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Portugal stands out as largest euro success story so far

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Czarek Sokolowski/AP

(Read caption) A Portugal fan celebrates during the public viewing of the Euro 2012 soccer championship quarterfinal between Portugal and the Czech Republic at the Fan Zone in Warsaw, Poland, Thursday, June 21, 2012. He has something else to celebrate. So far, Portugal has shown strong economic improvement, as compared to its fellow indebted eurozone countries.

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The perhaps best indicator of whether the more indebted euro area countries are really making progress in reducing its reliance on foreign loans is the change in their current account balances. So far this year, Portugal stands out as the country making the biggest improvements, while neighboring Spain is seeing the smallest improvements. Portugal had during the first four months of 2012 a current account deficit of €1.41 billion, compared to €4.1 billion in the same period in 2011.

This means the deficit is down to roughly 2.5% of GDP, a sharp reduction from the more than 10% of GDP it had as late as 2010. Italy, saw its deficit decline by 46%, from €27.8 billion in January-April 2011 to €15.1 billion in the same period 2012. The Italian deficit is equivalent to roughly 3% of GDP. Greece saw its deficit decline by 40%, from €9.4 billion in January-April 2011 to €5.6 billion in January-April 2012. Its deficit is however still equivalent to more than 8% of GDP, and even if you adjust for the fact that its deficit for seasonal reasons is traditionally bigger in the beginning of the year, we are still talking about a deficit of around 5% of GDP, which is of course far too high.

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Spain hasn't released its April numbers yet, but in the first quarter, its deficit fell by just 12%, from €16.85 billion to €14.85 billion. Adjusted for seasonal effects this is equivalent to a deficit of about 3% of GDP. So while we're seeing improvement in all countries, it is insufficient, especially in Greece and Spain, while Portugal has made the biggest progress. What about Ireland? Well, its statistics lag the most of all, as it won't release even first quarter numbers until Friday next week. But Ireland eliminated its deficit already last year.