Three countries, three scales

(… a bit like three weights, three measures …)

I'll go back to yesterday's discussion and go into a little more detail.

Meanwhile, let's talk about "balance" of payments because in English the balance of an account (the difference between active and passive items) is called balance . The "balance" would therefore be the balance between payments received and those made by resident operators to and from non-resident operators. Just calling it balance would help, the barbarisms are not just an aesthetic damage, but peace: we now have this and we keep it.

Payments may concern:

1) goods (wheat, iron, etc.);

2) services (tourism, transport, etc.);

3) primary income (i.e. deriving directly from work, financial activities and natural resources, therefore: wages, interests or dividends, annuities, etc.)

4) secondary income (i.e. deriving from the redistribution of income, and therefore: taxes, social contributions, remittances from emigrants, etc.)

The Eurostat database reports everything in great detail , but in the meantime I'll show you the macro picture, so you can immediately get an idea. In alphabetical order:

Explanation follows.

The blue line is the overall current account balance and is the algebraic sum of the three vertical bars which are respectively the "goods and services" balance (GS), primary incomes (PI) and secondary incomes.

Let's start with the blue line, which tells us the story we know. In France the foreign balance progressively worsens, passing into negative territory in 2007, in Germany it is always positive, in Italy there has been a reversal : first it was negative and was falling, then it rose until 2019, then it fell with the crisis and now it's going back up.

There are other quite intuitive things: a country which, like Germany, is in a structural surplus, and therefore exports capital, obviously has a positive primary income balance (the interest and dividends on capital exported, i.e. lent, invested, abroad exceed those paid abroad on capital invested in Germany). Germany has "imported" a lot of manpower, and it is therefore normal for secondary incomes to be negative (remittances from Turkish, Syrian, etc. immigrants leave the country).

This, if you notice, also happens in Italy. After the 2012 reversal , the country goes into a strong surplus, accumulates credits and decumulates foreign debts, and therefore after a while a positive balance of primary incomes appears (around 2016).

What is truly anomalous is the staggering level of France's primary (positive) and secondary (negative) income balance, which makes trade dynamics in the strict sense rather irrelevant.

The detail of the balance of primary incomes is this:

The components are all positive, except investment income (II) in the year 2002 only. The other components, i.e. remuneration (CE) and other primary income (OP, negligible) are always positive. The most important component is by far the investment income (II), which we can detail further, in the hope of understanding why a country with an increasingly impressive net foreign debt has positive and increasingly impressive net investment income.

The answer is rather intuitive, even for those who don't already know:

Investment income (II, investment income ) is pulled down by portfolio investments (mainly interest paid on debt securities, gray bars), but is pulled up by direct investments (mainly dividends received on companies held abroad, orange bars ), while the other investments (OI, yellow bars) do not show a clear trend.

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This is a machine translation of a post (in Italian) written by Alberto Bagnai and published on Goofynomics at the URL https://goofynomics.blogspot.com/2024/12/tre-paesi-tre-bilance.html on Mon, 09 Dec 2024 20:16:00 +0000. Some rights reserved under CC BY-NC-ND 3.0 license.