1. The current account deficit declined 8% to 21 BN EUR in 2011. That is wonderful news! Or is it perhaps not? Actually, it is quite impressive when comparing it to the current account deficit of 35 BN EUR in 2008, but one has to take a closer look at the numbers.
2. Exports increased 18% to 20 BN EUR. How about that for a country which, according to all wise men, has lost its international competitiveness?
3. And imports? Well, imports couldn’t be curtailed but at least their growth rate could be cut to 5%. So when exports increase by 18% and imports only by 5%, one should expect that things are going real well. Are they?
4. Well, it is certainly more promising to have export growth than not to have one. Particularly when exports grow that much faster than imports. But the absolute level of imports was still excessively high in 2011.
5. Imports were 48 BN EUR in 2011. That is 2,3 times the level of exports! Put differently: for every Euro which Greece receives from exports she spends 2,3 Euros on imports. Mathematically, this translates into “spending more than one earns”.
6. Exports covered only 43% of imports. To understand why Greece is so much different from all other PIIGS-countries: in troubled Italy, exports still cover over 90% of imports (and Italian exports are almost 2 times the entire GDP of Greece). Even in the USA, the world’s import champion, exports still cover imports by almost 80%.
7. Greece has the advantage of having foreign income from other sources than only exports: Greece has tourism, shipping services, etc. However, the net contribution from these sources is “only” 6 BN EUR. Thus, the trade deficit of 27 BN EUR is reduced by those other sources to a current account deficit of 21 BN EUR.
Without continued funding from abroad, Greece would nearly overnight have to reduce her spending abroad by about 21 BN EUR. How could that possibly be accomplished?
Well, Greece could stop paying interest on all existing foreign funding (about 10 BN EUR). The argument would be: “If you don’t fund us any longer, we won’t pay you interest either”. But that still leaves a hole of about 10 BN EUR.
I doubt that increases in exports and/or tourism could do all that much to cover this remaining hole. Thus, here comes the bad news and this is the worst-case scenario in the case of a disorderly default.
The bad news is: Greece would have to impose radical import controls. At least 10 BN EUR would have to be cut out of the present level of 47 BN EUR of imports. Since there are essential imports such as energy, medicines, etc. which could not be “touched”, so much more has to be cut out of other imports. Greece would certainly survive without imported luxury goods, smartphones and the likes but still: since the living standard of Greece is imported, a cut in imports translates into a cut in living standards.
I recently read in the Ekathimerini that, despite billions of EU-grants for agriculture in the last 3 decades, Greece is still a major importer of agricultural products and foodstuffs. One thing is for certain: once the point is reached where Greece may not have sufficient funding to pay for those kinds of imports, then the crisis will have reached its peak!