Greek Primary Surplus Myth Exposed

Greek Annual GDP Growth

Greece May Get Cruel Reward for Its Success – Bloomberg.

Despite the headline, there has been no Greek success. Greece is still running a primary deficit. The writer of this article seems to think that just because the IMF forecasts that Greece will run a primary surplus this year that it must be so. Has it not occurred to her that every IMF forecast about the Greek crisis has been wildly inaccurate to the downside since the beginning? Here’s the chart you need to see:

Greek Budget Forecast

The red line was the IMF’s 2010 forecast. After missing fantastically, it revised the figures with the 2011 forecast in green. For 2011, this forecast was off by a magnitude of three! Of course, 2013 is the magical year that the model finally works. This year Greek revenues are missing government expectations again, so the thoughts of an accurate fiscal forecast and a primary surplus are mere fantasy. Moreover, Greece is excellent at hiding its true budget deficit by not paying suppliers and managing to keep other expenses off its balance sheet. Not that a primary surplus is terribly significant anyway.

The truth is that the primary surplus does not matter in the grand scheme of the Greek debt crisis. Try telling your spouse that your household is breaking even every month if we do not include interest payments that we are making on the house, the car and credit cards. In that case, your household is still sinking deeper into debt, albeit at a slower pace. Those interest payments have to be paid somehow, and the household will be forced to finance them through additional debt.

The most interesting fact I learned from this article is that virtually all of the Greek debt maturing over the next decade is held by eurozone governments, the ECB and IMF. This makes for excellent leverage for the Greek government. Since the Greeks have the least to lose by a euro breakup, Germany and the other countries will do whatever is necessary to keep Greece within the eurozone.

Syriza is biding its time. Many reforms still need to be enacted. Why not let the current government take the blame for additional cuts and better enforcement of the tax code? When the time is right, then Syriza will make its move, and the game will begin.


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