Since I am really not well versed on Greek finances, I’ve been looking at the numbers. The bottom line is that debt forgiveness will help the Greeks, but not by a whole lot this year. They just do not have a lot of money to spend.
The Greek state ran a primary surplus of 1.2%, according to the Ministry of Finance. This is rather less than the 4.5% target for 2016. It is even less than the 1.5% that the IMF projected for 2014.
Greece needs to make interest payments of 2.9% of GDP in 2015, assuming zero growth. It also needs to make principal payments worth 8.6% of GDP. Greece will receive payments from the ECB via the Outright Monetary Transactions program (formerly the Securities Market Programme) worth 2.2% of GDP.
Upshot: unless there is growth in tax revenues (good luck) the country will have only 0.5% of GDP to use for stimulus. (1.2% primary surplus + 2.2% from the ECB − 2.9% interest = 0.5% total balance.) That assumes that all of its principal due is rolled over or refinanced.
On the other hand, the Greeks still do not have a whole lot of room for manuever. A full default would net them only 1.2% of GDP and even that would depend on default being orderly. Moreover, their primary surplus jumps around a lot, so they will still need a lot of short term borrowing to keep the lights on.
In numerical terms, the whole battle is over 0.7% of Greece’s GDP.
Of course, that isn’t really the battle. The Greeks want two things (1) independence from Brussels/Frankfurt/Berlin and (2) avoiding the further spending cuts and tax hikes that the troika wants for this year. Much more austerity would be needed to hit the 3.0% primary surplus the troika demands for 2015.
It would seem to me that it would not be terribly hard for the Germans Europeans to relax the austerity targets for this year and next. No need for write-downs or anything that would disturb a cranky German voter. In fact, it would seem to be easy to concede 0.7% of GDP to the Greeks in a way designed to avoid offending German sensibilities. But instead we are in full fire drill mode. Why? Is the answer really only that the Greeks have been too loud about asking?
Nobody?
Posted by: Noel Maurer | February 16, 2015 at 10:09 AM
I am watching and learning.
Posted by: Will Baird | February 16, 2015 at 07:36 PM
Maybe it is to discourage other euro-peripheral countries from asking in the way that the Greeks have now been asking and from asking too loudly? Maybe the Germans and others who wish to continue to push for austerity reforms would rather not have the Spaniards, Portuguese, Irish and Italians thinking "well look at how Greece managed to get the terms changed...hmmm..maybe we should try that!"
Couple that with the fact that the ECB could put Greece in a kind of "penalty box" as Dan Davies puts it in your previous blog post on Greece without really risking a Grexit and all the trouble and pain that would entail..and this could be why we are in full fire drill mode. It could even be that Merkel wouldn't mind if Greece ended up in "the penalty box" since that would really drive home the point to other peripheral countries that pushing back in the way Greece has WILL have consequences and not the doomsday consequences everyone in the media prattles on about but some serious consequences for the peripheral countries without the massive pain for the core countries that a euro breakup would entail...
Posted by: J.H. | February 17, 2015 at 09:24 AM