Pronounced economists consider the eurozone debt’s problem a balance of payments (BoP) problem. In my International Economics course, I tell the students that the BoP comprises the current account and the capital account, plus a statistical discrepancy. If this discrepancy is zero, then the capital account is equal to the current account but has a negative sign. That is, if the current account is in deficit and has a negative sign, then the capital account is in surplus and has a positive sign. Greece does not much to export and a current account deficit is a strong possibility, but it has capital inflows that make the capital account in surplus and the current account in deficit. In this case, the Greeks can spend more than they save whether at the private sector level or the government level.

The status of the BoP is usually measured in terms of the current account balance as a percentage of GDP. Usually, if this percentage is more than 4% of GDP, the current account deficit raises a red flag for the concerned country. Greece’s current account share of GD was about 8% when it joined the eurozone in 2001 which raises a red flag by any International Economics text book. In 2008/2009, this share was about 15%. Its international investment deficit position increased from about 40% of GDP in 2000 to more than 90% in 2008 [1]. Very large capital flows moved from Germany and other more wealthy Eurozone countries to Greece which increased its capital account significantly and afforded the country much higher spending that is warned by their domestic savings.

Recessions correct current account’s deficit as people and businesses start to spend much less and save much more. In this regard, Greece is no exception. Its current account deficit share in GDP is back to 8%. This seems to be the norm for Greece, whether it stays within the eurozone or exits it. The implication of this odd situation is that exiting the eurozone and letting its Drachma devalue significantly may not improve Greece’s BoP problems. Its exports which depend mainly on shipping and tourism are linked more to growth in the world economy than to its membership in the eurozone. In 1995, when the world economy was strong, Greece had an equilibrium in its current account. However, on the other side, Greece’s current membership is a problem to the other members of eurozone. Greece’s orderly exiting is to their advantage but should be indifferent to the Greeks. I do not see that exiting and devauling internally through wages and prices and externally through drachma will improve Greece's economic problems.  This is why 75% of the Greeks do not want to exit. What’s the optimal solution? This depends on whose interest is more pre-immanent.

Either way, the Greeks will have to go back whether through austerity or internal and external devaluations to their pre-eurozone standard of living which is much lower than now.

[1] P. Krugman, “Long Run Greek Competitiveness,” http://krugman.blogs.nytimes.com/2012/06/17/long-run-greek-competitiveness/