There are errors in the computation of GDP growth in Europe
The first chapter of the drama of debt in the euro area is about whether the European Union countries may go bankrupt at all. She ended that chapter in late July, when recognized - formally - the highest authority in the European Union, Council of Europe, that Greece needed to reduce the debt obligations owed by them.But this recognition of reality does not end this drama. And will rotate the second quarter of them on the prospects for restoring growth in the countries at the periphery of the European Union, which is a more difficult challenge.The main problem here is simple: Until 2008, these countries were enjoying a vogue long relied on cheap and abundant credit, which allowed it to finance the huge deficit in the current account. But any expansion of imports would create a misleading impression of the productive capacity of the local economy.Imagine the state increase its imports, say, cars and consumer goods, 10% of its gross domestic product, the initiator. Goods are sold to local consumers through car dealers and a whole series of traders and retailers. All of these brokers do not bear the costs must be compensated the local consumer, which leads to over-estimate the size of the national GDP, statistically, because all these costs, technically, a value-added services in the field of mediation. On this, the import boom leads - also - to measure the top of truth for the growth of gross domestic product.But, what the size of the growth recorded by the gross domestic product as a result of increased imports? That retail prices are often double the wholesale price paid by the importer. This means that the local added value of imports could be worth easily. This means - implicitly - that the increase in imports of consumer goods increased by 10% of the gross domestic product could generate an increase in GDP size by 10%, too.But the opposite is true - well - When the end surge in imports, GDP falls dramatically, because the need for mediation to become a lot less. The drop in gross domestic product, despite being a natural result of the decline in imports of consumer goods, often seen as something to be avoided, because it seems like a mean - implicitly - that the output is lower than its level «possible».In the economy of a flexible full, it becomes possible to avoid the decline in gross domestic product measured (and the concomitant increase in the unemployment rate) if we rushed to the use of resources that were previously employed in the sale of consumer goods imported to generate exports. But the staff of retail shops and car dealers can not be easily transferred to the specialized staff of the owners of highly skilled and wanted in the sectors of modern manufacturing. In the case of Greece and Portugal - for example - could accommodate the tourism industry, some retailers are unemployed. But the shops and galleries can not be converted to the attractions for tourists, which will continue to absorb energy is limited to the time that elapses for the construction of new hotels, and recreational facilities, etc..If we know that the current account deficit in Greece close to 10% of GDP in 2010, this means that the low imported consumer goods of the same size will be required before it becomes possible to stabilize the external debt. But this means - implicit - More of the decline in GDP measured at about the same percentage (and another big increase in the rate of unemployment). There is no doubt that even the most resilient economy in the world could take years to convert 10% of the distribution of factors of production of imports to the export-oriented activities.The boom in the United States imports much less than in the countries at the periphery of the European Union, but the recent downward revision of GDP in the United States can be seen through the lens itself. This means that imports do not create prosperity but just economic power.
Amendment processHow long they may continue the amendment process? I have seen Germany in the post-unification boom in the import and construction, and that was the wave similar to those in the countries at the periphery of the European Union. For a few years, increased exports, and by 1995 created a large deficit in the current account. It took Germany ten years (to 2005 approximately) of slow growth to reduce capacity in the construction sector and the acquisition of a stake in the market for their export industries. But Germany at that time were not facing the effects of the accumulation of debt. May not give financial markets the euro zone such a long time.Indeed, the three small Baltic countries in the European Union offers us an alternative model: the accumulation of its current account deficit exceeded 20% of GDP during the credit boom, then saw over the past three years, a contraction in gross domestic product (GDP) exceeded 10%. But now it has been able to turn the deficit into a surplus, it has fully succeeded in adapting and was able to resume growth, albeit at a much slower compared to the prosperity of course.Is it possible to do anything to expedite the amendments in the countries situated on the periphery of the euro area? Official summed up the recipe in the «structural reform». But during a period of weak domestic demand, may lead to structural reform, in fact exacerbate the problems of short-term. Have allowed free markets work for companies in the domestic sector to separate workers more quickly, but this would not be a significant benefit in relation to encouraging existing companies to export to invest more money and create more employment opportunities, especially when the local banking system remains under pressure can not with them provision of new credit, as well as, the additional increase in unemployment would lead to increased spending on social welfare, thus increasing the need for cuts in other areas or raise taxes.The Governments of the countries located on the periphery of the European Union, including Spain and Italy, is now facing a major dilemma: it must be applied structural reforms to increase growth potential in the long run, but the price will be much greater pain in the short term. Will not end the debt crisis only when these countries prove that they realized this fact very well and I accepted the sacrifices inevitable consequences.
Daniel GrosDirector of the Center for European Policy Studies¶ ¶ Project Syndicate
The first chapter of the drama of debt in the euro area is about whether the European Union countries may go bankrupt at all. She ended that chapter in late July, when recognized - formally - the highest authority in the European Union, Council of Europe, that Greece needed to reduce the debt obligations owed by them.But this recognition of reality does not end this drama. And will rotate the second quarter of them on the prospects for restoring growth in the countries at the periphery of the European Union, which is a more difficult challenge.The main problem here is simple: Until 2008, these countries were enjoying a vogue long relied on cheap and abundant credit, which allowed it to finance the huge deficit in the current account. But any expansion of imports would create a misleading impression of the productive capacity of the local economy.Imagine the state increase its imports, say, cars and consumer goods, 10% of its gross domestic product, the initiator. Goods are sold to local consumers through car dealers and a whole series of traders and retailers. All of these brokers do not bear the costs must be compensated the local consumer, which leads to over-estimate the size of the national GDP, statistically, because all these costs, technically, a value-added services in the field of mediation. On this, the import boom leads - also - to measure the top of truth for the growth of gross domestic product.But, what the size of the growth recorded by the gross domestic product as a result of increased imports? That retail prices are often double the wholesale price paid by the importer. This means that the local added value of imports could be worth easily. This means - implicitly - that the increase in imports of consumer goods increased by 10% of the gross domestic product could generate an increase in GDP size by 10%, too.But the opposite is true - well - When the end surge in imports, GDP falls dramatically, because the need for mediation to become a lot less. The drop in gross domestic product, despite being a natural result of the decline in imports of consumer goods, often seen as something to be avoided, because it seems like a mean - implicitly - that the output is lower than its level «possible».In the economy of a flexible full, it becomes possible to avoid the decline in gross domestic product measured (and the concomitant increase in the unemployment rate) if we rushed to the use of resources that were previously employed in the sale of consumer goods imported to generate exports. But the staff of retail shops and car dealers can not be easily transferred to the specialized staff of the owners of highly skilled and wanted in the sectors of modern manufacturing. In the case of Greece and Portugal - for example - could accommodate the tourism industry, some retailers are unemployed. But the shops and galleries can not be converted to the attractions for tourists, which will continue to absorb energy is limited to the time that elapses for the construction of new hotels, and recreational facilities, etc..If we know that the current account deficit in Greece close to 10% of GDP in 2010, this means that the low imported consumer goods of the same size will be required before it becomes possible to stabilize the external debt. But this means - implicit - More of the decline in GDP measured at about the same percentage (and another big increase in the rate of unemployment). There is no doubt that even the most resilient economy in the world could take years to convert 10% of the distribution of factors of production of imports to the export-oriented activities.The boom in the United States imports much less than in the countries at the periphery of the European Union, but the recent downward revision of GDP in the United States can be seen through the lens itself. This means that imports do not create prosperity but just economic power.
Amendment processHow long they may continue the amendment process? I have seen Germany in the post-unification boom in the import and construction, and that was the wave similar to those in the countries at the periphery of the European Union. For a few years, increased exports, and by 1995 created a large deficit in the current account. It took Germany ten years (to 2005 approximately) of slow growth to reduce capacity in the construction sector and the acquisition of a stake in the market for their export industries. But Germany at that time were not facing the effects of the accumulation of debt. May not give financial markets the euro zone such a long time.Indeed, the three small Baltic countries in the European Union offers us an alternative model: the accumulation of its current account deficit exceeded 20% of GDP during the credit boom, then saw over the past three years, a contraction in gross domestic product (GDP) exceeded 10%. But now it has been able to turn the deficit into a surplus, it has fully succeeded in adapting and was able to resume growth, albeit at a much slower compared to the prosperity of course.Is it possible to do anything to expedite the amendments in the countries situated on the periphery of the euro area? Official summed up the recipe in the «structural reform». But during a period of weak domestic demand, may lead to structural reform, in fact exacerbate the problems of short-term. Have allowed free markets work for companies in the domestic sector to separate workers more quickly, but this would not be a significant benefit in relation to encouraging existing companies to export to invest more money and create more employment opportunities, especially when the local banking system remains under pressure can not with them provision of new credit, as well as, the additional increase in unemployment would lead to increased spending on social welfare, thus increasing the need for cuts in other areas or raise taxes.The Governments of the countries located on the periphery of the European Union, including Spain and Italy, is now facing a major dilemma: it must be applied structural reforms to increase growth potential in the long run, but the price will be much greater pain in the short term. Will not end the debt crisis only when these countries prove that they realized this fact very well and I accepted the sacrifices inevitable consequences.
Daniel GrosDirector of the Center for European Policy Studies¶ ¶ Project Syndicate
