After the austerity therapy, the imbalances in the euro-zone are now mounting.
My previous article (United Kingdom versus Eurozone - the Roots of Brexit) I compared the UK with the euro-zone as a whole. Now we take a look inside the euro-zone, taking the four largest countries (Germany, France, Italy and Spain), the three submitted to the loving care of the Troika (Greece, Ireland and Portugal), plus the Netherlands. The following data compare the net trade balance in the year preceding the outbreak of the financial crisis with that of 2015 (Eurostat data)
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Export minus import as GNP %
2007 2015
Germany +6,6 +7,8
Netherlands +8,9 +10,8
France -1,3 -1,4
Greece -12,5 -0,2
Ireland +8,2 +32,8
Italy -0,4 +3,2
Spain -6.0 +2,4
Portugal -7,6 +0,7
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As you can see, while in 2007 only Germany, Ireland and the Netherlands had a surplus, now only France is (slightly) passive, given that Greece has almost achieved a breakeven. The balance was reached, it must be said, mainly because of the collapse of Greek economy occurred in recent years.
But, in front of the improvement in the trade balance of deficit countries, there isn’t a reduction of the balance of the surplus countries; on the contrary, both Germany and the Netherlands have increased their active about two percentage points, while Ireland is something more than export-led economy, it is an export economy.
Essentially the imbalances were not reduced. To see this we may look at the net financial position (Net International Investment Position, NIIP); these are the data concerning the financial assets of residents of an economy that are claims on non-residents, plus gold of their central bank from one side, and residents' liabilities to non-residents from the other side. Therefore, the NIIP provides an overview of the net financial position (assets less liabilities) of a country to the rest of the world. ___________________________________________________________________________________________
Net International Investment Position (%PIL)
2007 2015
Germany +18,7 +49
Netherlands - 15 +60,8
France -13,8 -16,4
Greece -91,9 -133
Ireland -31,4 -208
Italy -23,1 -24,2
Spain -79,6 -90
Portugal -88,8 -109,4
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As we may see, the Germany highly active position has more than doubled, but the most impressive growth is that of Netherlands, country that went from a slightly passive position to a highly active one. In contrast, other countries have all (passive) positions of their balances worsened, to a lesser extent in some cases (France and Italy), more sharply in others, up to the spectacular case of Ireland.
It might seem strange that a country (Ireland) with such a positive trade balance has a financial position so strongly passive. But it must be remembered that the Irish banks have always be financed by the European and North American banks, and that the high public debt (precisely because of the bail-in of banks by Irish Government in 2010) is largely in foreign hands.
These data show clearly that the imbalances in the euro-zone are now mounting. Wolfgang Munchau wrote recently on Financial Times : “Many of my British friends have long seen clearly that the euro-zone is unsustainable on the basis of present policies and institutions. But that view is not shared by policymakers and economists on the continent”.
Actually outside Germany many economists share the idea, and among these the same Munchau, advancing plausible proposals to divert the direction of the euro-zone march, and thus of the EU itself, into the ravine. Proposals which however have no chances of being taken into consideration.