20150522-NATIXIS-Can_the_countries_situated_on_the_very_periphery_of_the_euro_zone__Portugal,_Greece,_Finland,_Ireland___live__normally_in_the_euro_zone__12页_968kb

Summary of FLASH ECONOMICS ECONOMIC RESEARCH No. 380 (22 May 2015)

Core Content

This FLASH ECONOMICS report examines whether the countries situated on the periphery of the euro zone — Portugal, Greece, Finland, and Ireland — can maintain a normal economic situation within the euro zone, considering their geographic disadvantage. The report highlights the challenges these countries face in balancing their foreign trade and moving upmarket in terms of productivity and income growth.

Main Questions

• Can these countries balance their foreign trade without reducing domestic demand?
• Can they attract sufficiently sophisticated economic activities to improve productivity, wages, and growth?

Key Findings

Current Economic Situation

• Ireland is the only country among the four that can balance its foreign trade without reducing domestic demand.
• Greece and Portugal are showing some progress in improving their trade balances, partly due to tourism.
• Finland is experiencing a significant deterioration in its trade balance for goods, despite a reduction in domestic demand.

Productivity and Growth

• Ireland is the only country that can move upmarket and develop more sophisticated sectors, as evidenced by its higher levels of productive investment and industrial production capacity.
• Greece and Finland are witnessing a decline in productivity, while Portugal and Ireland show some improvement.
• Finland has the highest R&D spending and a more educated workforce compared to the other three countries.

Education and Human Capital

• Ireland and Finland have higher levels of education in the labor force compared to Portugal and Greece.
• Public spending on higher education is notably lower in Portugal and Greece than in the euro zone average.
• Ireland has a more advanced structure of productive sectors, which contributes to its ability to grow and maintain a trade balance.

Tax and Competitive Advantage

• Ireland has adopted a competitive tax advantage as a means to offset its geographic disadvantage.
• Greece, Portugal, and Finland lack such an advantage and are unable to maintain a normal economic situation.
• The report suggests that extending Ireland's tax advantage to the other countries could help them balance their foreign trade and move upmarket.

Data Highlights

Trade Balance (as % of GDP)

• Portugal: Improved trade balance, driven by consumer goods and tourism.
• Greece: No sector dominance; trade balance remains weak.
• Finland: Significant deterioration in trade balance for goods, but still has a trade surplus overall.
• Ireland: Strong trade balance, even without reducing domestic demand.

Productive Investment (as % of real GDP)

• Ireland maintains high productive investment, while Finland and Portugal show declining trends.
• Greece sees some recovery in productive investment.

R&D Spending (as % of nominal GDP)

• Finland leads in R&D spending, while Portugal and Ireland lag behind.
• Greece has the lowest R&D spending.

Labour Force Education (as %)

• Ireland and Finland have higher proportions of highly educated workers.
• Portugal and Greece have a significant share of workers with less than upper secondary education.

Conclusion

The report concludes that Ireland is the only country among the four that can currently maintain a normal economic situation in the euro zone without relying on a reduction in domestic demand. Greece and Portugal are showing some progress, but Finland is deteriorating. The geographic disadvantage of these countries needs to be offset by other competitive advantages, such as tax incentives, to enable them to grow and develop more sophisticated industries. The author suggests that Ireland's model of using tax advantages could be a potential solution for the other countries.

Disclaimer

• The document is strictly confidential and intended only for professionals and qualified investors.
• It is not a financial analysis and does not comply with legal requirements for investment research independence.
• It is for informational purposes only and does not constitute a personalized investment recommendation.
• The distribution, possession, or delivery of this document may be restricted or prohibited in certain jurisdictions.
• No liability is accepted for any use or interpretation of the information contained in the document.