Sunday, 11 June 2017

One feature of the current emigration wave out of Greece left unsaid.

The current emigration wave out of Greece is certainly well documented and remarked-upon. It is often compared and constrasted with past emigration waves, mostly with that of the '60s that saw droves of Greeks flocking to western Europe (mostly Germany), the US etc. There is one feature of the current wave though that sets it appart from past ones. Current Greek emigrants don't seem to be sending money back home. 

Quite a lot of countries, mostly EMs, depend on worker remittances to shore up their current account balances. Greece did, in part, during the '60s and '70s. Although, detailed data regarding remittances flowing back into Greece for those decades do not exist, a simple look at secondary income balance shows that this was quite prevalent during the 1960-1970 period (flows from the EU after the country's accession in 1981 are easily distinguishable, since the secondary income balance deteriorated as the economic situation in Greece was improving and emigrants started coming back and exploded upwards in the 80s).

source: AMECO, own calculations

If we look at worker remittances data for the present period we come across a paradox. As the emigration wave out of Greece gained steam, workers' remmitances declined and as of now, haven't picked up.

source: Eurostat

Now, one can spin a ton of different explainers on this (new emigrants are young and don't have families of their own to support back home / due to EU-induced freedom of movement people take their families with them / since a lot of recent emigrants are highly educated their families are mostly well-off hence not in dire need of support / they barely make ends meet in their new home country so there' nothing left to send back home etc.) but in order to draw data-based conclusions  one needs detailed data which I don't have.

It is worth remarking that this is not the case in other countries of Southern Europe, which witnessed similar emigration waves these past few years. Both in Italy and Portugal, worker remittances picked up along with emigration flows.

source: Eurostat

source: Eurostat

Given the dire economic situation in Greece and the relevant historical patterns of emigration, the lack of remittances sent back home from the fresh wave of Greek emigrants seems peculiar but it might be explained by the characteristics of the households sending emigrants abroad as well as the households that the emigrants set up in their destination countries.

Sunday, 4 June 2017

More proof that Greek deflation was not due to anemic demand

These past few years we were showered with superficial analysis by celebrity economists (academic or not) who claimed that the occurrence of deflation in Greece can be blamed on the policies implemented because of the MoU.

This particular line of thinking is something found in economics textbooks and it could have very well been the case in another country where product and services markets functioned properly. But not in Greece. 

I had written another post about this in 2016 but I choose to revisit this now because of the fact that inflation in Greece turned positive again.

As I had claimed back then, inflation peaked almost 4 years after final consumption did so how can someone, in all seriousness, claim that these two incidents were directly connected? Now as far as the deflationary nature of the policies implemented is concerned I beg to differ and say that, on the contrary, some of them (like indirect taxes hikes for example) were clearly inflationary and contributed to the incidence of stagflation (and also to the higher rate of inflation that Greece experienced post-EMU accession) during the early years of the Greek adjustment program. 

Now, to stop blabbing, the reason that deflation left the building is the same that brought it on back in early 2013, a change in import prices. 

source: ELSTAT

As the chart makes rather obvious, both of the times that the inflation rate changed from positive to negative territory (and vice versa) were preceded by analogous changes in import prices. The biggest component of the import price index by far is crude oil, which accounts for 21,3% of the total, so this is the component that mostly drives headline figures. 

So, instead of generic analysis derived from first-year economic textbooks maybe, for a change, we should pay attention to facts and to the special features that make every economy different.