All countries with a deficit in the current account balance have also relevant deficits in the public budgets.
The financial storm is still with European countries; stock exchanges go down, spreads up. Madrid and Rome put the blame on each other, while they should put the blame on Frau Angela, but Monti and Rajoy wont. There is an obvious reason: the gloomy perspective of economic growth in general, but mainly of Mediterranean countries. This year they are in recession, and 2013 forecasts are disappointing. Fiscal austerity is self-defeating; as observed by Olivier Blanchard, the “damned if you do it, damned if you don’t” attitude on fiscal austerity by financial markets may appear quite schizophrenic.
If we look at the four years 2008-2011, it appears that selecting fourteen countries (eleven euro area plus Denmark, Sweden and UK), dividing those with a surplus in the current balance of payments and those with a deficit, and looking at the behaviour of public budgets and rate of gdp growth.
Surplus in current account
I) Public budget (surplus or deficit )
2008 2009 2010 2011
Austria -1 -4,1 -4,4 -3,4
Denmark 3,3 -2,8 -2,8 -3,7
Finland 4,2 -2,7 -2,8 -2
Germany -0,1 -3,2 -4,3 -1,2
Netherland 0,5 -5,5 -5 -4,2
Sweden 2,2 -0,9 -0,1 0,1
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II) Economic growth
2008 2009 2010 2011
Austria 1,4 -3,8 2,3 3,1
Denmark -0,8 -5 1,3 1
Finland 0,3 -8,4 3,7 2,9
Germany 1,1 -5,1 3,7 3
Netherland 1,8 -3,5 1,7 1,2
Sweden -0,6 -5 6,1 3,9
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Deficit in current account
I) public budget (only deficit )
2008 2009 2010 2011
Belgium -1,3 -5,9 -4,2 -3,5
France -3,3 -7,6 -7,1 -5,7
Greece -9,9 -15,8 -10,8 -9,0
Ireland -7,3 -14,2 -31,3 -10,3
Italy -2,7 -5,4 -4,5 -3,6
Portugal -3,7 -10,2 -9,8 -5,9
Spain -4,5 -11,2 -10,4 -9,4
UK -5 -11 -0,4 -9,4
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II) Economic growth
2008 2009 2010 2011
Belgium 1 -2,9 2,3 1,9
France -0,1 -2,7 1,5 1,7
Greece -0,2 -3,3 -3,5 -6,9
Ireland -3 -7 -0,4 0,7
Italy -1,2 -5,5 1,8 0,4
Portugal 0 -2,9 1,4 -1,6
Spain 0,9 -3,7 -0,1 0,7
UK -1,1 -4,4 2,1 1,5
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The differences between the two groups appear at first glance: countries in surplus have public budgets in 2008 in surplus or with a very small deficit, and only Denmark and Sweden were in recession. All countries with a deficit (in the current account balance) have also relevant deficits in the public budgets, and, a part from Belgium and Spain, are already in recession. Countries of both groups go in deep recession in 2009, and the public budgets get worse, because of automatic stabilizers and discretional measures of tax cuts or increases in expenditures in order to restrain the fall of gdp (these last brought about mainly by countries with a lower public debt).
Differences appear in subsequent years, when countries of the first group, (but Denmark and in part Netherland) are able to recover the gdp level, while countries of the second group aren’t able to recover, a parte France and Belgium (thanks to a less restrictive fiscal policy). Greece (both in 2010 and 2011) and Portugal (in 2011) pay with recession the restrictive measures they are obliged to implement.
The austerity made in Germany causes a stagnation all over the Europe, but five over eight countries of the second group are in recession and growth of the other three is very small (UK 0,6, Ireland 0,5, France 0,4); in the first group instead there is a strong slow down, but only Netherland enters in recession (-0,9).
Concluding, if the European economic policy is based on the idea that “cicada” countries have to do an adequate penance, with a balanced budget and cuts on wages in order to recover the losses in productivity, it appears quite probable that financial markets do not will wait for the un-probable adjustment, and will cause a perfect storm on euro countries.