How much of the Greece trade deficit reflects into it's public debt? Each year, Greece is importing about two times as much as it's exporting. In some years, even three times more. How much of that is converted into public debt?

Assuming that the Greek citizens and companies are not sitting on large amounts of cash reserves to afford to spend double the money they make and they can't make such huge credits to cover such expenses (and that looks very much to be the case), the only way to cover that deficit that I can think of is this: The government doesn't have enough money to pay the people working in the public sector, then it borrows money from external creditors, making public debt, then it pays the wages of those workers, and then the workers buy imported goods and at the end of the year, Greece imports more than it exports. And then it's the public debt that supports/fuels that huge trade deficit.

I can't imagine another way of having trade deficit than having reserves or by making private or public debt. But maybe there are such ways and that's why I'm asking.

Later edit: I managed to squeeze another example out of my brains: The Greek ship owners (who don't pay taxes) make such huge profits that they can afford to import materials and technology that's worth 35 billion Euro each year, so they can build more ships for their business. They build the ships and they keep them, doing a lot of imports and no exports. But that works only if their shipping services do not count as exports.


1 Answer 1


As an accounting identity, it is required that the current account surplus (deficit) + capital account surplus (deficit) = 0. This is known as the balance of payments (BOP) identity . So if Greeks are importing more Euros worth of goods and services than they are exporting it must be that, consolidating across those outside of Greece, non-Greeks are buying more Euros worth of Greek assets than they are selling.

However, this accounting identity says nothing about who in Greece is selling and who outside of Greece is buying. It need not be that the government is involved at all. If the Greek government borrows more than before the household sector might offset this greater borrowing more than one for one with greater savings (BOP decreases), exactly offset (no change in BOP), partially offset it (change in balance of payments less than increase in government spending), or also borrow (increases in BOP more than change in government spending).

  • $\begingroup$ Now I realize the question is wrong. I should have asked "How much of the Greece's external debt.." instead. Thanks for answering anyways. $\endgroup$
    – Joe Jobs
    Apr 3, 2019 at 7:59

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