Greece Is Not The Only Country Facing Severe Economic Challenges…


The media is doing a more than adequate job of covering the futile dance between the Eurozone “leaders” and Greece. But Greece is not the only country facing fundamental economic challenges. This article identifies other countries in the most dire straits and the problems they face.

Methodology Used to Select Countries in the Most Trouble

To select countries, five key indicators were selected: GDP growth rates, unemployment rates, government deficits, government debt, and current account deficits. Declining or negative GDP growth rates are often a precursor of emerging economic problems. High unemployment rates mean problems already exist. High government deficits means a country’s ability to generate additional fiscal stimulus are limited: the deficits lead to higher government debts, debts that can become unsustainable. Current account balances are the sum of trade and capital flows. Countries can only run negative current account balances until they have depleted their international reserves.

The IMF collects these data on 189 countries. For purposes here, countries with populations of less than 500,000 were dropped. Then, the 30 countries with the worst 2014 performance on each of these indicators were selected. That narrowed the list to 74 countries. The list was paired further by choosing countries that performed worst on at least 3 of these 5 indicators. That left 12 countries. Those countries along with three others facing somewhat unique problems – Ecuador, Ukraine and Venezuela – are analyzed below. Libya and Syria are not included. Their serious economic problems are primarily attributable to wars. But at least for now, Libya is still pumping oil and Syria receives substantial economic assistance from Iran.

Countries Without Their Own Currencies

Six countries in our selection use the Euro and Ecuador uses the US dollar. Situations in these countries are most precarious because without having a currency that can weaken, they can literally run out of money. Table 1 lists the six countries in trouble that do not have their own currencies. The numbers in red designate indicators where the country ranked as one of the lowest 30 countries in the IMF database.

 Table 1. – Economic Performance Indicators, 2014

Source: IMF

The countries, ranked by the size of their government debts, all have somewhat different problems. Greece is in a class by itself: 25% of its workforce is out of work and the debt cannot be sustained. But its greatest problem is that its leaders, the European Central Bank, and Eurozone officials are just sparring with no solution in sight.  Italy tends to cruise along under the radar. But it is in a recession with a growing unemployment rate and its debt burden is dangerously high. Media reports suggest that Portugal is “out of the woods”, but is it? With high unemployment and a heavy debt burden, its future is cloudy at best. Cyprus is in a free fall but does not get much attention because of its size. Spain is using deficit finance to reduce its high unemployment rate and does not yet have a high debt burden. Time will tell on whether it works. In recent years, the French economy has been lackluster and its large government deficit has gotten the attention of Eurozone officials. And its current account deficit is also problematic. On the basis of Table 1 data, Ecuador’s problems do not appear serious. Why they are will be explained below.   

In order to highlight the problems countries without their own currencies face, consider a simple example – suppose there was only one good produced by all countries. Suppose further that Germany was able to sell sold that good more cheaply than any other country. Everyone in the Eurozone would buy that good from Germany until they no longer had any Euros: in short, until they ran out of money. That is in fact what has happened to Greece and could happen to other countries listed in Table 1.

Table 2 looks more closely at these countries with data on 2014 trade balances and capital flows (as percents of GDP). The Table also includes data on international reserves standardized by months of imports the reserves would cover.

Table 2. – International Finances, 2015

Sources: IMF and FocusEconomics

The media is reporting Greece will run out of “money” in April. This illustrates why. The positive capital inflows (10.7%) in 2014 came from the ECB/Eurozone/IMF troika. If that stops with Greece’s international reserves at only 3 days of imports, Greece will most definitely “run out of money” very shortly. The capital inflows offsetting trade deficits for these other countries come from both foreign assistance and the private sector. In recent months, private capital outflows have been large. And without assistance from the troika…. And in this regard, Ecuador, using the US dollar as its currency, bears watching. The media suggests that China is providing some funding. One wonders how long Ecuador will have positive capital inflows and what will happen if they dry up….  

Countries With Their Own Currencies

Table 3 provides data on problematic countries that have their own currencies. And unlike those locked into a currency where the value is determined by other countries, these countries will get some relief as their currencies weaken. And this, in turn, will make their imports more expensive and exports cheaper to other countries.

Table 3. – Performance Indicators, 2014

Source: IMF

Japan remains an anomaly. With a much higher debt burden than any other country in the world, it is able to “carry on” because its citizens, burned by stock market losses in prior years, buy up most of its debt. It is also notable that despite massive deficit financing, the country has had little growth in the last two decades. Both Jordan and Lebanon must cope with a large influx of migrants from Syria. And both are running large government deficits, offset to some degree by foreign assistance. Lebanon has a much higher government debt burden than Jordan, while both have large current account deficits.

Jamaica is in recession (this is also true of many other Caribbean islands too small to be included here). And with high unemployment and a large debt burden, further deficit financing to stimulate the economy is not an option for Jamaica. Egypt’s numbers are also troubling: high unemployment and also a large government deficit. Having its own depreciating currency has helped Egypt by making import more expensive and exports cheaper: there were 5.5 Egyptian £s to the US $ in 2010; that has increased to 7.6 £ today.

According to the US Energy Information Administration, Venezuela has larger oil reserves than any other country in the world. Transparency International ranks it 161st out of 174 countries for economic mismanagement and corruption. And finally, there is Ukraine. Also with plenty of corruption (142 on Transparency International’s ranking) and being in a state of war, the economy is understandably declining. But even before this, Ukraine had allowed itself to become dependent on huge Russian energy subsidies. Today, it is increasingly dependent on how much assistance Russia and Western nations are willing to provide.

Table 4 provides data on the international financial situation of these countries. Despite its huge oil reserves, Venezuela has not bothered to build up any financial reserves, figuring its positive current account balances will provide all the international buying power it needs. Both Ukraine and Egypt will be helped by positive capital inflows. Egypt gets approximately $1.5 billion every year from the US as part of the Camp David Accords. 

Table 4. – International Finances, 2015

Sources: IMF and FocusEconomics

Lebanon is interesting. In 2015, its current account outflows are projected at $6.5 billion but it will still have substantial international reserves, a holdover from earlier years when it was the financial center of the Middle East.

Conclusions on What Countries Face the Most Severe Hurdles

We start by eliminating Japan and Venezuela from further consideration. Each has plenty of assets to “get by”. And among the remaining countries with their own currencies, only Ukraine stands out as facing an extremely dangerous future.

However, in looking at countries without their own currencies, all the Eurozone remain at risk. While Greece is currently getting the headlines in the Eurozone, the other 4 Eurozone countries highlighted here – France, Italy, Portugal and Spain – are in serious trouble. The most worrying point is that the Euro leaders and Greece are in denial and are not discussing what has to be done to resolve the situation. Yanis Varoufakis, the Greek Minister of Finance, recently said: “Five years after the first bailout was issued, Greece remains in crisis. Animosity among Europeans is at an all-time high, with Greeks and Germans, in particular, having descended to the point of moral grandstanding, mutual finger-pointing, and open antagonism.”

Yannos Papantoniou, the former Finance Minister of Greece, recently wrote a piece labeling the situation “unsustainable.” He went on to say to openly speculate on how a breakup might take place: “The first step in such a process would probably be the Eurozone’s division into sub-areas, comprising countries of relatively equal resilience. As it becomes increasingly difficult to pursue coherent fiscal and monetary policies, the risk of the Eurozone’s complete dissolution would grow. Greece’s exit could shorten this timeline considerably.”

I see the current Euro/Greek negotiations as futile and a waste of time. Greece should be focusing on pulling out of the Eurozone and launching its own currency. And when there is a general realization this will soon happen, other countries might follow.

And Ecuador, the country that uses the US$ as its currency? No real worry: The Chinese are interested in its natural resources.   

Disclosure: None.

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George Lipton 8 years ago Member's comment

When was Lebanon the financial center of the Middle East? Before the civil war I assume but I hadn't realized they were so influential. Fascinating.

Elliott Morss 8 years ago Author's comment

George: In the late '60s, I worked for the IMF. I would regularly stop in Beirut when on a mission to the Middle East or Africa to discuss economic conditions in those regions with finance people there. Hard to believe, but at that time, Beirut was a beautiful city with a very well-educated and sophisticated population.

Bill Johnson 5 years ago Member's comment

So how is #Greece fairing since?

Eliyahu Ben Abraham 8 years ago Member's comment

I travel to Europe, specifically to Italy and France, at least once a year and I speak the languages more or less (more French and less Italian). I make it a point to ask about the euro currency and the intelligent people whom I talk to tell me that the euro was not good for them. It made their lives more difficult. Consider: When the euro came in circa 2000, retail prices for consumers shot up. But not wages. Which left consumers/workers worse off. But people are afraid of getting out of the euro currency. It would be a disastro, an Italian friend told me. Letters in the Italian press complain about the euro too and one Italian wrote that when he went to Germany on business, even Germans were complaining about the effect of the euro on them. So the euro was a bad idea whose time had come. And now how to get out of it? Or how to force the powers that be in the Eurozone to restructure the rules of the Zone? There is no easy answer that I know of. Meanwhile, in Greece, Tsipras and others know that the euro has been bad for their country but they are even more afraid of leaving. That is the only reason that Tsipras accepted the bad deal that he got in early July to let Greece stay in the Eurozone. He and his advisors, maybe with the exception of Varoufakis, believed that leaving the euro would be worse than staying, even under the bad conditions set by the Zone.

So the Euro and its harmful impact are part of the straitjacket, the death pact, that the EU constitutes. And few know how to get off the wild rollercoaster before it goes off the rails.

Rather than making Europe stronger the euro is clearly making it weaker. And I could go on.

Tom Nicholson 8 years ago Member's comment

they told us the euro would be implemented at a 2 Dmark / euro ratio... that may have been true for our wages, but prices looked different. A beer that cost 2 Dmark almost immediately cost 2 Euros. voilà 100% price inflation overnight.

Elliott Morss 8 years ago Author's comment

To All:

It is easy to be against austerity, especially if your unemployment rate is already 25% and maybe 60% for young laborers. But it is also true that in Greece the governments, under special interest group pressures made the pensions to generous and expenditures and the expenditures to large relative to taxes. In a word, the government was pursuing an unsustainable economic path.

It also happens that almost everything needed to "reform" matters in Greece will require a reduction in expenditures and an increase in taxes. In other words, more "austerity".

Another debt default will be needed, but that will not solve the unsustainable growth path problem. As long as Greece uses the Euro as its currency and it is not as "productive" as Germany, it will again run out of Euros and again be at the mercy of the "Troika."

I was heartened to hear recently that the Tsipras government has been developing contingency plans to re-launch the Drachma.

John Paval 8 years ago Member's comment

The problem is that sovereign debt is NOT comparable to other kinds of debt. All five of these countries on the southern rim of Europe, France, Spain, Portugal, Italy and Greece, should unilaterally reschedule their sovereign debt obligations, to provide their economies room to breathe, and plow much more funding into promoting economic growth---instead of savaging their economies with "austerity" policies which KILL economic growth. Austerity has NEVER produced anything but austerity. It is the enemy of the kind of growth these countries need in order to get their sovereign debt in hand...

Eliyahu Ben Abraham 8 years ago Member's comment

Of course, John. Rescheduling, restructuring, reducing interest. But, as we see from hindsight as of 30 July 2015, Greece's creditors in the Eurozone do not allow any restructuring. That would make too much sense for the Eurozone. The German leadership, Merkel & Schaeuble and so on, think that they can squeeze blood from dry earth.

Tim Geithner reported in a book that Schaeuble was thinking that it would be good to punish Greece in order to scare the other, weak Eurozone states into following German economic policy dictates. The German delegation at the conference in Brussels got their way on most things, but not all. Their approach is more punitive than constructive. And we see that the Eurozone is moving ahead very slowly if at all. In France, the unemployment rate went up again in June, if I am not mistaken, after declining for several months.

See link re Germany & Schaeuble:

The terrible irony is that Germany itself got considerable debt relief without which the German wirtschaftswunder of the 1950s would have been unlikely. But Germany is not willing to do the same for Greece.

Firozali A. Mulla 8 years ago Member's comment

The central bank said it stopped buying foreign currency on the domestic market on July 28, the day the ruble weakened beyond the psychologically important levels of 60 against the dollar and 67 against the euro for the first time since March. The decision "indicates that the central bank is looking to strike the right balance (between) the desire to continue cutting rates and the need to keep inflation under control," said Ivan Tchakarov, chief economist at Citi in Moscow. The ruble strengthened in response to news of the move, trading at 59.5 midafternoon in Moscow. After allowing the ruble to float in late 2014, the central bank has carried out daily interventions of up to $200 million a day in the currency market to bring its gold and foreign-exchange reserves back to around $500 billion in the next three to five years. As of July 17, the reserves stood at $358.2 billion. The central bank said in an emailed comment that the suspension of interventions was caused by elevated volatility in the currency market and was in line with its earlier pledges to minimize impact of buying foreign currency for reserves on the ruble exchange rate.

Suzanne De Kuyper 8 years ago Member's comment

The Moss analysis is brilliant!