why would you want to put more money in the hands of people who are proven incompetents (so they can give to their friends) and take money out of the hands of the people who produce the wealth?

    • Who would not want his wealth getting managed by the likes of Barroso & van Roumpoy?

    • THANK YOU, YANIS! Richard is so lost in some kind of primitive religious revelry that he has nothing to contribute to any blog covering macro. AND, unbeknownst to him inside his revelry, he is a bit of a fascist himself.

    • Richard, even if you came back with a changed name – your post is hilarious. To begin with, you ignore the 2008 Crisis in your funny praisal/condemnation of private and government sectors. Even humble me, no economist, can get tired of such horrible repetitive oversimplifications. Reading this blog and others put us all far above that years ago, isn’t it? Why not sticking to what the thread is about, with questions and arguments, like for example Klaus Kastner? I often learn from the posts with questions, other opinions and such.

      And your first sentence, buttered with “as usual”, is such that no words exist to say – how it is. Besides, there is no “us” in any country, “the” germans and “the” greeks and so on do not exist. Then it should finally be rule 1 for all people with different opinions what so ever not to always use “fascist” where it 100% makes no sense at all. You can kill any discussion with calling someone a fascist or that she or he “pushes us towards fascism”.
      I read a lot of sometimes horrible nonsense in german media over the last 5 years concerning the Eurozone problems. I never, even in Focus or Bild, read any accusation that someone not happy with Merkel’s austerity politics would “push Germany towards fascism”. It simple is 100% wrong, and for the first time I understand the most of the time stupid german word “fremdschämen”. (“feeling ashamed on someone else’s behalf)

    • What particularly worries me, or pains me, is the fact that the same stratification created between the European North and her periphery, is also seen reproduced within the societies of the lagging nations, between the privileged and mobile few and the condemned hoi polloi, the increasing incapacitated proles.

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