Greece Needs Europe, as the Latest Numbers Show

Capital flight apparent in new data
New imported automobiles sit on a dockside at Piraeus port in Athens Photograph by Kostas Tsironis/Bloomberg

It’s easy to stiff your creditors and walk away if you won’t need to borrow more money any time soon. Not so easy if you’re heavily dependent on a continuing flow of credit from abroad. That’s Greece’s situation.

Greece’s dependence on the rest of Europe comes through clearly in today’s report from the Bank of Greece on the nation’s balance of payments.

Bear down, because this gets technical.

By definition, the balance of payments for every nation always comes out zero. But there are good ways and bad ways to get to that zero. Greece is getting there in a bad way.

Start with trade. In the first three months of the year, Greece’s exports of goods were only half as big as its imports of goods: some €4.9 billion ($6.2 billion) vs. €10.8 billion. The biggest import item is oil.

Luckily for Greece, it partially offset the goods deficit with a surplus in services, with receipts of €4.7 billion exceeding payments of €3.2 billion. The biggest earner in services is transportation (i.e., shipping).

Income is next. For years, Greece has paid for its imports with IOUs. Other nations have made loans to Greece or acquired stocks and real estate in the country. All those foreigners’ assets earn income. In the first quarter, Greece paid out €2.5 billion in interest, dividends, rents, and the like, while receiving only €800 million on its investments abroad. That deepened the hole.

Direct aid from other governments, mostly the European Union, came to a net of €1.4 billion and helped close the gap. So did €1.1 billion of government “capital transfers,” which includes so-called structural assistance.

The heaviest action is down at the bottom of the balance of payments balance sheet. That’s the financial account, which is for investment flows rather than trade, interest payments, donations, and other current transactions. It shows a mighty battle between the flight of private capital out of the country and compensating government flows in. In the first quarter, portfolio investment in Greece declined by €37 billion. That reflects foreigners pulling out, plus Greeks stashing their money outside the country. Offsetting that were loans to Greece of €39 billion from the European Financial Stability Facility and the International Monetary Fund.

Bottom line: Greece is dependent on the kindness of strangers. Increasingly, those strangers are not private investors, but governments. Which is to say: taxpayers.

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