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Exposing The Reality Of The "Too Good To Be True" Greek Budget Myth

Tyler Durden's picture


Authored by Martin Feldstein, originally posted at Project Syndicate,

Recently, newspaper headlines declared that Greece would have a balanced budget for 2013 as a whole. The news came as quite a shock: Recall that when Greek officials came clean about the true state of their country’s public finances in 2010, the budget deficit was more than 10% of GDP – a moment of statistical honesty that triggered the eurozone debt crisis. It seemed too good to be true that the Greek deficit would be completely eliminated in just three years.

In fact, it is too good to be true. Any reader who went beyond the headlines soon discovered that the prediction of a zero budget deficit was in fact misleading. The International Monetary Fund was predicting only that Greece would have a zero “primary” budget deficit in 2013.

A “primary” budget deficit (or surplus) is the difference between a government’s outlays for everything excluding the interest payments that it must pay on its debt and its receipts from taxes and other charges. In the case of Greece, the interest payments apply to government debt held by Greek individuals and institutions, as well as to government debt held by the IMF, the European Central Bank, and other foreign lenders.

The overall budget deficit is still predicted to be 4.1% of Greece’s GDP in 2013 – a substantial improvement compared to 2010 but still far from fiscal balance. The difference between the overall deficit and the primary deficit implies that the interest on the Greek national debt this year will be 4.1% of GDP.

Moreover, the Greek government’s interest payments are exceptionally low. Given that its debt will still be about 170% of GDP this year, the 4.1%-of-GDP interest bill implies that the Greek government pays an average interest rate of just 2.4% – far less than the nearly 9% rate that the market is now charging on ten-year Greek government bonds.

The difference reflects a combination of the lower rate on short-term debt and the highly favorable terms on which Greece is now able to borrow from official lenders at the IMF and the ECB. If Greece had to borrow at the market interest rate on ten-year bonds, its deficit would rise by 6.5% of the Greek government debt or 11% of GDP. In this case, the overall Greek deficit would be about 15% of GDP, putting its debt on a rapidly exploding path.

Greece’s economic weakness increases the current level of the deficit. Five years of declining GDP have depressed tax receipts and increased transfer payments. The IMF estimates that these cyclical effects on revenue and outlays have raised the overall deficit by nearly 5% of Greek GDP. On a cyclically adjusted basis, Greece’s overall budget would show a surplus of 0.6% of GDP this year.

This also implies that if Greece could escape from its current recession, its national debt would decline, both absolutely and as a share of GDP. More generally, the national debt of any country grows by the size of its budget deficit or declines by the size of its budget surplus.

Even an economy with an overall budget deficit will have a declining government debt/GDP ratio if the growth rate of its nominal GDP exceeds that of its debt. For Greece, with an overall deficit of 4.1% of GDP and a debt/GDP ratio of 170%, the debt ratio would fall if the combination of inflation and real (inflation-adjusted) GDP growth exceeded 2.4%. Stated differently, now that Greece has achieved a zero primary budget deficit, its debt burden will decline if its nominal growth rate exceeds the average interest that it pays on its government debt.

Budget deficits and the resulting national debt are important not only in themselves; they also contribute to a country’s current-account deficit, which is the difference between its level of domestic investment by businesses and households in structures and equipment and the amount that it saves to finance those investments. That amount, which includes the saving of businesses and households, is reduced by the amount that the government borrows.

In the case of Greece, the saving of businesses and households exceeds the level of investment in businesses and housing by just enough to outweigh the dissaving by the government, resulting in a very small current-account surplus. Stated differently, Greece is now able to finance its current level of consumption and investment, including government and private spending, without relying on capital inflows from the rest of the world.

Looking ahead, the IMF predicts that Greece will have a gradually rising primary surplus and a gradually declining overall deficit over the next several years. But, unless Greece is able to increase its rate of economic growth, the budget will remain in deficit and the debt will remain at nearly its current share of GDP.


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Wed, 11/27/2013 - 13:10 | Link to Comment Joebloinvestor
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In other Greek news:

A Greek journalist who published a list of some 2,000 Greeks with Swiss bank accounts has been acquitted for a second time of breaching privacy.

Kostas Vaxevanis was tried last year and cleared, but in an unusual move a prosecutor had ordered the retrial.

Mr Vaxevanis says the list is the same one that was given in 2010 by the then French Finance Minister Christine Lagarde to her Greek counterpart.

Some of those named are suspected of using the accounts for tax evasion.

The names on the list are said to include politicians, businessmen and others, sparking fury among ordinary Greeks as they are hit by deep austerity measures.

In a separate development, former Greek Finance Minister George Papaconstantinou, who received the list from Ms Lagarde, has been accused of removing the names of three of his relatives.

An inquiry has now concluded that he should be tried for doctoring the list - but Mr Papaconstantinou says he has been framed.

He didn't say wether it was true or not about his relatives being on the list.

Wed, 11/27/2013 - 15:31 | Link to Comment Peter Pan
Peter Pan's picture

What they tried to o to this man makes me want to puke.
But the fact that Mr Papaconsantinou the ex finance minister (as mentioned above) has not yet been tried for removing two relatives from the list is damning of the present phoney governnent. Nor is there any mention why the wife of another ex minister has not been jailed for her undeclared income. Nor is there any explanation why the deputy PM has not been nailed to a bed of nails regarding his role in the submarines from Germany role where hundreds of millions were paid in bribes to members in his party.

Wed, 11/27/2013 - 16:26 | Link to Comment Joebloinvestor
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Oh well, everyone will forget their problems with the first F1 race in Greece.

Wed, 11/27/2013 - 19:10 | Link to Comment mjcOH1
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"Nor is there any mention why the wife of another ex minister has not been jailed for her undeclared income. Nor is there any explanation why the deputy PM has not been nailed to a bed of nails regarding his role in the submarines from Germany role where hundreds of millions were paid in bribes to members in his party."

Explanation : it's Greece.


Wed, 11/27/2013 - 13:12 | Link to Comment Dr. Engali
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Sooooooooo.....we are back to Greece again. The circle jerk continues.

Wed, 11/27/2013 - 13:14 | Link to Comment Cortez
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Just because people place dogshit in a bin doesn't actually make the park free from dogshit.

Wed, 11/27/2013 - 13:20 | Link to Comment I am Jobe
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Nothing else matters
Amerikan Metrosexuals in the making. How cute  


A Guide To The Most Impressive Men's Dress Shoe Brands For Under $350

Read more:

Wed, 11/27/2013 - 13:26 | Link to Comment Cortez
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I just presume metrosexuals are current or latent feminine homosexuals.  I have much more respect for a homosexual with a real beard than any metro.

Wed, 11/27/2013 - 13:54 | Link to Comment shovelhead
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Likes leather bars.

Wed, 11/27/2013 - 13:57 | Link to Comment Colonel Klink
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^coming from a guy named shovelHEAD.

Wed, 11/27/2013 - 13:21 | Link to Comment I am Jobe
I am Jobe's picture

Fucked up

How African-American Brokers At Merrill Lynch Won A Massive Discrimination Settlement

Read more:

Wed, 11/27/2013 - 13:24 | Link to Comment ThirdWorldDude
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Quit reading at "The IMF was predicting..."

Economic sci-fi isn't my cup of tea.

Wed, 11/27/2013 - 13:28 | Link to Comment Son of Captain Nemo
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To the citizens of Greece

We gave you more USD than you are worth and limited your "austerity" in exchange for access to your military bases.

So kindly shut your olive oil eating "pie holes"and watch us prepare to use your Country as a launching pad for World War III like every other Country we occupy in Europe and the ME.

And if you're really good and continue to mind your own business while we're using you, Uncle Sam has a special price he will offer for all your islands to the families that have held them for generations but can't pay their taxes.


Wed, 11/27/2013 - 14:45 | Link to Comment BigJim
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'their' taxes, I think you mean

Wed, 11/27/2013 - 16:33 | Link to Comment nemesis2012
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   You fucking punk. Your whole soceity would be nothing without the greek language ,drama, art, literature,etc. Anything that makes life worth living was given to you for free asswipe. You fucking barbarian ape, when you were still living in trees we were building the way fool, everyone but you know Greece was sold out by it's NWO leaders. The Greek people do not owe  this debt. The debt is fictitious so the elite of this fucking world get the assets of Greece. So go fuckyourself!!!!!!! This tHread is for the son of captain nemo

Wed, 11/27/2013 - 16:40 | Link to Comment nemesis2012
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Wed, 11/27/2013 - 17:18 | Link to Comment Son of Captain Nemo
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My profound apologies Nemesis.

Forgot to use /sarc at the end of my rant. I'm unfortunately painting this Country and what it does to sovereign Nation(s) it puts in excruciating debt for what it is.


My people came from the Peloponnese


Wed, 11/27/2013 - 13:31 | Link to Comment rvremi
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This post contains nothing interesting. What about the mean payment delay to gouvenment's subcontrators which was at 18 month one year ago (european law say it should be 20 days) ? Is it better ? If not, the "primary surplus" is just bullshit and this post also. Since the government don't its subcontrators, taxes are not paid... Does the budget include the non-payment of those taxes ?

Wed, 11/27/2013 - 13:39 | Link to Comment Son of Captain Nemo
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In the immortal words of Tevye in "Fiddler on the Roof"...

Such a Deal!

Wed, 11/27/2013 - 13:30 | Link to Comment lolmao500
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Murica, going towards civil war...

And So It Begins: New York Sending Out Gun Confiscation Notices

Register your 22LR caliber guns folks! Even BOLT-ACTION! Fucking fascist scum in NYS.

Wed, 11/27/2013 - 13:33 | Link to Comment Dr. Engali
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Wow! That's fucked up.

Wed, 11/27/2013 - 15:10 | Link to Comment WOAR
WOAR's picture

It's about goddamned time.

Somebody needs to resist that bullshit and get on the news. Let's see if law enforcement will actually follow through once they start losing guys...

Where was that quote about people in Russia going to the gulags?

EDIT: Here is the relevant quote

What would things have been like if every Security operative, when he went out at night to make an arrest, had been uncertain whether he would return alive and had to say good-bye to his family? Or if, during periods of mass arrests, as for example in Leningrad, when they arrested a quarter of the entire city, people had not simply sat there in their lairs, paling with terror at every bang of the downstairs door and at every step on the staircase, but had understood they had nothing left to lose and had boldly set up in the downstairs hall an ambush of half a dozen people with axes, hammers, polkers, or whatever else was at hand?
Part I The Prison Industry, Ch. 1 "Arrest" (p13, The Gulag Archipelago, Collins 1974)

Wed, 11/27/2013 - 13:33 | Link to Comment NoTTD
NoTTD's picture

This detailed analysis illustrates what a load of shit government stats are in general.


Greece is totally bankrupt - but it has a zero primary deficit.  Orwell would be proud.

Wed, 11/27/2013 - 14:05 | Link to Comment sparkmaster
sparkmaster's picture, two....testing

Wed, 11/27/2013 - 15:22 | Link to Comment Peter Pan
Peter Pan's picture

The primary surplus is a load of, in fact two loads of, BS.
What they don't tell us s the number of unpaid bills not taken iinto account and I suspect that the local governments are also in trouble.

I am told there are business people and people who have provided services to government who have not received payment but are required to declare that "earned" income and pay tax on it without being able to offset the tax paable against the money owing to them by the government.

Good luck Europe with trying to turn a sow's ear into a silk purse and my condolences to Greece for burying their sovereignty, their young and their old.

Wed, 11/27/2013 - 15:44 | Link to Comment pashley1411
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I find it amusing that someone would actually need a list of names in order to determine if there is political and business corruption.

 Hell, I don't have a special list, and yet I can rattle 535 names involved in corruption in America with no effort at all.  

Wed, 11/27/2013 - 16:31 | Link to Comment nemesis2012
nemesis2012's picture

                      For all the fucking retards here who don't know anything about how the world works,I'd like to say a few things. The Greek NWO politicians are the ones who sold out Greece, in order for the elites to seize the huge oil and gas reserves that have been discovered in 2008. Secondly, the debt was adjusted arbitrarily  upwards from 9 to 15% ogf GDP by the traitorous Papandreou govt.  All this was decided at a Bilderberg meeting just before Greece's crucifixion.

                        So for all of you idiots who don't know shit, don't try to bash Greece. Go after the NWO. AND BY THE WAY, YOU WILL BE NEXT..................

Wed, 11/27/2013 - 23:28 | Link to Comment Hedgetard55
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The Greeks gave us homosexuality, so they should be commended for showing Ben and Janet just what to do to us.

Thu, 11/28/2013 - 04:02 | Link to Comment nemesis2012
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                                 Go on beleiving what the Jewish media tells you about ancient Greece. For your information knownothing if you were a homosexual in ancient Athens you could not vote or hold any kind of public office. Furthermore you were banned from the armed forces,so basically you were fucked. Now if you want to beleive that shit the Jews spout out, go ahead. But the truth is the truth, do some research and read ancient Greek historians like Arrianos before you mouth off. Maybe just maybe you'll learn something................

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