Gaps Worth Billions in the European Balance of Payments

The head of the ifo Center for International Economics, Gabriel Felbermayr, has urged Europeans to strive for order in their current account statistics with the US. “The US statistics on its current account with the EU differ significantly from the comparable European statistics”, he said, basing his comments on an article he co-authored for the EconPol Europe research network. “The differences go so far that the US has a current account surplus of $14 billion with the EU (about €11.6 billion) for 2017, while the EU posts a European surplus of €170 billion in 2017. Something is wrong here, and most likely on the European side, unfortunately.”

Felbermayr concluded: “All in all, the analysis shows that the EU has a very good negotiating position with the US, because when taking an overall view of transatlantic trade, there is certainly no evidence of “unfair trade practices”. The EU thus has every reason to act with self-confidence. This also includes targeting America’s surpluses in trade in services when considering – hopefully unnecessary retaliatory – measures.”

European data are “contradictory and incomplete”, Felbermayr added. “Even when asked, Eurostat is unable to explain how it derives its balance of payments data with the US, nor is it willing to publish details for the 28 EU member states. In turn, the European Central Bank (ECB), which is actually responsible for collecting these data, is unable to show a bilateral current account with the US because there is no subaccount, the data collection for which is too complicated. But precisely this account is crucial: in the corresponding US account, $83 billion is booked under “income from portfolio investment”. So if the relevant ECB data is lacking, how does Eurostat arrive at its results? And who benefits from hiding the $83 billion that are crucial to whether the US has a surplus or deficit vis-à-vis the EU?”

"The US makes its investment profits in very few EU member states", according to co-author Martin Braml, "and this is largely for tax reasons. Especially Ireland and the Netherlands stand out here. With the Netherlands, the US generates as much as 63 percent of its total primary income surplus of $106 billion.”

When asked, the Bundesbank is indeed able to report all bilateral balance of payments positions of the Federal Republic of Germany with the United States”, Felbermayr observed. "The Bundesbank data also tend to agree with the American data. As long as the EU is unable to provide consistent data on economic relations with the US, recommendations for possible retaliatory action can only be insufficient."

"There are good reasons to trust the US data. In the US, there is a uniform, statistical data-collection framework, whereas data in the EU are calculated from of 28 sources, some of which are incomplete. Also, in the current trade dispute with the EU, the US is not interested in showing a balanced current account, while the EU has a tradition of emphasising the benefits of surpluses."

Publication:

Gabriel Felbermayr and Martin Braml, On the EU-US Current Account, EconPol Policy Report 7, May 2018.