Services, Total Trade Balance and Export Market Shares

M

S

As to trade in services, the picture is roughly the mirror image of the goods trade since most of the deficit countries in goods trade have rec-orded surpluses in services’ trade (see Table 1.2). In the aggregate, the net export of services has been positive in the euro area since 2003. The main net exporters have been (i) Luxembourg, which passed from 25.5% of GDP in 1999 to over 50% at the end of the last decade, with further increases in 2012 and a slight adjustment during the last year, due to its competitive advantages in the supply of financial services; (ii)

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three years over 20% of GDP); (iii) Greece, with values above 6% after the entry in the euro area and two peaks in 2005 (8%) and in 2013 (9.8%), in particular thanks to tourism and related service activities and to maritime transports; (iv) Portugal whose surpluses increased in 2007, remained stable for three years, and then recorded a further im-provement reaching 6% in 2013; (v) Austria, which recovered in the last six years the surplus position (around 5% of GDP) that it had had before the construction of the euro area, and Slovenia which slowly improved its net positive position after its entry in the EMU, reaching a surplus above 5% both in 2012 and 2013; (vi) and finally Spain, whose surplus-es increased immediately after the construction of the euro area (1999-2003), remained stable (around 2% of GDP) from 2005 to 2009, and in-creased in the last four years until the 4% of GDP in 2013.

Cyprus too was one of the main net exporters of the EMU as to trade in services. Its preexisting surpluses (around 20% of GDP) have been slightly affected by the participation to the euro area until the beginning of 2013. During the last year the country went through a severe banking crisis which flowed into a “bail-in” process towards banks’ shareholders, bondholders, and depositors (over 100,000 euro).⁵ Nevertheless, until the end of 2013, Cyprus’ net position in services’ trade has been practi-cally unaffected.

With the exception of Ireland, whose deficit in services trade was above 11% of GDP in 1999 and 2001 and has recently turned into a sig-nificant surplus (2% of GDP in 2012, and 3.7% in 2013), and partially of Germany, the other surplus or deficit countries showed values of ser-vices’ balance below or around 1%. The Irish case is peculiar. Its previ-ous massive services deficit was mainly due to the insurance and finan-cial activities, which were (and still largely are) at the core of Irish eco-nomic specialisation but which were not accounted as domestically cre-ated services since they belong to multinational companies enjoying

5 The structural determinants of this crisis were the foreign overinvestment in the financial assets (particularly, in deposits) issued by the Cypriot banking system. In its turn, this overinvestment was due to the very high interest rates paid on banks’ depos-its, and to the low corporate taxation on the financial returns (often based on specific bilateral agreements, such as the fiscal treaty with Russia).

IN SEARCH OF A NEW EQUILIBRIUM.ECONOMIC IMBALANCES IN THE EUROZONE

specific fiscal arrangements; recently the collapse and the related “bail out” of the Irish banking sector, its restructuring and the consequent re-action of the multinational financial companies implied the just men-tioned severe adjustment in Irish services’ imbalances. At a minor scale and for different reasons, also the German case is peculiar. In the mid-Nineties Germany was a net importer of services and its deficit position increased after the construction of the euro area. However, during the years 2001-2010, Germany reduced its deficit in services balance by more than 2 percentage points bringing it to 0.5% of GDP; and from then on this deficit has remained stable.

These figures show that, leaving aside the Irish case, services balanc-es have not changed a lot during and after the crisbalanc-es.

Table 1.3 synthesizes the figures of Tables 1.1 and 1.2 by reporting the aggregate balances of goods and services for each Member State of the EMU. As we already stressed, the opposite signs of goods and ser-vices balances mitigate trade imbalances inside the euro area. In partic-ular, it must be noted that in the recent years the structural deficit posi-tions of Greece, Spain, Portugal, Cyprus, and Malta marked a significant improvement. Despite a deficit in goods’ balance still around 10% of GDP, in 2012 and 2013 Greece reduced its negative balance to -2.3%

and -0.2% respectively; and despite a deficit in goods’ balance around 5%, Portugal got a substantial equilibrium in its total trade in 2012 and it reached a positive total balance in 2013. An analogous change in the sign of the total balance of trade has been obtained by Cyprus. On the other hand, Malta and Spain carried out a positive total balance since 2010 and 2012, respectively: in 2012 Malta’s surplus had a peak of 7.3%

of GDP, and in 2013 Spain’s surplus was very close to 3% of GDP.

In Austria the overall net trade is positive thanks to the services sec-tor, while in Germany and the Netherlands the overall balance is mainly the reflection of trade in goods. In any case, due to the fact that the ser-vices balances did not change so much during the recent crises, Table 1.3 supports the main result reached by analysing the figures of Table 1.1:

the severe economic recession, which has mainly affected the peripheral Member States in the EMU during the last four/five years, has forced a significant adjustment in the trade imbalances inside the euro area.

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shows the evolution of EMU’s export shares in the international market.

On average, almost all the EMU countries have lost importance in the in-ternational market because of the rising contribution of emerging econ-omies – with China and India on top – in world trade. However, there were significant differences in the performances of the various Member States. As far as the three biggest countries of the euro area (that is Germany, France, and Italy) are concerned, the decline started in mid-Nineties. During the period 1994-1999, Italy had the worst performance after Austria in the monetary area under construction; but also France and Germany experienced a decrease in their shares. At the opposite, some small countries (such as Ireland and Greece) carried out a strong increase in their shares. Then, in the first period after the introduction of the euro (that is, between 1999 and 2007), France and Italy suffered the highest losses: the former passed from 5.4% to 4% and the latter from 4.2% to 3.5% in terms of international market share. Also Portugal, the Netherlands, and partly Finland experienced a decrease in their shares. Over the same period the Spanish and Irish shares kept substan-tially constant; on the other hand, Germany increased its market share by 0.3 percentage points and approached its market position of the mid-Nineties, whereas other small Member States (such as Luxembourg and Greece) recorded significant improvements.

Since the international financial and real crises, almost all the EMU’s countries have seen their contribution to world export substantially re-duced, with the only exception of Estonia (see Figure 1.11).⁶ The fall of the remaining sixteen countries was, in many cases, far below the threshold set by the MIP (see Chapter 5 for more details). Luxembourg, Spain, and Portugal suffered the lowest losses (above 6% but below 7.5% of GDP); and Germany, the Netherlands and France experienced a decrease in their market shares below 10%. At the opposite, the highest falls were recorded by Finland (-29.9%), Greece (27.3%), Cyprus (-27.2%), Italy (-17.8%), and Austria (-17.1%).

6 This applies also to Slovakia which entered in the euro area since 2009. However, it must be noted that this country recorded an outstanding improvement (118% of GDP) in its export shares in the international market during the period preceding its entry in the euro area and suffered a slight decrease (2.2%) in the period that follows.

IN SEARCH OF A NEW EQUILIBRIUM.ECONOMIC IMBALANCES IN THE EUROZONE