Greece May Get Cruel Reward For Its Success
February 18, 2013 3 Comments
Greece reported recently that it has reached a primary budget surplus, the Holy Grail of austerity, meaning that once you exclude interest payments on the country’s massive debts, the country is finally taking in more revenue than it spends.
This news should be worthy of a ticker-tape parade, after three years of Draconian retrenchment and a partial writedown of privately held Greek debt. Cruelly, however, the main beneficiary of a return to primary surplus may not be Prime Minister Antonis Samaras and his pro-bailout government, but the main opposition Syriza party, which is pushing for the country to refuse further austerity measures and declare a moratorium on its debt payments.
In reality, the Finance Ministry was premature with its announcement. It said the government reached a non-consolidated primary surplus in 2012 — but on a consolidated basis the country still ran a small deficit. Plus, the calculations exclude any IOUs the government has run up, of which there are many, particularly from the second half of last year when Greece waited for delayed bailout funding and had no other way to pay its bills.
Still, the International Monetary Fund says Greece will probably reach a true primary balance this year, a genuine achievement made at enormous cost, if you recall that Greece started the crisis in 2009 with a primary budget deficit of 10.7 percent of gross domestic product. Bringing that figure down to zero is all the more impressive given the government’s slow progress in tackling tax evasion and that Greece is in an economic depression. As a result, the vast majority of the fiscal adjustment has had to be made through severe cuts in spending.
Now Greece should be able to reap its reward. Yet one benefit that economies suffering a debt crisis normally gain from reaching a primary surplus will be unavailable, due to the nature of the debt relief that Greece has received to date.
To read the rest of this piece, see the original version posted on Bloomberg View.