Spending more than we make
A ghost from the past, the current account deficit, has come to the fore again, on the occasion of the European Commission’s spring forecasts, which calculated it at an alarming 11.8% of GDP in 2022, but also the strong warning by Bank of Greece Governor Yannis Stournaras on this specific issue.
The central banker actually highlighted the other side of the balance of payments deficit: negative savings. “The public deficit must be greatly reduced, it must become a surplus, and national savings must also increase,” he said in an interview with Naftemporiki newspaper last week. “We don’t need measures that reduce national savings.”
Indeed, this deficit in addition to the lag of Greek exports compared to imports also reveals another dimension: the lag of state and private sector savings compared to investment. In other words, Greeks’ savings are not enough to finance the investments being made. This is because consumption is high, so people need to borrow to invest; a situation obviously not sustainable in the long run.
Only during the pandemic (2020-2021), when consumption nosedived, did savings cross into positive territory, but later consumption rebounded to a higher rate than gross disposable income, turning the trend negative again.
The whole problem boils down to the following simple fact: Greeks spend more than they produce. This is a permanent problem of the Greek economy, which it seems could not be radically cured in the bailouts period.
It may not have occupied the election debate; however, as economists point out, the problem will emerge in the coming years if it is not cured by increasing domestic production to substitute imports. Markets will at some point think that a country whose external debt is constantly increasing is not sustainable, they warn.
Eurobank’s chief economist Tasos Anastasatos recently pointed out at the Delphi Forum that although the expansion of the external deficit is partly due to the contemporary factors of the pandemic and the energy crisis, its persistence over time shows it is a structural feature of the Greek economy.
